A US federal judge in California dealt a major blow to the fantasy horse racing industry this week by ruling that fees collected by these operators are actually wagers.

It’s a huge win for California’s politically influential horse racing industry, but could be a major setback for the US-facing daily fantasy sports industry as a whole.

The case was brought to court by the Stronach Group, a California-based race track operator. In its complaint, the Stronach Group suggested that a site called Derby Wars, which was operated by Horse Racing Labs, was in violation of the Interstate Horseracing Act (IHA) of 1978 by accepting money from bettors.

Under the terms of the IHA, any operator who conducts business in this manner is, essentially, running an off-track betting operation (OTB) and must pay commissions to local track operators. (This also illustrates how powerful the horse racing industry lobby can be.)

Not surprisingly, Derby Wars balked at this argument and claimed that their operation was perfectly legal. Their attorneys cited the fantasy exception in the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) as a legal defense.

Judge James Otero of U.S. District Court for the Central District of California was not buying any of it. In his decision, he made his point clear saying:

Having determined that Derby Wars entry fees constitute a wager, where such wagers are placed with Derby Wars in Kentucky, with respect to the outcome of a horserace, or series of up to six individual horseraces, as the case may be, taking place in California, Oregon, Maryland, and/or Florida, and where such wagers are received over the Internet, the Court concludes that (Derby Wars) are operating an off-track betting system subject to the Interstate Horseracing Act.

What sort of impact his ruling might have on the emerging daily fantasy sports business remains to be seen. Horse racing is definitely a different animal than your standard DFS, but the law is a strange beast.

For its part, the Stronach Group acknowledged public demand for fantasy horse racing and left the door open to working with Derby Wars in the future.


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