Stronach tracks launch lawsuit

For the first time in the U.S., racetracks are taking legal action against a horse racing contest site.

On Dec. 2 racetracks owned by The Stronach Group filed a federal lawsuit against the operators of the daily racing contest site DerbyWars, claiming that the site is operating unlawfully in using Stronach track races for its contests without compensating the tracks. In the suit filed in U.S. District Court, Central District of California, the Stronach tracks argue DerbyWars is hurting their business and the tracks are seeking monetary damages in an amount to be determined at trial.

Racing contest Internet sites have flourished in recent years, offering players a chance to compete against other players in selecting the winners of races at tracks throughout North America. The contest sites have come up at a time that daily fantasy sports sites, which claim they're legal as games of skill, have operated without scrutiny, until recently, from law enforcement.

Horse racing contest sites also can make the argument that the Unlawful Internet Gambling Enforcement Act carved out an exception for horse race wagering, although most interpret that exception to apply to licensed pari-mutuel wagering. The Stronach lawsuit claims the UIGEA horse racing exception only applies to pari-mutuel wagering and that outlets that offer wagering on tracks can only do so after they reach agreements with the host racing association, the local horsemen's group, and regulators. The Stronach tracks say no such agreements are in place with DerbyWars, which is owned by Horse Racing Labs LLC.

Daily fantasy sites found legal room to operate after courts ruled that yearly fantasy contests were within legal bounds as games of skill -- similar to a bowling league that may have prizes. Daily fantasy sites, which pay out winnings based on selections of players in sports contests, have used these legal decisions to operate, although this year daily fantasy sites have drawn more scrutiny from law enforcement and lawmakers.

DerbyWars, which launched in 2011, markets itself as a fantasy competition. DerbyWars has some acceptance in the industry. For instance Hawthorne Race Course currently conducts "survivor" contests at DerbyWars and the site awards seats to the National Handicapping Championship.

The DerbyWars website lists former Chruchill Downs Inc., Harrah's, and Youbet.com executive Mark Midland and Mike Shutty, who has a background in direct marketing, as founders. Midland forwarded a statement saying DerbyWars operates legally and helps bring new customers to racing.

"We are in receipt of the Stronach Group's lawsuit but find the claims without merit and our attorneys are handling this matter," the statement read. "With DerbyWars, we have seen first-hand the ability of contests to create new fans and re-engage old ones. Horse Racing Labs, the parent company of DerbyWars, was founded to create new ways to grow horse racing."

The statement included a quote from Midland: "I have dedicated my entire career to advance the sport of horse racing. This passion and love for the sport is shared by our entire team."

The statement continued: "As the industry has acknowledged time and time again, the sport is in dire need of new ideas and innovation to ensure growth for the future.

"More than 70 million Americans are participating in fantasy sports, and contests are an opportunity that needs to be explored for horse racing. Horse racing has already seen promising results from the $2.5 million National Handicapping Tournament and other contests which serve well as marketing tools for the sport. The claims in the lawsuit serve to call into question all contests in horse racing.

"DerbyWars is enthusiastic about the track partnerships in place and we look forward to working with more tracks over the coming months in new and exciting ways that create wins for the tracks, fans and the entire sport."

The complaint filed by the racing associations of six Stronach tracks: Santa Anita Park, Golden Gate Fields, Gulfstream Park, Portland Meadows, Laurel Park, and Pimlico Race Course did not offer any reason why DerbyWars was singled out among several tournament sites currently operating. Richard Specter, the attorney for the Stronach tracks, was not immediately available for comment.