A federal court ruling involving a horse racing daily fantasy sports site could have implications for the wider DFS industry from an optics standpoint, if not legally.
Horse racing DFS, at a glance, and the court case
A relatively niche section of the larger DFS industry deals with horse racing. That has largely taken place via a site called Derby Wars.
The difference between fantasy for horse racing and other sports, of course, is that there is already an established industry in the US with a federal law (the Interstate Horseracing Act) that clearly oversees gambling on races. (Paid-entry fantasy sports, as a larger industry, exists largely because of a carveout in the Unlawful Internet Gambling Enforcement Act, or the UIGEA.
In the court case in question, horse racing interests, led by the Stronach Group, are claiming Derby Wars is operating in violation of the IHA. A federal judge in the Central District of California agreed, saying Derby Wars had been operating as an off-track betting business, as reported first by the Paulick Report.
You can see the full ruling here.
The horse racing industry has long been leery of unlicensed DFS for horse racing as competition, as evidenced from chatter in New York during debate of a DFS bill eventually enacted into law.
DFS = betting, not entry fees?
The more interesting part of the case is the court’s ruling on language used to describe DFS.
The industry has long asserted that it is not gambling, or betting, and is instead a game of skill with “entry fees.” This is a matter of contention in a number of states, and some attorneys general have disagreed with this via their gambling statutes. A dozen states have clarified that DFS is not gambling under their laws.
One of the root issues in the case is whether Derby Wars is offering a form of gambling. The judge in the case agreed that players are placing wagers at the site:
…the Court agrees with Plaintiffs that Derby Wars entry fees are more akin to the wagers which form the “pot” in poker. … Derby Wars entry fees constitute a wager …
This is interesting as there have been few court rulings as to the legal status of paid-entry fantasy sports.
What lawyers say about the ruling vis a vis DFS
What does this mean for the larger DFS industry, if anything? The case, after all, is about the Interstate Horseracing Act, and not the overall legality of DFS.
Lawyers that Legal Sports Report spoke with had varying takes on its application beyond horse racing.
Narrow ruling on horse racing?
Here’s Jessica Feil, an attorney with gaming firm Ifrah Law:
“This holding, while taking a broad view of the types of wagers subject to the IHA and what constitutes a wager, is still completely confined to the horse racing industry,” “The authority to regulate the Derby Wars’ entry fees comes from the fact that the IHA regulates all wagers on horse races taking place in a state different from the place of the wager.
“While this may appear to be an expansive reading of the term wager, the DFS industry does not need to be concerned. It is only because the entry fees in Derby Wars were on horse races that any laws came into play – specifically the IHA. Wagers placed in fantasy leagues for football, baseball, golf, soccer would obviously not be subject to the IHA.
“Even through Derby Wars structure is similar to various DFS operators, it was the subject of their wagers that created the problem. It would take an extremely broad reading and expansion of this opinion to apply it to the rest of the non-horse racing DFS industry.”
Possible impact on DFS
Others left a little more wiggle room.
“As an Interstate Horseracing Act case, it is unclear what impact, if any, this new decision will have on DFS legality,” Ryan Rodenberg, an associate professor at Florida State University, said. “Gambling on horse races has a unique legal history. For example, the activity is specifically exempted under PASPA. As such, the case could be distinguishable for DFS moving forward.”
Sports law attorney Daniel Wallach believed the ruling could have an impact outside of horse racing.
“This decision is significant, and, if upheld on appeal, could impact daily fantasy sports operators even outside of the horse racing context,” Wallach said. For one thing, this is the first U.S. court decision to hold that DFS entry fees constitute a ‘bet’ or ‘wager.’ ”
“This could have serious repercussions for the DFS industry in other lawsuits, especially those pending in Illinois, Massachusetts, New York and Texas, where those courts are also confronted with the similar question of whether DFS constitutes a form of gambling, betting or wagering,” Wallach continues.
No matter the legal repercussions…
Whether you believe that the ruling has an impact on DFS sites like DraftKings and FanDuel, it’s clear this isn’t the best development for the industry.
The industry pushes back at any assertion that is at all akin to gambling. The judge in this case, even if only through the lens of the IHA, determined that DFS is wagering. People who want to say that DFS is gambling can use this as anecdotal argument, if not an entirely legal one.
If nothing else, we can add the ruling to the list of reasons why the DFS industry wants to gain explicit legal clarity everywhere it can.
