The relevance of a court’s finding that daily fantasy sports for horse racing involves the taking of “wagers” is in question for the rest of the DFS industry.
But that’s not going to stop lawyers from trying to leverage it.
NY DFS and horse racing?
So how does all of this intersect?
Earlier this month, a court ruling came down in Los Angeles Turf Club v. Horse Racing Labs, LLC. At issue in the federal case is whether Derby Wars — a DFS site for horse racing in the vein of DraftKings and FanDuel — runs afoul of the Interstate Horseracing Act (IHA).
The interesting part of that ruling is that the judge found that the entry fees for competing in Derby Wars contests constituted “wagers.”
The plaintiffs in the DFS case currently in the NY State Supreme Court argue that a 2016 law regulating the industry violates the state constitution, as any new form of gambling must be authorized via an amendment to the constitution. (The DFS law is just a statute; it did not amend the constitution.)
That’s an argument that NY lawmakers and DFS operators reject. The DFS law defines fantasy sports contests as games of skill and not gambling.
Here’s the relevant part of the NY state constitution:
No law shall be passed… except as hereinafter provided, no lottery or the sale of lottery tickets, pool-selling, bookmaking, or any other kind of gambling, except lotteries operated by the state …except pari-mutuel betting on horse races … and except casino gambling at no more than seven facilities as authorized and prescribed by the legislature shall hereafter be authorized or allowed within this state…
The argument that ‘Derby Wars’ applies
Even though the Derby Wars case largely turns on the IHA, lawyers for the parties challenging the NY DFS law argue that the case matters here, as well.
A letter that counsel for the plaintiffs sent to the judge in the case, cited part of the finding from Derby Wars:
Against this backdrop, the Court agrees with Plaintiffs that Derby Wars’ entry fees are more akin to the wagers which form the “pot” in poker. (citations omitted) Although there may be instances where the number of players in the contest is lower than the maximum number of players allowed to play, where the race “fills” the contestant’s payment of entry fees subsidizes the “pot” that Defendants calls its fixed prize (citations omitted).
The prize does not accumulate over time, and distribution does not depend solely upon the fortuity of a random event, but rather is fixed and guaranteed to contest participants upon submission of their wager (Derby Wars entry fee) and earning more points than the other contestants earn by virtue of their superior selection of horses (citations omitted).
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 horse race, or a series of up to six individual horse races, as the case may be … and where such wagers are received over the Internet, the Court concludes that Defendants are operating an off-track betting system subject to the Interstate Horse Racing Act.
Counsel then applies this ruling to the NY case in the letter:
In other words, the Derby Wars contests constitute betting, i.e., gambling. Plaintiffs respectfully submit, therefore, that the manner in which Derby Wars operates is virtually identical to the types of contests run by the likes of FanDuel and Draft Kings and other ventures that would be regulated under Chapter 237 of the Laws of 2016 of the State of New York, which is challenged by Plaintiffs in this case on the grounds that Daily Fantasy Sports constitutes betting prohibited by Article I, § 9 of the Constitution.
Will the judge in New York find this germane?
While some say that the finding is very narrow on the IHA, others, like sports law attorney Daniel Wallach, argue it could be applied to DFS cases, like in New York.
What will the judge say in New York? We’ll have to wait and see. But legal concerns aside, the finding in the Derby Wars case still provides bad optics for the rest of the DFS industry in the US.