Legal blow for DFS as judge rules horseracing contests to be pari-mutuel wagering

District court ruling could be used as legal foundation for cases against DFS in New York and Massachusetts

A US District Court has ruled that entry fees for the horseracing DFS site Derby Wars should be defined as wagers, placing the wider DFS industry at significant legal risk, according to sports law attorney Daniel Wallach.

California judge Daniel Otero ruled this week that Derby Wars DFS contests were most similar to exchange wagering, a subsection of pari-mutuel wagering,  given that contestants pay entry fees into a pool, and play against each other for the right to claim a cash prize.

Otero went on to liken the Derby Wars entry fees to “the wagers which form the ‘pot’ in poker.”

The ruling means Derby Wars is subject to the federal Interstate Horseracing Act, and therefore requires the consent of racetracks and racing commissions prior to accepting any wagers.

And while the operator intends to appeal the decision, the court decision could have a major impact on the wider DFS landscape.

“This could potentially adversely impact daily fantasy sports operators even outside of the horseracing context,” said Daniel Wallach, a partner at law firm Becker & Poliackoff.

“For one thing, this is the first US 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.”

“The Derby Wars decision could tip the scales against DFS operators in those other cases, with the most serious threat being in New York.”

A group of New York residents is seeking to invalidate New York’s fantasy sports law by arguing that the new law violates the state constitutional prohibition against gambling.

If that legal challenge succeeds, it could put a temporary end to daily fantasy sports in New York and force the issue to a voter referendum.

Likewise, the Derby Wars decision could bolster the case brought by a nationwide class of DFS players against DraftKings and FanDuel, which is now pending in a Massachusetts federal district court.

A finding by the Massachusetts court that DFS constitutes betting, gambling or wagering could potentially expose DraftKings and FanDuel to an eight-or-nine figure monetary judgment.

The Otero ruling also contradicts several recently-enacted DFS state laws which specify that DFS is not gambling, betting or wagering.

“As a result the ruling could be cited by opponents of future legislative efforts or by those seeking modifications and/or amendments to already-enacted DFS laws,” Wallach said.