A Canterbury gaming trust says it will try to keep funding local sports groups after legal advice revealed the payments could be unlawful.
The Eureka Trust stopped its grants to racing clubs after concerns were raised by the Problem Gambling Foundation. The challenge has also affected other sports bodies.
In 2008, the trust distributed about $6 million from gaming machines to community groups, including racing clubs.
However, the Problem Gambling Foundation believes that meant one form of gambling was subsidising another.
It says the trust's deed require funds to be for charitable purposes
Trust chairman Barry Corbett says the racing payments have now stopped but the legal issue means other sports groups are also missing out.
The halt to sports funding has concerned the Problem Gambling Foundation.
Chief executive Graeme Ramsey says there is a big difference between sports groups and the racing industry.
Mr Ramsey says the case highlights the need for government reform of how gaming machine funds are distributed.