BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2215
                                                                  Page  1

          Date of Hearing:   May 12, 2010

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                   AB 2215 (Fuentes) - As Amended:  April 28, 2010 

          Policy Committee:                              Governmental  
          Organization Vote:                            21 - 0 

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill authorizes the California Horse Racing Board (CHRB) to  
          adopt rules and regulations concerning the creation and  
          administration of advance deposit wagering (ADW) accounts at  
          satellite and mini-satellite wagering facilities. 

           FISCAL EFFECT  

          The CHRB is authorized to license 45 mini-satellite wagering  
          facilities throughout the state.  So far, there is one facility.  
           If this bill makes it more attractive to operate a  
          mini-satellite facility, as intended, and therefore results in  
          44 additional facilities throughout the state it could result in  
          increased auditing and inspection workload costs of  
          approximately $900,000 for the CHRB. [Horse Racing Fund]

           COMMENTS  

           1)Purpose  . This bill is intended to establish another  
            distribution method for wagering on horseracing by allowing  
            existing facilities, including mini-satellites, to access the  
            current ADW infrastructure. The author argues that one of the  
            reasons mini-satellites have not been an attractive business  
            is that their betting volume tends to be low which makes it  
            less profitable for them to use the traditional simulcast  
            model which has fairly high fixed costs for handling wagers  
            and fairly low commissions.  In contrast, the ADW structure is  
            a lower cost model. 

           2)Satellite Wagering  . Satellite wagering via an off-track  
            facility has been legal in California since 1985. It was  








                                                                  AB 2215
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            authorized at a time when California racetracks were beginning  
            to experience declining attendance and handle figures. The  
            industry believes that making the product easier to access not  
            only would expose and market horseracing to potential  
            customers, but also would make it more convenient for the  
            existing patrons to wager more often. 

            There are now 32 simulcast facilities throughout the state.  
            Six of the facilities are at privately owned racetracks, eight  
            at fairs that conduct live racing, 15 at county fairs and  
            district agricultural associations, and three on Indian lands.  
             Simulcast-only facilities do not have live racing; those  
            facilities accept wagers on races broadcast via simulcast from  
            in-state and out-of-state racetracks. In 2008-09, of the $4  
            billion wagered on horseracing in the state, over $1 billion  
            of that wagering was the result of off-track betting at  
            satellite facilities. 

           3)Mini-Satellite Facilities  . AB 241 (Price; Chapter 594,  
            Statutes of 2007) authorized the establishment of up to 45  
            mini-satellite wagering sites to be operated by private  
            industry throughout California. A mini-satellite facility is  
            limited to locations that are only accessible to people 21 and  
            over. It is envisioned that these facilities will be set up  
            within establishments that serve a large population of adult  
            clientele such as sports bars, card clubs, and casinos.

            California's first and only mini-satellite opened in November  
            2009 at the Commerce Casino, a Southern California Card Club.  
            The facility is currently handling more than $80,000 in horse  
            racing wagers per day.  

            To date, only three applications have been presented to the  
            CHRB for mini-satellite facilities. It is unclear why there  
            has not been a broader interest in these facilities.  Some  
            speculate that the 2% commission that is retained by the  
            minisatellite is not enticing enough for business owners.   
            Alternatively, it could be that not enough time has elapsed  
            and there are not enough success stories for this type of  
            business proposition to reach the tipping point.  

           4)Advance Deposit Wagering (ADW)  . The California horse racing  
            industry entered into a new era in 2002 with the advent of  
            ADW, which allows customers to deposit funds into an account  
            in order to wager online and over the telephone. These wagers  








                                                                  AB 2215
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            are commingled into pools at the host track where the races  
            are run, and within the pari-mutuel wagering system regulated  
            by CHRB. In 2008-09, of the $4 billion wagered on horseracing  
            in the state, $2.3 billion of that wagering was the result of  
            advance deposit wagering. 

           5)Key Issues  . If the intent of this legislation is to provide an  
            incentive for people to open mini-satellite facilities, the  
            author and sponsor may wish to consider including provisions  
            in the bill that would allow operators of mini-satellite  
            facilities to receive some payment associated with allowing  
            advanced deposit wagering in their establishments. Current ADW  
            law very clearly specifies how the takeout from the handle  
            shall be distributed and this legislation does not adjust that  
            distribution. 

            In addition, the CHRB does not receive any licensing fees from  
            the ADW handle.  If this bill authorizes ADW betting kiosks or  
            machines to be placed in satellite and mini-satellite  
            facilities, those machines need to be regulated and monitored  
            by the CHRB.  Therefore, the author and the Legislature may  
            wish to consider revising current ADW statutes to require a  
            portion of the ADW handle be paid into the Horse Racing Fund  
            to support the CHRB and to clarify that the CHRB has the  
            authority as a regulatory agency to carry out their mandate to  
            protect the betting public by monitoring and overseeing these  
            ADW machines. 

           6)Related Legislation  . SB 1439 (Price) modifies provisions of  
            the Horse Racing Law relative to the authorization of  
            "minisatellite" wagering facilities by shrinking the  
            protective zone for existing satellite wagering facilities, as  
            specified, from a 20 mile radius to 15 miles. That bill is  
            currently pending in the Senate Appropriations Committee. 


           Analysis Prepared by  :    Julie Salley-Gray / APPR. / (916)  
          319-2081