BILL ANALYSIS                                                                                                                                                                                                    






                                                       Bill No:  AB  
          2215
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                       Senator Roderick D. Wright, Chair
                           2009-2010 Regular Session
                                 Staff Analysis

          AB 2215  Author:  Fuentes
          As Amended:  June 24, 2010
          Hearing Date:  June 29, 2010
          Consultant:  Art Terzakis

                                     SUBJECT  
             Horse Racing: advance deposit wagering: minisatellite  
                                   facilities

                                   DESCRIPTION
           
          AB 2215 makes the following substantives changes to the  
          California Horse Racing Law pertaining to advance deposit  
          wagering (ADW) and minisatellite facilities:

          1.  Requires the California Horse Racing Board (CHRB) to  
            develop and adopt rules to license and regulate advance  
            deposit wagering activity that takes place within a  
            minisatellite wagering facility and also permits the CHRB  
            to recover any costs associated with the licensing or  
            regulation.   

          2.  Makes a conforming change to authorize a minisatellite  
            wagering facility to enter into an agreement with an ADW  
            provider to accept and facilitate the placement of any  
            wager at its facility that a California resident could  
            make through that ADW provider.
           
                                  EXISTING LAW

           Existing law provides for the California Horse Racing Board  
          (CHRB) which regulates the various forms of horse racing  
          authorized in this state.
           
          Existing law authorizes and defines "Advance Deposit  
          Wagering" (ADW) as a form of pari-mutuel wagering in which  
          a person establishes an account with a board-approved  
          betting system or wagering hub where the account owner  




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          provides wagering instructions authorizing the entity  
          holding the account to place wagers on the owner's behalf.
           
          Existing law provides that a racing association, a fair, or  
          a satellite wagering facility may enter into an agreement  
          with an ADW provider to accept and facilitate the placement  
          of any wager from a patron at its facility that a  
          California resident could make through that ADW provider,  
          as defined.
           
          Existing law authorizes the CHRB to permit licensed racing  
          associations and fairs to operate satellite-wagering  
          facilities on their grounds, as specified.

          Existing law provides that the CHRB may approve an  
          additional 15 mini-satellite wagering sites (total of 45)  
          in the northern, central, and southern racing zones, as  
          defined.
                                    BACKGROUND
           
           Purpose of AB 2215:   The author's office notes that ADW has  
          operated in California since 2002 and has proven to be an  
          efficient and accountable system employing current  
          technologies to process wagers on horse racing in  
          California.  Unfortunately, former customers of  
          California's simulcast network prefer to stay home to  
          conduct their daily wagering.  California's racing industry  
          believed that AB 241 (Price) of 2007, which authorized 45  
          minisatellites, would help reverse the customer shift but  
          to date various obstacles - mostly financial - have proven  
          otherwise.  

          One of the challenges the industry faces relative to the  
          implementation of minisatellites in various venues (e.g.,  
          sports bars, restaurants, and card clubs) is the ability to  
          process wagers in an economically efficient manner because  
          these facilities generally produce lower wagering figures  
          than established "brick and mortar" facilities.   
          Minisatellite facilities though must bear the same fixed  
          costs associated with the traditional simulcast model.  In  
          essence, the cost to facilitate a wager is the same no  
          matter where the wager takes place.  Due to this  
          inequality, the State's minisatellite system has been slow  
          to develop.
           
          AB 2215 is intended to establish another distribution  




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          method for wagering on horse racing by allowing  
          minisatellite facilities, to access the current ADW  
          infrastructure.    Proponents believe AB 2215 will help  
          make the operation of minisatellites more viable from a  
          financial perspective while allowing California's racing  
          industry to market their product to new and existing  
          patrons.   AB 2215 is also expected to make satellite  
          wagering more attractive to the customer while reducing the  
          migration of daily wagering from brick and mortar locations  
          to Internet wagering.

           Advance Deposit Wagering:   The California horse racing  
          industry entered into a new era in 2002 with the advent of  
          ADW [AB 471 (Hertzberg), Chapter 198, Statutes of 2001],  
          which allowed customers to deposit funds into an account in  
          order to wager online and over the telephone.  These wagers  
          are commingled into pools at the host track where the races  
          are run, and within the pari-mutuel wagering system  
          regulated by the CHRB.
           
          ADW was authorized at a time when California racetracks  
          were beginning to experience declining attendance and  
          handle figures.  The industry believed that making the  
          product easier to access not only would expose and market  
          horse racing to potential customers, but also make it more  
          convenient for the existing patrons to wager more often.   
          In general, industry stakeholders agree that ADW has become  
          an important element to the financial stability of  
          California's horse racing industry.  
                   
          Currently, the CHRB has approved three companies  
          (Youbet.com, TVG, and XpressBet) to provide ADW services to  
          California customers.  ADW constitutes about $600 million  
          in handle for the horse racing business.  It has become an  
          important segment of the industry; in fact, it is the only  
          segment that has been growing. 
           
          Wagering at Satellite or MiniSatellite Facilities:   In  
          2007, AB 241 (Price) was enacted to authorize the creation  
          of 15 additional "mini-satellites" in each racing zone.   
          The stated intent of AB 241 was to make the sport of horse  
          racing more accessible to potential California bettors and  
          to increase the handle - the amount wagered on horse races.

          Currently, there are 34 satellite wagering facilities in  
          California located at live race tracks, fairgrounds and  




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          Indian casinos. Furthermore, 64 additional wagering  
          facilities are authorized  -  44 mini-satellite facilities  
          (one has been established already inside the Commerce  
          Casino, a Southern California Card Club) and all fairs that  
          currently are not operating satellite wagering facilities  
          may do so either on or off the fairgrounds (within the  
          boundaries of the fair district).  Currently, no satellite  
          wagering facility can be established within a 20 mile  
          radius of an existing satellite wagering facility or  
          racetrack without the consent of the existing wagering  
          facility.

          California's first and only minisatellite facility to date  
          opened in July 2009 at the Commerce Casino, a southern  
          California Card Club.  The facility is currently averaging  
          more than $80,000 in horse racing wagers per day.   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.
           
          Overall though, California's simulcasting network has seen  
          a steady decline in the last decade since the approval of  
          ADW.  That drop-off has been accelerated with the  
          recession.

                            PRIOR/RELATED LEGISLATION
           
           AB 241 (Price) Chapter 594, Statutes of 2007.   Authorized  
          all fairs to operate a satellite wagering facility off of  
          the fair grounds. Also, authorized the establishment of up  
          to 45 "minisatellite" wagering sites to be operated by  
          private industry throughout California. 

          AB 765 (Evans) Chapter 613, Statutes of 2007.   Among other  
          things, reauthorized horse racing's ADW law, which was set  
          to "sunset" on January 1, 2008, as specified.
           
           AB 1286 (Richardson) Chapter 202, Statutes of 2007  .   
          Allowed the Alameda County Fair and the Los Angeles County  
          Fair (Fairplex) to obtain authorization to operate new  
          satellite wagering facilities off of their fair grounds  
          under certain conditions. 

           SB 677 (Murray) 2005-06 Session.  Would have authorized the  
          establishment of seven additional satellite wagering  




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          facilities around the state.  (Died Assembly Inactive File)  


           SB 1096 (Dutton) Chapter 1096, Statutes of 2005.    
          Authorized the National Orange Show (San Bernardino County)  
          to operate a second satellite-wagering operation within its  
          fair district boundaries. 

           AB 401 (J. Horton) Chapter 556, Statutes of 2003.    
          Permitted CalExpo, with the approval of the Department of  
          food and Agriculture and CHRB, to operate a satellite  
          wagering facility within the boundaries of CalExpo in  
          addition to any facility otherwise authorized under current  
          law. 
           
          SUPPORT:   Thoroughbred Owners of California
           OPPOSE:   None on file as of June 25, 2010.
           
          FISCAL COMMITTEE:   Senate Appropriations Committee