BILL ANALYSIS AB 2215 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2215 (Fuentes) As Amended August 5, 2010 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |73-0 |(June 2, 2010) |SENATE: |32-0 |(August 18, | | | | | | |2010) | ----------------------------------------------------------------- Original Committee Reference: G.O. SUMMARY : 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 mini-satellite wagering facility. The Senate amendments : 1)Authorize a mini-satellite wagering facility to enter into an agreement with an advance deposit wagering provider to accept and facilitate the placement of any wager at its facility that a California resident could make through that advance deposit wagering provider. 2)Specify that the CHRB must develop and adopt rules to license and regulate advance deposit wagering activity that takes place in a mini-satellite wagering facility. 3)Authorize the CHRB to recover any costs associated with the licensing or regulation of advance deposit wagering activity in a mini-satellite wagering facility, as provided. 4)Delete language which authorized the CHRB, if it determines that it is appropriate to allow advance deposit wagering at mini-satellite wagering facilities, to evaluate the feasibility of that wagering at those facilities and to undertake a study to determine the appropriate licensing fee sufficient to cover the costs to the board for regulation and oversight. EXISTING LAW : 1)Provides for the California Horse Racing Board (CHRB) to regulate the various forms of horse racing authorized in this AB 2215 Page 2 state. 2)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 provides "wagering instructions" authorizing the entity holding the account to place wagers on the owner's behalf." 3)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. 4)Authorizes CHRB to permit licensed racing associations and fairs to operate satellite-wagering facilities on their grounds, as specified. 5)Provides that CHRB may approve an additional 15 mini-satellite wagering sites in the northern, central, and southern racing zones, as defined. AS PASSED BY THE ASSEMBLY , the intent of the bill was to allow mini-satellite wagering facilities established under existing law, to use a modified version of the current ADW infrastructure for processing wagers on horse racing. FISCAL EFFECT : According to the Senate Appropriations Committee, unknown, less than $50,000 annually. COMMENTS : Background : ADW : 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 allows 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 CHRB. ADW was authorized at a time when California racetracks were beginning to experience declining attendance and handle figures. AB 2215 Page 3 The industry believed that making the product easier to access not only would expose and market horse racing to potential customers, but also would 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 a satellite or mini-satellite : California has allowed off-track betting in satellite wagering facilities located at fairs and racing associations throughout the state for 25 years. In 2007, AB 241 (Price) was enacted to authorize the creation of 15 additional "mini-satellites" in each racing zone for a total of 45. The stated intent of this legislation 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 racetracks, fairgrounds and Indian casinos. Furthermore, 64 additional wagering facilities are authorized pursuant to SB 241 of 2007 - 44 mini-satellite facilities (one has been established already) 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 mini-satellite facility 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 mini-satellite is not enticing enough for business owners. AB 2215 Page 4 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. Purpose of the bill : According to the author, ADW has operated in California since 2002, and it has been proving to be an efficient and accountable system employing current technologies to process wagers on horse racing in California. Unfortunately though, former customers of California's simulcast network prefer to stay home to do their daily wagering. California's racing industry thought that AB 241 (Price), Chapter 594, Statutes of 2007, would help reverse the customer shift but to date various obstacles, mostly financial have proved otherwise. One of the challenges the industry faces relating to the implementation of mini-satellites (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. Mini-satellite 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 mater where the wager takes place. Due to this inequality, California's mini-satellite system has been slow to develop. This bill is intended to establish another distribution method for wagering on horse racing by allowing mini-satellite facilities, to access the current ADW infrastructure. This measure will make the operation of mini-satellites more viable from a financial perspective while allowing California's racing industry to market their product to new and existing patrons. AB 2215 will assist to make satellite wagering more attractive to the customer while reducing the migration of daily wagering from brick and mortar locations to Internet wagering. Related legislation : SB 1439 (Price) of 2010 modifies provisions of the Horse Racing Law relative to the authorization of "mini-satellite" 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 on the Senate Floor. Prior legislation : AB 765 (Evans), Chapter 613, Statutes of 2007, reauthorizes horse racing's ADW law, which was set to "sunset" on January 1, 2008, as specified. AB 2215 Page 5 AB 241 (Price), Chapter 594, Statutes of 2007, authorizes all fairs to operate a satellite wagering facility off of the fair grounds. Authorized the establishment of up to 45 mini-satellite wagering sites to be operated by private industry throughout California. Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531 FN: 0005727