BILL ANALYSIS AB 2414 Page 1 ASSEMBLY THIRD READING AB 2414 (John A. Perez) As Amended April 15, 2010 Majority vote GOVERNMENTAL ORGANIZATION 21-0APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Coto, Anderson, |Ayes:|Fuentes, Conway, Ammiano, | | |Blakeslee, Chesbro, Cook, | |Bradford, Charles | | |Bradford, Evans, | |Calderon, Coto, Davis, | | |Galgiani, Hall, | |Monning, Ruskin, Harkey, | | |Hernandez, Hill, | |Miller, Nielsen, Norby, | | |Charles Calderon, Ma, | |Skinner, Solorio, | | |Mendoza, Nestande, V. | |Torlakson, Torrico | | |Manuel Perez, Potantino, | | | | |Silva, Torres, Torrico, | | | | |Tran | | | | | | | | ----------------------------------------------------------------- SUMMARY : Encourages the Breeders' Cup to designate California as the permanent host state for the Breeders' Cup World Championship horse racing event. Specifically, this bill : 1)Authorizes a Thoroughbred association hosting Breeders' Cup races, upon filing a written notice with the California Horse Racing Board (CHRB), to deduct from the total amount handled in the pari-mutuel pool for any type of wager made during the days on which Breeders' Cup races are held, an amount of not less than 10% nor more than 25%. Requires the written notice to include the written agreement of the Thoroughbred association and the horsemen's organization. 2)Requires for every year that the organization operating the Breeders' Cup Championship series chooses to conduct the series of races in California, the statewide marketing organization shall enter into an agreement, in consultation and cooperation with the California Tourism Commission and with the organization that operates the Breeders' Cup to sponsor and promote the event. AB 2414 requires the agreement to provide for assistance with a minimum value of $2 million annually to promote the Breeders' Cup World Championship series. AB 2414 Page 2 3)Declares the Legislature's intent to later amend this bill to provide that a percentage of the takeout that is attributable to the Breeders' Cup races that otherwise would not have been generated absent the Breeders' Cup races occurring in this state, be eligible to be made available to support the statewide marketing organization and the state horse racing industry. EXISTING LAW : 1)Provides that CHRB regulate the various forms of horse racing authorized in this state. 2)Authorizes a Thoroughbred association or fair, subject to approval by CHRB, to deduct from the pari-mutuel pool for any type of wager, a specified percentage for the meeting of the Thoroughbred association or fair that accepts the wager. 3)Permits racing associations, fairs, and the organization responsible for contracting with racing associations and fairs with respect to the conduct of racing meetings, to form a private, statewide marketing organization to market and promote Thoroughbred and fair horse racing, and to obtain, provide, or defray the cost of workers' compensation coverage for stable employees and jockeys of Thoroughbred trainers. 4)Authorizes California Thoroughbred owners to deduct a portion of their purse pools to participate in the "national marketing" association, the National Thoroughbred Racing Association (NTRA). Extends the sunset date from January 1, 2008, to January 1, 2011, in existing law, which allows any racing association or fair that conducts thoroughbred racing to pay to the owners' organization a certain portion of the purses for a national marketing program, as specified. 5)Authorizes racing associations, fairs, and the organization representing Thoroughbred owners' to form a private statewide marketing organization to market and promote Thoroughbred and fair horse racing. Provides that the private statewide marketing organization shall remain in effect only until January 1, 2011. 6)Authorizes a Thoroughbred association or fair to file a written notice with CHRB to alter the amount deducted (the AB 2414 Page 3 takeout) from the total amount wagered (the handle) on horse races. The takeout shall be not less than 10% or more than 25% of the handle. FISCAL EFFECT : According to the Assembly Appropriations Committee: 1)In 2009, $128 million was wagered on Breeder's Cup Championship races. The current takeout from those races would be approximately $26 million. This bill would allow flexibility in that amount, thus the takeout could be anywhere from $13 million to $32 million, depending on what the racing association decides. 2)This bill will be amended to require that a percentage of the takeout from the Breeders' Cup be devoted to the marketing of horseracing and the industry. The average (handle) for two days of racing at Santa Anita in 2009 was $15 million. The two days of Breeders' Cup races generated over $128 million in handle. Using the standard takeout rate of 19.9%, the increased handle for the Breeders' Cup was approximately $20 million. Requiring that 20% of the increased takeout, for example, be dedicated to marketing and the industry could result in an additional $4 million for those purposes. 3)This bill requires a minimum $2 million investment [California Marketing Committee (CMC) funding] in the marketing and promotion of the Breeders' Cup Championship. Currently the marketing association has a budget of approximately $4 million a year. COMMENTS : According to the author, the Breeders' Cup Championship series of races is the preeminent series of horse races recognized throughout the world. From the inaugural running in Hollywood Park 26 years ago, the Breeders' Cup World Championship has a rich and vibrant tradition in California, having been run here eight times. The Breeders' Cup World Championship races were conducted in California in 2008 and 2009 by Oak Tree Racing Association at Santa Anita Park located in Los Angeles County. In 2009, more than 96,000 fans attended the event while being broadcast to over 130 countries. The author maintains the intent of this bill is to encourage the organization operating the Breeders' Cup Championship series to AB 2414 Page 4 make California the permanent home of the Breeders' Cup Championship series and it is the intent of the Legislature, through the enactment of this bill, to provide substantial support towards that end. The Los Angeles Economic Development Commission, having studied the impact of the Breeders' Cup Championship series being held in California the last two years, has concluded that the events have brought an additional $60 million in economic impact to the State of California and Los Angeles region each year, through added tourism and other economic impact, and created over 500 direct and indirect jobs. The author states, the Legislature and the Governor of California recognize the importance of the horse racing industry to this state, including the 50,000 jobs associated with the industry, and have taken significant steps to support the industry, evidenced most recently by the $40 million in license fee relief provided in SB 16xx (Ashburn), Chapter 12, Statutes of 2009-10 Second Extraordinary Session. The author states that having the Breeders' Cup Championship races held annually in California will benefit California's horse racing industry and the State of California by stimulating the economy and tourism. back on-track allowing it to be enjoyed for generations to come. Background: Breeders' Cup: The Breeders' Cup World Championship is an annual series of Grade I Thoroughbred horse races. The event is a year-end championship for North American Thoroughbred racing, which attracts top horses from other parts of the world, especially Europe. The Breeders' Cup is considered to be the richest two days in the United States for total purses paid to horse owners. The attendance at the Breeders's Cup ranks fifth in North America and usually surpasses the attendance of all other stakes races. The daily attendance of the Breeders' Cup typically only trails the Kentucky Derby, the Preakness Stakes and the Kentucky Oaks. It was reported in March 2010, that the Breeders' Cup board is looking at a permanent host location for the World Championships as a potential option as part of the organization's ongoing strategic planning initiative. Although Breeders' Cup officials AB 2414 Page 5 have said that the organization has considered designating Santa Anita Park in Arcadia as a permanent host site for the next five years beginning in 2011, the organization is also considering a three-track rotation that includes Oak Tree Racing Association at Santa Anita Park, Churchill Downs in Kentucky, and Belmont Park in New York. California's racetracks meet the criteria for being a permanent host location by providing a major media market, ability to accommodate big crowds, good weather, and generating increased revenue through attendance and pari-mutuel handle. Another potential benefit to the World Championships being held in California would be that Oak Tree Racing Association is a non-profit organization which provides many business and financial advantages over competing racetracks. In a related matter, Kentucky Governor Beshear recently signed legislation that would rescind a tax break in 2010 for Churchill Downs and the Breeders' Cup if that racetrack is not designated as a host site for the 2011 or 2012 Breeders' Cup. It would require, however, the tax to be paid if Breeders' Cup has not selected Churchill Downs as a host site in the next two years by November 4, 2010. In the past, various state legislatures have forgiven pari-mutuel taxes for the Breeders' Cup events. The Kentucky legislation is the first that would make the tax contingent on another development. Marketing horseracing: The popularity of horse racing as both a sport and industry has suffered of late in California, primarily due to the industry's inability to expand its market share and attract new customers. Moreover, the industry has experienced difficulty competing with other more popular forms of gambling, such as those games offered by the state lottery, card clubs and casino gambling in Nevada or on Indian reservations. To help address general declines in the overall industry, Thoroughbred racing interests from across the country formed the National Thoroughbred Racing Association (NTRA) in order to create a centralized structure which would promote Thoroughbred horse racing on a national level. The primary objective of NTRA is to develop and implement a comprehensive marketing strategy featuring increased network and cable media exposure. Funding AB 2414 Page 6 for this program comes from racing interests outside of California, as well as California's Thoroughbred racing associations and horse owners from purses. Last year, California Thoroughbred owners, through the Thoroughbred Owners of California (TOC), paid approximately $400,000 to NTRA for the purpose of marketing horse racing. SB 27 (Maddy), Chapter 335, Statutes of 1998, creates a private statewide marketing organization for Thoroughbred and fair racing that is funded by 0.4% of the in-state off-track handle. The funds generated from this distribution are used to market California horse racing on a statewide basis. CMC is generally responsible for promoting horse racing in the state by developing and implementing a marketing plan that will increase on-track and off-track attendance throughout the state. An underlying assumption of the CMC's Marketing Plan is that it is far easier to capture a new fan through an on-track experience than through an off-track visitation to a satellite wagering facility. In 2003, the CMC received approximately $6.1 million to support its marketing efforts but due to handle declines it has been reduced to approximately $4 million in 2010. Current law provides that the CMC must annually submit to the CHRB a statewide marketing and promotion plan for thoroughbred and fair horse racing that encompasses all geographical zones in the state, including the manner in which funds were expended in the implementation of the plan for the previous calendar year. Additionally, the 2010 CMC Budget redirects a portion of its marketing and advertising funds to enhance purses on major racing days, such as the Santa Anita Handicap, Hollywood Gold Cup, and Pacific Classic. The CMC program will expire after this year due to a sunset clause in the law unless there is legislation to extend it. California Travel and Tourism Commission: The California Travel and Tourism Commission (CTTC) is a not-for-profit, 501(C)(6) corporation formed in 1998 to work jointly with the State of California's Division of Tourism to implement an annual marketing plan, which promotes California as a travel destination. While these two partners (CTTC and Division of Tourism) are separate legal entities, they are commonly referred to jointly as California Tourism. AB 2414 Page 7 In 2006, Governor Schwarzenegger signed AB 2592 (Leno), an assessment program for the passenger car rental industry which was in addition to other levy assessments on other specified businesses which benefit from travel and tourism spending. AB 2592 also reduced the state's General Fund appropriation from $7.3 million to $1 million. In 2010, the major source of CTTC's budget ($50 million) is directly derived from assessed businesses in the travel and tourism industry in California. The 37-member CTTC is composed of individuals from all 12 regions of California. Twenty-four of the commissioners are elected by the approximately 5,000 assessed California businesses; 12 are appointed by the governor; and the 37th is the California Business, Transportation and Housing Agency Secretary. A 34-member statewide Marketing Advisory Committee also provides input in developing the marketing plan. Tourism is California's fourth largest employer and fifth largest contributor to the gross state product. The Takeout: The horse racing takeout amount is a percentage deducted from all of the wagers before the winnings are paid out to bettors. These takeout rates vary among states. California's current rate is 15.43% for conventional wagers (win, place, and show wagers) and 20.68% for exotic wagers (Exacta, Trifecta, and Pick-6). The money from the takeouts is used for such things as owner purses, racing association commissions, and breeding incentive programs. In addition, various funds receive money from the takeout to meet specific needs of the industry. For example, funds have been set up for offsite stabling and transporting horses on race day, to offset the costs of workers compensation, to establish pension plans and provide a welfare fund for backstretch personnel, and to fund the CMC. Current law allows for flexibility in the takeout (not less than 10% nor more than 25% from the pari-mutuel pool for any type of wager), subject to the approval of the CHRB. Prior/related legislation: SB 517 (Florez), Chapter 636, Statutes of 2009, allows a Thoroughbred association or fair, subject to CHRB, to alter the amount deducted from horse racing wagering. Allows the distribution of funds from the amount deducted to be modified or redirected, subject to the approval of CHRB. AB 2414 Page 8 AB 1308 (Torrico), Chapter 410, Statutes of 2007, authorizes a Thoroughbred association or fair and the horsemen's organization, subject to approval by CHRB, to deduct an amount of not less than 10% nor more than 25% from the pari-mutuel pool for any type of wager. AB 1736 (Governmental Organization Committee), Chapter 444, Statutes of 2007, extends "sunset" provisions in current law relating to the marketing of the California Horse Racing Industry. SB 103 (Maddy), Chapter 10, Statutes of 1998, requires any association, including fairs, that conducts thoroughbred racing to pay to the owners' organization contracting with the association an additional percentage for a national marketing program, as specified, to promote thoroughbred racing unless the owners' organization chooses not to contribute to the program. The bill sunsets January 1, 2004. SB 27 (Maddy), Chapter 335, Statutes of 1998, among its provision, creates a private statewide marketing organization for thoroughbred and fair racing that is funded by .4 percent of the instate off-track handle. The funds generated from this distribution are used to market California horse racing on a statewide basis. CMC is generally responsible for promoting horse racing in the state by developing and implementing a marketing plan that will increase on-track and off-track attendance throughout the state. AB 2592 (Leno), Chapter 790, Statutes of 2006, modifies the conditions and terms of appointees and elected members of the CTTC, broadens industry segments which may voluntary participate in CTTC programs, and clarifies certain assessment and referendum procedures. Additionally, the bill makes changes to the way the passenger car rental industry is assessed by the CTTC which will permit rental car companies to separately state specified fees in advertising, quotes and charges for rental cars which become operational only if the rental car industry agrees to increase its Tourism Marketing Assessment (assessment) to specified level. Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531 AB 2414 Page 9 FN: 0004623