BILL ANALYSIS                                                                                                                                                                                                    






                                                       Bill No:  SB  
          1072
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                       Senator Roderick D. Wright, Chair
                           2009-2010 Regular Session
                                 Staff Analysis



          SB 1072  Author:  Calderon
          As Amended:  August 30, 2010
          Hearing Date:  August 31, 2010
          Consultant:  Arthur Terzakis


                                     SUBJECT  
                                Horse Racing Law

                                   DESCRIPTION
           
          SB 1072 makes the following substantive changes and  
          additions to California's Horse Racing Law: (1) requires  
          thoroughbred racing associations and fairs to deduct an  
          additional amount of the total handle on exotic wagering  
          (e.g., exacta, trifecta, superfecta) for purse  
          augmentation; (2) authorizes the California Horse Racing  
          Board (CHRB) to license entities to operate "exchange  
          wagering" systems, as defined, that accept exchange wagers  
          from individuals residing either within or outside of this  
          state on horse races run in California or other states and  
          makes it explicit that exchange wagering  shall not  become  
          operative until  May 1, 2012  ; (3) requires each exchange  
          wagering licensee to annually distribute a specified amount  
          of exchange wagering revenue to the existing jockey health  
          and benefit welfare fund; (4) authorizes the thoroughbred  
          racing industry to use monies from horse racing wagering  
          pools to promote the Breeders' Cup, in order that  
          California might be considered the permanent home of this  
          championship series of races;  (5) extends the sunset, from  
          January 1, 2011 to January 1, 2014, on provisions that  
          authorize racing associations and fairs that conduct  
          thoroughbred racing to pay to the owners' organization a  
          certain portion of the purses for a statewide marketing  
          program, as specified, to increase interest in horse  
          racing; and (6) provides that an amount not to exceed 0.05%  




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          of the total amount handled by each satellite wagering  
          facility shall be distributed to the nonprofit organization  
          designated by the CHRB for the purpose of maintaining a  
          database of horse racing information, as defined.    
          Specifically, this measure:

          1.  Makes various legislative findings relative to the  
            economic importance of the Breeders' Cup Championship  
            series and declares that it is not only the desire of the  
            Legislature to encourage the organization operating this  
            prestigious international event to make California its  
            permanent home but also the intent of the Legislature to  
            provide substantial support towards that endeavor.
           
           2.  Also, makes additional findings and declarations  
            relative to the fact that California has one of the  
            lowest "takeouts" on wagering and concern that horse  
            owners are not bringing their horses to California  
            because of lower purses and horses are leaving the state  
            in order to compete for higher purses.    

          3.  Provides that every thoroughbred racing association or  
            fair that conducts a live race meet shall deduct an  
            additional 2% of the total amount handled on exotic  
            wagers requiring the selection of two wagering interests  
            (e.g., exactas, quinellas) and 3% of the total amount  
            handled on exotic wagers requiring the selection of three  
            or more wagering interests (e.g., trifectas,  
            superfectas).  (The additional takeout is intended to  
            augment purses.)

          4.  Provides that any thoroughbred association or fair that  
            authorizes betting systems located outside of this state  
            to accept wagers on a race shall retain from the total  
            amount received from the out-of-state betting system,  
            less certain deductions made pursuant to existing  
            provisions of law, the incremental amount received as a  
            result of the 2% or 3% takeout referenced above on exotic  
            wagers required by this measure, for distribution as  
            overnight purses.

          5.  Grants the CHRB the authority to postpone or revoke  
            implementation of the takeout increase, as specified. 

          6.  Adds a new Article (Article 9.1) to the Horse Racing  
            Law authorizing "exchange wagering" and declares that the  




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            Legislature has determined that the CHRB is best suited  
            to oversee, license, and regulate exchange wagering in  
            California.  Also, declares legislative intent to promote  
            the economic future of the horse racing industry in  
            California and to foster the potential for increased  
            commerce, employment and recreational opportunities by  
            authorizing exchange wagering.   

          7.  Defines a host of new terms, as specified, for purposes  
            of exchange wagering including the term "exchange  
            wagering" which means a form of parimutuel wagering in  
            which two or more persons place identically opposing  
            wagers in a given market.

          8.  Stipulates that exchange wagering shall only be  
            conducted by an exchange wagering licensee pursuant to a  
            valid exchange wagering license issued by the CHRB.   
            Also, provides that  no exchange wagering licensee may  
            accept wagers prior to 05/01/2012.  

          9.  Makes it explicit that no exchange wagering licensee  
            shall accept exchange wagers on races conducted in  
            California from a resident of California or a resident of  
            a jurisdiction outside California, or conducted outside  
            California from a resident of California, unless an  
            exchange wagering agreement, as defined, exists allowing  
            such wagers.  Additionally, exchange wagering must be  
            conducted pursuant to and in compliance with the federal  
            Interstate Horseracing Act of 1978.

          10. Defines "exchange wagering agreement" to mean a written  
            agreement by and among the applicable exchange wagering  
            licensee, the applicable racing association or racing  
            fair conducting live racing in this state and the  
            horsemen's organization responsible for negotiating purse  
            agreements for the breed on which exchange wagers are  
            accepted, provided that the terms and conditions for the  
            permitted use of signal by the exchange wagering  
            licensee, and the compensation to the applicable racing  
            association or racing fair and the horsemen's  
            organization include certain specified provisions.

          11. Requires the CHRB to promulgate rules and regulations  
            governing the conditions under which exchange wagering  
            may be conducted, including requiring an annual audit of  
            an exchange wagering licensee. Also, would allow exchange  




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            wagers to be submitted and accepted by licensed exchange  
            wagering systems in the same manner as is currently  
            provided for Advanced Deposit Wagers (e.g., in person,  
            telephone, or Internet). 

          12. Requires the CHRB, prior to promulgating rules and  
            regulations under which exchange wagering may be  
            conducted, to consider studies or comments submitted by  
            interested parties on the impact of exchange wagering on  
            parimutuel wagering and the economics of the State's  
            horse racing industry to assist the board in developing  
            rules, regulations and conditions for exchange wagering  
            that are in the best interest of the public and the  
            industry.  

          13. Provides that only persons 18 years of age or older  
            could establish exchange wagering accounts and requires  
            the CHRB to approve security policies and safeguards to  
            ensure player protections, age verification and location.

          14. Directs the CHRB to adopt rules prohibiting any owner,  
            trainer, jockey, or stable employee from placing an  
            exchange wager on any horse owned, trained, or ridden by  
            any of those individuals.

          15. Includes language (similar to Advance Deposit Wagering  
            law) relative to supporting the contracting rights of  
            parimutuel clerks that have been displaced due to the  
            increased automation of the wagering process, in addition  
            to a specific distribution to the existing jockey health  
            and benefit welfare fund.

          16. Provides that monies that would have been otherwise  
            distributed to a purse account from the increased takeout  
            on Breeders' Cup day(s) shall be available for the  
            purpose of promoting and sponsoring the Breeders' Cup.

          17. Also, requires the host track of the Breeders' Cup to  
            enter into a written agreement with the Breeders' Cup,  
            LTD, in consultation and cooperation with the California  
            Tourism Commission and the statewide marketing  
            organization relative to the manner in which the funds  
            set aside to support and promote the Breeders' Cup are to  
            be expended.

          18. Furthermore, requires that a written report be made to  




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            the CHRB detailing the manner in which the set aside  
            funds were utilized to promote and support the Breeders'  
            Cup.

          19. Extends the sunset, from January 1, 2011 to January 1,  
            2014, on provisions that authorize racing associations  
            and fairs that conduct thoroughbred racing to pay to the  
            owners' organization a certain portion of the purses for  
            a statewide marketing program, as specified, to increase  
            interest in horse racing.
          20. Requires the statewide marketing plan for horse racing  
            to be presented (rather than submitted) to the Horse  
            Racing Board at the CHRB's November meeting.  Also,  
            requires the written plan be submitted to the board by  
            November 1st of each year.

          21. Changes the distribution amount that would normally be  
            available for commissions and purses, from 0.4% to an  
            amount not to exceed 0.25% of the total amount handled by  
            each satellite wagering facility which is then  
            distributed to the marketing organization, as specified.

          22. Provides that an initial amount of 0.05% of the total  
            amount handled by each satellite wagering facility shall  
            be distributed to the nonprofit organization designated  
            by the CHRB for the purpose of maintaining a database of  
            horse racing information as defined.

          23. Requires the marketing organization, on a quarterly  
            basis, to submit to the CHRB a report accounting for all  
            receipts and expenditures of the promotion funds during  
            the previous three months.

          24. Deletes obsolete language regarding workers'  
            compensation responsibilities associated with the  
            statewide marketing association.
                                         
                                  EXISTING LAW

           Article IV, Section 19(b) of the Constitution of the State  
          of California provides that the Legislature may provide for  
          the regulation of horse races and horse race meetings and  
          wagering on the results.

          Existing law provides that the California Horse Racing  
          Board (CHRB) shall regulate the various forms of horse  




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          racing authorized in this state.

          Existing law provides that "parimutuel wagering" is a form  
          of wagering in which bettors either purchase tickets of  
          various denominations, or issue wagering instructions  
          leading to the placement of wagers, on the outcome of one  
          or more horse races.  When the outcome of the race or races  
          has been declared official, the association distributes the  
          total wagers comprising each pool, less the amounts  
          retained for purposes specified in this chapter, to winning  
          bettors.

          Existing law requires racing associations to pay out  
          certain percentages of the total amount wagered and of the  
          portion deducted from the parimutuel pool (i.e., the  
          takeout), for state license fees, owner purses, racing  
          association commissions, and breeding incentive programs.   
          The amounts vary depending upon the type of breed bet upon  
          (Thoroughbred, Quarter Horse, harness, etc.), the type of  
          bet made (e.g., conventional or exotic), and whether the  
          wager was made on-track or at a satellite wagering  
          facility.

          Existing law authorizes a Thoroughbred association or fair,  
          at the joint request of the association or fair and the  
          organization representing the horsemen, and subject to  
          approval of CHRB, to deduct from the parimutuel pool for  
          any type of wager, an amount of 10% to 25%, inclusive, of  
          the total amount handled for the meeting of the  
          thoroughbred association or fair that accepts the wager.   
          Existing law allows the distribution of funds from the  
          amount deducted to be modified or redirected, subject to  
          the approval of CHRB, as specified.
          Existing law permits CHRB to set the deduction for any new  
          type of wager introduced after January 1, 2004, in an  
          amount of not less than 10% nor more than 30% at the joint  
          request of an association or fair and the horsemen's  
          organization.

          Existing law authorizes a quarter horse association,  
          subject to approval by the CHRB, and a harness racing  
          association to deduct up to two percent more from the total  
          amount wagered in the parimutuel pool for any type of  
          wager, and, specifies how the funds shall be distributed to  
          eligible satellite wagering facilities, owners' purses and  
          racetrack commissions.




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          Existing law provides that unclaimed refunds from horse  
          racing are to be distributed to an organization that is  
          responsible for negotiating business agreements on behalf  
          of horsemen, to be held in trust for the purpose of  
          negotiating an agreement with a jockey's organization to  
          provide health and welfare benefits to California licensed  
          jockeys.  Existing law requires that the funds held in  
          trust shall not exceed $450,000. 
          Existing law authorizes racing associations, fairs, and the  
          Thoroughbred Owners of California (TOC) to form a private  
          statewide marketing organization to market and promote  
          thoroughbred and fair horse racing. The California  
          Marketing Committee (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. The CMC is  
          required to submit an annual marketing and promotion plan  
          to the California Horse Racing Board (CHRB).  These  
          provisions sunset as of January 1, 2011.

          Existing law provides for the California Travel & Tourism  
          Commission (CTTC). The 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 the 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. 


                                    BACKGROUND
           
           Takeout Rate Component  :  The "takeout" is the amount  
          deducted from wagers before winnings are paid out to  
          bettors.  The state, racetracks, breeders, and horsemen  
          through purses, receive a distribution from the takeout.   
          Currently, California's takeout rate on Thoroughbred races  
          is 15.43% for win, place, and show wagers, and 20.68% for  
          other types of wagers (i.e., Exacta, Trifecta, and Pick-6).  
           Over the last couple of years, there has been a movement  
          within the racing industry in other states to have greater  
          flexibility to either lower or increase the takeout.  For  
          instance, Keeneland Racetrack in Kentucky and Saratoga in  




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          New York lowered their takeout structure while the Maryland  
          Jockey Club increased their parimutuel takeout.  The  
          various racing jurisdictions experienced varied results  
          after altering the takeout.

          Many within the racing industry have a view that moderating  
          takeout rates on specific pools might stimulate handle as  
          well as overall revenue for purses.  Today's racing  
          customer is not just a local resident who comes to a  
          California racetrack but a patron sitting in a simulcast  
          facility in another state with a wide choice of tracks to  
          wager on.  Ultimately, racing's patrons drive the  
          parimutuel market and their response to an increased or  
          decreased takeout on any type of wager will determine the  
          rate of takeout.  Many within the racing industry have a  
          view that moderating takeout rates on specific pools might  
          stimulate handle as well as overall revenue for purses.    

          AB 1308 (Torrico), Chapter 410, Statutes of 2007, gave a  
          racing association and the owners' organization  
          flexibility, subject to CHRB approval, to set takeout rates  
          at an amount of not less than 10% nor more than 25% from  
          the parimutuel pool for any type of wager.  AB 1308  
          provided the horse racing industry with greater flexibility  
          to make adjustments to the takeout. 

          This measure would expand on the concept contained in AB  
          1308 by directing the increased takeout (2% - 3%) directly  
          to purses which benefits owners, trainers, and jockeys.   
          This measure is intended to allow greater flexibility to  
          direct the distribution of funds generated by a takeout  
          increase to an area with the greatest economic benefit for  
          the industry.  This measure is also intended to enable the  
          California racing industry to increase its competitiveness  
          by establishing purses more consistent with purses in other  
          major racing states (e.g., New York, Pennsylvania, West  
          Virginia, Delaware, Iowa, Indiana, Louisiana, New Mexico,  
          and Florida) that benefit from the operation of slot  
          machines and video lottery terminals, which are prohibited  
          at California racetracks.  Even with an increase in the  
          takeout rate, California would still rank among the top  
          twenty lowest takeout structures on specific exotic wagers  
          in the country.  Proponents indicate that the increased  
          takeout revenue would be focused on an agreed upon strategy  
          for stabilizing industry operations.  





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          SB 1072 would allow the CHRB to postpone and/or revoke the  
          implementation of the takeout increase, as defined, if the  
          board determines that the incremental amount received from  
          out-of-state betting systems is insufficient to achieve the  
          objective.

           Takeout Rate Comparisons  :  Currently, California has one of  
          the lowest takeouts on rates on exotic wagering (20.68%) in  
          the nation.  Del Mar Thoroughbred Club, Santa Anita Park,  
          Hollywood Park, and Golden Gate Fields rank in the top ten  
          nationally for offering the lowest takeout rate on exotic  
          wagers.

          Examples of a higher takeout rate (Thoroughbreds) for an  
          exotic wager (Trifecta) would be Fair Grounds in Louisiana  
          at 25%, Monmouth Park in New Jersey at 25%, Pimilco in  
          Maryland at 25.75%, Belmont Park and Saratoga Park in New  
          York at 26%, and Penn National in Pennsylvania at 31%  
          compared to California at 20.68%.   
           Even with the takeout increase as proposed, California will  
          still be in the middle-tier for its takeout on exotic  
          wagers compared to other racing prominent jurisdictions  
          across the country.
           
          Deteriorating Status of the Horse Racing Industry in  
          California  : The California horse racing industry's  
          long-term health is threatened by a combination of factors,  
          including competition from racing in other states, other  
          forms of gaming within California, racetrack bankruptcies  
          and the potential for higher return from development than  
          operating revenues.  As resources shrink, the industry is  
          experiencing deficits in virtually every one of its revenue  
          sources.  Traditional take out, allocation and distribution  
          formulas are no longer able to sustain ongoing operations.   
          As the value of racing operations declines, track ownership  
          is struggling to maximize shareholders' return on the  
          investment and tempted by alternative uses of the property  
          that yield higher returns.  Consequently, the racing  
          industry is suffering unprecedented instability and capital  
          flight.  Tens of thousands of industry jobs are in  
          immediate jeopardy, along with breeding farms and precious  
          open space in urban centers throughout California.  Also at  
          risk is a substantial amount of local and state revenue  
          generated both directly and indirectly by the industry.

           Exchange Wagering Component:   This measure would  




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          additionally authorize the CHRB to license entities to  
          operate exchange wagering systems that accept "exchange  
          wagers" from individuals residing either within or outside  
          of this state on horse races run in California or in other  
          states, so long as the process is conducted in compliance  
          with the federal Interstate Horseracing Act.  Exchange  
          wagering is defined as a means of parimutuel wagering in  
          which two or more persons place identically opposing wagers  
          on a horse race.  SB 1072 would require exchange wagering  
          agreements to be entered into by the exchange wagering  
          licensee, the applicable racing association or fair  
          conducting live racing in the state, and the horsemen's  
          organization representing the particular breed currently  
          racing at the meet, and that provides for the contractual  
          terms and conditions specifying the use of the racing  
          signal and the compensation returned to the respective  
          parties to the agreement, audit terms and conditions, and  
          contractual remedies.  

          Exchange wagering on horse racing is currently permitted in  
          England, where it has been reported to have contributed to  
          a double-digit increase in wagering handle as well as  
          helping to appeal to a different segment of the betting  
          public that generally did not gravitate to conventional  
          parimutuel wagering opportunities.  Similar legislation has  
          been introduced and is moving through the New Jersey State  
          Legislature as well.    

          Wagering on horse races in California is conducted using  
          the "parimutuel method" in which bettors are betting  
          against each other, with no other entity having an interest  
          or stake in the outcome of the race.  

          In traditional parimutuel wagering, each bettor selects the  
          horse or horses they choose to wager on an outcome (how  
          those individual horses will finish in a race - Win, Place,  
          and Show wagering) or the order of finish for multiple  
          numbers of horses (exotic wagers such as exacta, trifecta,  
          superfecta), and the amount which they desire to wager. The  
          odds on any particular horse are determined by the total  
                                    amount bet on the race by the individual bettors. The bets  
          made are pooled together and the parimutuel operator is  
          responsible for paying the winning bets from that pool. 

          In parimutuel "exchange wagering" (which involves bettors  
          betting against each other, with no other entity having an  




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          interest or stake in the outcome of the race), each bettor  
          again selects a horse, an outcome, and the amount the  
          bettor desires to wager.  Another bettor can match that  
          wager, choosing to wager the opposite of the original  
          wager.  For example, if bettor "A" thinks a horse will win  
          a race and would like to wager $2 to win on that horse at  
          1-1 odds, bettor "B" can match the wager for $2 at 1-1 odds  
          if bettor B has the opinion that the horse will not win the  
          race.  When wagers are matched, they are pooled together  
          and the parimutuel exchange wagering operator is  
          responsible for paying the winning bettors out of the pool  
          (just as is the case in all other forms of parimutuel  
          wagering on horse races in California.)  Parimutuel  
          exchange wagering is limited to win, place and show  
          wagering.  

          The racing industry derives revenue from traditional  
          parimutuel wagering from a "takeout" or "commission" that  
          is charged on every wager placed in the pool, and from  
          parimutuel exchange wagering from a "commission" that is  
          charged only on a bettor's net winnings on a particular  
          race.  In either case, those revenues are shared among the  
          horse owners (purses), the race tracks and the provider of  
          the parimutuel wagering service.  
           
           Breeders' Cup Component:  This measure is also intended to  
          encourage the Breeders' Cup to consider locating its series  
          of championship races on a permanent basis in California.   
          The State of California is in competition with the states  
          of Kentucky and New York to be the permanent home of the  
          Breeders' Cup, which is actively looking at a permanent  
          host location as a potential option as part of its ongoing  
          strategic planning initiative. The Breeders' Cup  
          Championship series of races were held in California in  
          2008 and 2009 and generated significant revenue and tourism  
          for the State.

          It is a well known fact that the California horse racing  
          industry is in distress and has lost favor with the public,  
          primarily due to competition with other forms of gambling  
          and declining popularity of its own product. Yet the horse  
          racing industry in this state remains an important segment  
          of the economy, generating by some estimates almost 50,000  
          jobs. It is the author's belief that locating the Breeders'  
          Cup on a permanent basis in California would generate $60  
          million in economic output and create over 500 direct and  




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          indirect jobs, according to the Los Angeles Economic  
          Development Corporation's estimate in relation to the 2009  
          Breeders' Cup that was held at Santa Anita racetrack.  To  
          that end, this measure would stipulate that the monies that  
          would have otherwise been distributed to a purse account  
          from the increased takeout on Breeders' Cup day(s) shall be  
          available for the purpose of promoting and sponsoring the  
          Breeders' Cup. 
           
           Marketing Program Component:  SB 27 (Maddy), Chapter 335,  
          Statutes of 1998, among its provision, created a private  
          statewide marketing organization for thoroughbred and fair  
          racing that is funded by 0.4 percent of the instate  
          off-track handle.  The funds generated from this  
          distribution are used to market California horse racing on  
          a statewide basis.  The California Marketing Committee  
          (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 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 will expire after this year due to a  
          sunset provision in the law unless there is legislation to  
          extend it.

          AB 1736 (Governmental Organization), Chapter 444, Statutes  
          of 2007, extended the sunset to January 1, 2011.  SB 1072  
          will extend the sunset of the program until January 1,  
          2014.  Additionally, SB 1072 makes various modifications to  
          the manner in which the marketing organization may expend  
          its revenue.  Furthermore, SB 1072 contains language which  




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          provides an amount not to exceed 0.05% of the total amount  
          handled by each satellite wagering facility shall be  
          distributed to the non-profit organization [the California  
          Horse Racing Information Management System, Inc (CHRIMS)]  
          designated by the CHRB for the purpose of maintaining a  
          database of horse racing information, as defined.

          Proponents indicate that the original funding for the  
          development of CHRIMS was provided by un-cashed vouchers  
          [AB 1418 (Tucker), Chapter 311, Statutes of 1994].  As  
          account wagering has proliferated and on-track and  
          off-track wagering have experienced severe declines in  
          handle due to economic conditions the revenues from  
          vouchers have declined dramatically.  CHRIMS has filled the  
          funding gap through the deferral of equipment and software  
          upgrades, direct industry surcharges and through the  
          development of outside revenues from services provided to  
          customers in other states.  However, voucher revenues have  
          continued to decline and are projected to decline by  
          $125,000 in 2010.  In addition, CHRIMS must repay capital  
          equipment financing provided by Oak Tree Racing Association  
          which was used to replace equipment on the verge of failure  
          and replace revenues from services previously provided to  
          the CMC for its player rewards and database marketing  
          efforts.  Proponents contend that this measure will help  
          ensure that CHRIMS remains a valuable technology and  
          marketing tool for California's horse racing industry. 
           
          Arguments in Support:   Proponents contend that SB 1072 is  
          about self-reliance, re-investing in California for growth,  
          and protecting jobs for the future.  Proponents claim this  
          measure would potentially increase purses by $25 million or  
          more annually thereby placing California's purse structure  
          on a competitive basis with other states.  Proponents also  
          argue that the higher purses will help increase field size  
          and provide increased handle.  Furthermore, proponents  
          believe there are adequate safeguards (checks and balances)  
          in this measure to ensure that implementation of "exchange  
          wagering" will benefit California's horse racing industry.   
            

           Arguments in Opposition:   Opponents are generally  
          supportive of the provisions in this measure pertaining to  
          the increase in the takeout on specified wagers as well as  
          the provisions intended to improve California's ability to  
          attract the Breeders' Cup World Championships however  




          SB 1072 (Calderon) continued                             
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          opponents have expressed concern with the provisions  
          authorizing "exchange wagering."  Opponents state that  
          "exchange wagering actually allows bettors using the  
          Internet to place bets that a horse will lose, rather than  
          win.  This is fraught with danger and threatens the very  
          integrity of horse racing in our state which is a  
          multi-billion dollar industry, providing tens of thousands  
          of jobs.  This also has the potential of actually reducing  
          on-track activity and could negatively impact jobs in the  
          future."  Opponents believe that exchange wagering is a  
          major policy change in horse racing law that warrants major  
          study and discussion prior to adoption by the Legislature.
           
          Staff Comments:   As noted above, "exchange wagering" is a  
          form of gambling in which two or more persons place  
          directly opposing wagers on the outcome of horse races and  
          "sporting events." Typically, exchange wagering allows a  
          better to "back" or wager on a selected horse to win, with  
          another bettor "laying" or wagering on that same horse  not  
          to win.   A back and a lay become matched when a bettor lays  
          at the same price at which another bettor backs that same  
          outcome, with the amount subject to the lay being  
          proportionately commensurate to the amount subject to the  
          back.  Exchange wagering allows the bettor to name his/her  
          own odds in the hopes of luring a match.

          While the potential for positive industry effects is  
          present with exchange wagering, so too is the prospect for  
          disaster.  Some within the industry believe that exchange  
          wagering may cannibalize traditional parimutuel wagering  
          and actually leave less money in the system for those  
          responsible for putting on the show, (e.g., owners,  
          breeders and racetracks), thus placing the future of horse  
          racing in jeopardy. 
           
                           PRIOR/RELATED LEGISLATION
           
           AB 2414 (Perez) 2009-10 Session.   Would sunset the exchange  
          wagering provisions of SB 1072 (Calderon) on May 1, 2016.   
          (Pending in Senate Rules Committee)
           
           SB 16xx (Ashburn), Chapter 12, Statutes of 2009-10 Second  
          Extraordinary Session.  Among other things, provided that  
          beginning on July 1, 2009, and annually thereafter,  
          thirty-two million ($32,000,000) shall be appropriated from  
          the state's General Fund and paid into the Fair and  




          SB 1072 (Calderon) continued                             
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          Exposition Fund for the financial support of the network of  
          California fairs.  
           
          SB 766 (Negrete McLeod) Chapter 766, Statutes of 2009.     
          Authorized the CHRB to shift money around from various  
          funds, including the marketing funds, which are in surplus,  
          to others that are in deficit, such as the Vanning and  
          Stabling Account.  

          SB 517 (Florez) Chapter 636, Statutes of 2009.   Allowed a  
          thoroughbred association or fair, subject to the approval  
          of the CHRB, to alter the amount deducted from horse racing  
          wagering.  Also, allowed the distribution of funds from the  
          amount deducted to be modified or redirected, subject to  
          the approval of CHRB.

           AB 246 (Price) Chapter 226, Statutes of 2009.   Authorized a  
          quarter horse associations, subject to approval by the  
          CHRB, and a harness racing association to deduct up to two  
          percent more from the total amount wagered in the  
          parimutuel pool for any type of wager, and, specified how  
          the funds shall be distributed to eligible satellite  
          wagering facilities, owners' purses and racetrack  
          commissions.

           AB 1499 (Evans) Chapter 151, Statutes of 2009.    
          Reauthorized a fair to deduct an additional 0.5 percent of  
          the total amount handled in exotic parimutuel pools of  
          races for any breed, other than races solely for  
          thoroughbreds, to defray workers' compensation insurance  
          costs for trainers and owners who race at an applicable  
          fair.  
           
           AB 1308 (Torrico) Chapter 410, Statutes of 2007.    
          Authorized 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 parimutuel pool for any type of wager.

           AB 1736 (Governmental Organization) Chapter 444, Statutes  
          of 2007.   Among other things, extended the sunset on  
          provisions to enable racing associations and fairs to fund  
          taking part in the statewide horse racing marketing  
          program.  

          AB 765 (Evans) Chapter 613, Statutes of 2007.    




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          Reauthorized horse racing's Advance Deposit Wagering law,  
          which was due to "sunset" on January 1, 2008, as specified.  
           In addition, provided that a fair, combination of fairs,  
          or an association conducting racing at a fair, may, with  
          CHRB approval, deduct an additional 1% from its handle, to  
          be used for maintenance and improvements at a fair's  
          racetrack inclosure, as specified.
           
          AB 2164 (Plescia) Chapter 80, Statutes of 2004.   Extended  
          the sunset on provisions to enable racing associations and  
          fairs to fund taking part in the statewide horse racing  
          marketing program to 2006. 
           
          AB 388 (Strickland) Chapter 174, Statutes of 2003.   
          Authorized CHRB to set the deduction for any new type of  
          wager introduced after January 1, 2004, in an amount of not  
          less than 10 percent nor more than 30 percent at the joint  
          request of an association or fair and the horsemen's  
          organization.
           
          AB 2931 (Horton) Chapter 922, Statutes of 2002.   Authorized  
          the racing associations to use funds earmarked for the CMC  
          for use in developing a program to off-set workers'  
          compensation rates for horse trainers in the state.  

          AB 2869 (Horton) Chapter 924, Statutes of 2002.   Allowed  
          CHRB to authorize a racing association and the organization  
          representing horsemen to reduce the portion deducted from  
          the parimutuel pool for purses and commissions, provided  
          that the change only affected funds available for purses  
          and commissions.

           AB 2502 (Wyland) Chapter 90, Statutes of 2002.   Extended  
          the sunset on provisions to enable racing associations and  
          fairs to fund taking part in the National Thoroughbred  
          Racing Association (NTRA) to increase interest in horse  
          racing. 
           
          AB 471 (Hertzberg) Chapter 198, Statutes of 2001.   Allowed  
          a California resident to wager on races (including most  
          out-of-state racetracks) using the phone, Internet or other  
          electronic media.

           SB 27 (Maddy) Chapter 335, Statutes of 1998.   Among other  
          things, granted major license fee relief ($40 million  
          annually) and limited out-of-state full-card simulcasting.   




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          Also, created the CMC that is funded by 0.4 percent of the  
          in-state off-track handle. 
           
          SB 103 (Maddy) Chapter 10, Statutes of 1998.    Provided for  
          California's involvement in the NTRA by permitting  
          thoroughbred owners to (pay to) take part in a national  
          marketing program to increase interest in horse racing. 

           

          SUPPORT  :  As of August 31, 2010:

          California Authority of Racing Fairs 
          California Horse Racing Board
          California Teamsters Public Affairs Council
          California Thoroughbred Breeders Association
          Del Mar Thoroughbred
          Hollywood Park
          Jockeys Guild
          Los Angeles County Fair
          Service Employees International Union
          Thoroughbred Owners of California
          TVG
          UNITE HERE

           OPPOSE  :  As of August 31, 2010:

          California Thoroughbred Trainers
          Churchill Downs Incorporated (Twin Spires, YouBet, and  
          United Tote)
          California Coalition Against Gambling Expansion (CCAGE)

           FISCAL COMMITTEE:   Senate Appropriations Committee

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