BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 432
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          Date of Hearing:   April 10, 2013

                   ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
                              Hall III, Isadore, Chair
             AB 432 (V. Manuel Pérez) - As Introduced:  February 15, 2013
           
          SUBJECT  :   Horse racing: exchange wagering.

           SUMMARY  :   Requires any racing association or racing fair  
          receiving distributions from any exchange provider's exchange  
          revenues to distribute a portion of that revenue to the official
          registering agency, as specified.

           EXISTING LAW  :

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

          2)  Provides that CHRB shall regulate the various forms of horse  
          racing authorized in this state.

          3)  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 wagers to be  
          submitted and accepted by licensed exchange wagering systems in  
          the same manner as is currently provided for Advanced Deposit  
          Wagering (e.g., in person, telephone, or Internet).  States that  
          exchange wagering shall not become operative until May 1, 2012.

          4)  Defines "exchange wagering" as form of pari-mutuel wagering  
          in which two or more persons place identically opposing wagers  
          in a given market.

          5)  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  








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          organization include certain specified provisions.

          6)  Includes language (similar to ADW law) relative to  
          supporting the contracting rights of pari-mutuel 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.

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   

          Purpose of the bill  :  According to the author, when exchange  
          wagering was authorized by the Legislature in 2010, the enabling  
          legislation lacked clarity pertaining to the allotment of  
          exchange wagering revenues for California's Thoroughbred  
          breeders.  

          The author states, that this bill simply clarifies that should  
          exchange wagering be implemented in California under Business &  
          Professions Code Section 19617.2, California Thoroughbred  
          breeders will not see a reduction in breeder, owner and stallion  
          owner incentives.  The intent of the bill is to ensure that each  
          official registering agency for a specific breed of horse  
          receives the same type of proportion distribution as retained  
          for other types of wagers in current law (on-track,  
          simulcasting, and ADW).

          The California Thoroughbred Breeders Association (CTBA) has not  
          taken a formal position on the implementation of exchange  
          wagering in California.

           Background  : SB 1072 (Ron Calderon), Chapter 283, Statutes of  
          2010, added Business and Professions Code section 19604.5 to  
          provide that the CHRB shall prescribe rules, regulations, and  
          conditions under which exchange wagering may be conducted in  
          California.  Exchange wagering is a relatively new form of  
          wagering which was introduced in the United Kingdom in 2000.   
          Exchange wagering account holders may buy, sell, or "back" and  
          "lay" the outcome of horse races in a manner much like day  
          trading on the stock exchange.  The statute defines exchange  
          wagering as a form of pari-mutuel wagering in which two or more  
          persons place identically opposing wagers in a given market.   
          Out-of-state residents, who live in states that allow wagering  
          on California races, are also allowed to participate in exchange  








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          wagering.

          After a lengthy rule-making process and review, in November  
          2012, the CHRB unanimously approved 25 rules regulating the  
          activity while also granting provisional licenses to operators  
          Betfair and Churchill Downs Incorporated.  

          Exchange wagering can only commence after a California racetrack  
          and the horsemen's organization at that racetrack reach an  
          agreement with one or more exchange wagering companies and the  
          agreement/operating plan is approved by the CHRB.

           Status of Exchange Wagering in California  :  In March 2013, the  
          state's Office of Administrative Law (OAL) notified the CHRB  
          that they disapproved the proposed exchange wagering regulations  
          for failure to comply with specified standards and procedures of  
          the California Administrative Procedure Act (APA).  The rejected  
          provisions were approved earlier this year by the CHRB.  The  
          CHRB has stated that this will delay the implementation of  
          exchange wagering in California for several months.  The OAL  
          cited problems with the manner in which the CHRB would assess  
          its licensing fee to conduct exchange wagering.  OAL also cited  
          instances in the regulations that did not to comply with  
          government rule-making standards for clarity, consistency, and  
          administrative procedures.  Rules for exchange wagering cannot  
          go into effect until approved by the OAL and sent to the  
          Secretary of State's office for final consideration.
           
          Prior legislation  :  SB 1072 (Ron Calderon), Chapter 283,  
          Statutes of 2010.  Authorized 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. The bill stated that exchange  
          wagering shall not become operative until May 1, 2012.

          AB 765 (Evans), Chapter 613, Statutes of 2007.  Reauthorized  
          horse racing's ADW law, which was set to "sunset" on January 1,  
          2008, as specified.   

          AB 471 (Hertzberg), Chapter 198, Statutes of 2001.  Allowed  
          customers to deposit funds into an account in order to wager  
          online and over the telephone (ADW).  ADW wagers are commingled  
          into pools at the host track where the races are run, and within  
          the pari-mutuel wagering system regulated by CHRB.  The bill  








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          established a process for the distribution of the revenue  
          received from ADW to mirror existing distributions for track  
          commissions, owner purses, and breeder incentive awards. 

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Thoroughbred Breeders Association

           Opposition 
           
          None on file
           
          Analysis Prepared by  :    Eric Johnson / G. O. / (916) 319-2531