BILL ANALYSIS Ó AB 432 Page 1 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 AB 432 Page 2 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 AB 432 Page 3 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 AB 432 Page 4 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