BILL ANALYSIS Ó
Bill No: AB
432
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2013-2014 Regular Session
Staff Analysis
AB 432 Author: V. Manuel Perez
As Introduced: February 15, 2013
Hearing Date: June 11, 2013
Consultant: Art Terzakis
SUBJECT
Horse Racing: exchange wagering
DESCRIPTION
AB 432 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 in a manner, as
specified in existing law (Business & Professions Code
Section 19617.2).
EXISTING LAW
Article IV, Section 19(b) of the Constitution of the State
of California stipulates that the Legislature may provide
for the regulation of horse races and horse race meetings
and wagering on the results.
Existing Horse Racing Law stipulates that the California
Horse Racing Board (CHRB) shall regulate the various forms
of horse racing authorized in this state and directs 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. The law authorizes the CHRB to recover any costs
associated with the licensing or regulation of exchange
wagering by imposing an assessment on the exchange wagering
licensee in an amount that does not exceed the reasonable
costs associated with the licensing or regulation of
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exchange wagering.
Existing law allows exchange wagers to be submitted and
accepted by licensed exchange wagering systems in the same
manner as is currently provided for under Advanced Deposit
Wagering (e.g., in person, telephone, or Internet) Law.
The law provides that no exchange wagering licensee may
accept wagers prior to May 1, 2012. The law defines
"exchange wagering" as form of parimutuel wagering in which
two or more persons place identically opposing wagers in a
given market.
Additionally, existing law 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 the 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.
Existing law includes provisions similar to Advanced
Deposit Wagering (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.
Existing California Horse Racing Law (B&P Code Section
19617.2) provides that
any association conducting a race meeting that includes
thoroughbred racing shall deposit, at specified intervals,
with the official registering agency 0.54 % of the total
handled on-track in daily conventional and exotic
parimutuel pools resulting from thoroughbred wagers made in
the state. After deducting a sum equal to 5% of the
aforementioned and total deposits made from out of state
wagers, the amount to compensate the official registering
agency for its administrative costs and for expenses it
incurs for educational, promotional, and research programs,
the official registering agency is required to distribute
annually the balance of the deposits as follows: (a) 10% to
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the California-bred race fund to help promote
California-bred races; (b) of the remaining balance a
deduction for the purpose of owner premiums; and, (c) a 15%
deduction for the California-bred bonus program to be used
for the payment of bonuses to California-bred horses in
maiden allowance races in the state. Funds remaining after
the above distributions must be distributed as follows: (a)
75% to the breeder fund from which breeder awards are to be
paid and (b) 25% to the stallion fund from which stallion
awards are to be paid.
BACKGROUND
Purpose of AB 432: The author's office states that when
exchange wagering was authorized by the Legislature in 2010
(SB 1072 - Calderon, Chapter 283 of 2010), the enabling
legislation lacked clarity pertaining to the allotment of
exchange wagering revenues for California's Thoroughbred
breeders. The author's office 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).
Staff Comments: "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.,
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owners, breeders and racetracks), thus placing the future
of horse racing in jeopardy.
As noted above, existing law requires the CHRB to
promulgate administrative rules and regulations to
effectuate exchange wagering. At its November 2012 regular
meeting the CHRB adopted the proposed addition of Article
27 (Exchange Wagering), which comprises 25 regulations
governing the conduct of exchange wagering in California.
The exchange wagering rulemaking file was submitted to the
Office of Administrative Law (OAL) on January 31, 2013.
Two months later (March 31, 2013) OAL disapproved the file.
Of the 25 regulations submitted, the OAL cited necessity,
clarity or consistency issues with eight regulations, as
well as certain procedures of the Administrative Procedures
Act (APA). The CHRB has 120 days from the date of the
disapproval to correct and resubmit the rulemaking file.
PRIOR/RELATED LEGISLATION
AB 1423 (Committee on Governmental Organization) 2013-14
Session. Would remove the January 1, 2021 sunset date for
the distribution of the revenue collected through exchange
wagering and instead sunset the provisions after the 10th
annual distribution of those funds. (Pending in Senate
Rules Committee)
SB 1072 (Calderon), Chapter 283, Statutes of 2010. Made
the following substantive changes and additions to
California's Horse Racing Law: (1) required thoroughbred
racing associations and fairs to deduct an additional
amount of the total handle on exotic wagering for purse
augmentation; (2) authorized the CHRB to license entities
to operate "exchange wagering" systems; (3) required each
exchange wagering licensee to annually distribute a
specified amount of exchange wagering revenue to the
existing jockey health and benefit welfare fund; (4)
authorized the thoroughbred racing industry to use monies
from horse racing wagering pools to promote the Breeders'
Cup; (5) extended 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) provided that an
amount not to exceed 0.05% of the total amount handled by
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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.
AB 2414 (Perez), Chapter 299, Statutes of 2010. Sunset the
exchange wagering provisions of SB 1072 (Calderon) on May
1, 2016.
AB 765 (Evans), Chapter 613, Statutes of 2007. Among
other things, reauthorized horse racing's Advance Deposit
Wagering Law, which was due to "sunset" on January 1, 2008.
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 enclosure, 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 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.
AB 471 (Hertzberg), Chapter 198, Statutes of 2001.
Authorized the CHRB to permit any racing association,
racing fair, betting system or multijurisdictional wagering
hub to conduct advanced deposit wagering whereby a
California resident could deposit funds into an account in
order to wager via the Internet, phone or other media.
SUPPORT: As of June 7, 2013:
California Thoroughbred Breeders Association (sponsor)
OPPOSE: None on file as of June 7, 2013.
FISCAL COMMITTEE: Senate Appropriations Committee
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