California Legislature—2013–14 Regular Session

Assembly Bill No. 1423

Introduced by Committee on Governmental Organization (Hall (Chair), Nestande (Vice Chair), Chesbro, Cooley, Gray, Hagman, Jones, Jones-Sawyer, Levine, Perea, V. Manuel Pérez, Salas, Torres, and Waldron)

March 21, 2013

An act to amend Sections 19604 and 19604.5 of the Business and Professions Code, relating to horse racing.

LEGISLATIVE COUNSEL’S DIGEST

AB 1423, as introduced, Committee on Governmental Organization. Horse racing: advance deposit wagering and exchange wagering deductions.

Existing law authorizes advance deposit wagering to be conducted, with the approval of the California Horse Racing Board, in accordance with specified provisions of law. Existing law requires a certain percentage of the amounts distributed for advance deposit wagering for racing meetings, except for harness racing meetings, to be deducted and distributed for the establishment and administration of a defined contribution retirement plan for California-licensed jockeys who retire on or after January 1, 2009, to supplement trainer-administered pension plans for backstretch personnel, and for distribution to a welfare fund established for horsemen and backstretch personnel, as specified. Existing law also requires a certain percentage of amounts distributed on advance deposit wagers for harness racing meetings to be deducted and distributed to a welfare fund established for the benefit of horsemen and backstretch personnel, and for any amounts remaining to be utilized for the benefit of horsemen pursuant to a written agreement between the racing association that conducts the live harness race meeting and the organization representing the horsemen, as specified.

This bill would require certain amounts generated at harness race meetings that are held in trust by the California Exposition and State Fair to be distributed to the harness racing horsemen who participated in a certain racing meeting, and to the California Exposition and State Fair, in accordance with specified percentages and requirements.

Existing law authorizes exchange wagering, as defined, by an entity licensed by the board, in accordance with specified provisions of law. Existing law, until January 1, 2021, on an annual basis, requires a certain amount of exchange revenues collected by exchange wagering licensees to be distributed to provide health and welfare benefits to jockeys and their dependents.

This bill would instead repeal those provisions on January 1 following the year in which the 10th annual distribution of those funds is made.

By imposing new requirements on licensees under the Horse Racing Law, a violation of which would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 19604 of the Business and Professions
Code is amended to read:

19604.  

The board may authorize any racing association, racing
fair, betting system, or multijurisdictional wagering hub to conduct
advance deposit wagering in accordance with this section. Racing
associations, racing fairs, and their respective horsemen’s
organizations may form a partnership, joint venture, or any other
affiliation in order to further the purposes of this section.

(a) As used in this section, the following definitions apply:

(1) “Advance deposit wagering” (ADW) means a form of
parimutuel wagering in which a person residing within California
or outside of this state establishes an account with an ADW
provider, and subsequently issues wagering instructions concerning
the funds in this account, thereby authorizing the ADW provider
holding the account to place wagers on the account owner’s behalf.

(2) “ADW provider” means a licensee, betting system, or
multijurisdictional wagering hub, located within California or
outside this state, that is authorized to conduct advance deposit
wagering pursuant to this section.

(3) “Betting system” means a business conducted exclusively
in this state that facilitates parimutuel wagering on races it
simulcasts and other races it offers in its wagering menu.

(4) “Breed of racing” means as follows:

(A) With respect to associations and fairs licensed by the board
to conduct thoroughbred, fair, or mixed breed race meetings, “breed
of racing” shall mean thoroughbred.

(B) With respect to associations licensed by the board to conduct
quarter horse race meetings, “breed of racing” shall mean quarter
horse.

(C) With respect to associations and fairs licensed by the board
to conduct standardbred race meetings, “breed of racing” shall
mean standardbred.

(5) “Contractual compensation” means the amount paid to an
ADW provider from advance deposit wagers originating in this
state. Contractual compensation includes, but is not limited to, hub
fee payments, and may include host fee payments, if any, for
out-of-state and out-of-country races. Contractual compensation
is subject to the following requirements:

(A) Excluding contractual compensation for host fee payments,
contractual compensation shall not exceed 6.5 percent of the
amount wagered.

(B) The host fee payments included within contractual
compensation shall not exceed 3.5 percent of the amount wagered.
Notwithstanding this provision, the host fee payment with respect
to wagers on the Kentucky Derby, Preakness Stakes, Belmont
Stakes, and selected Breeders’ Cup Championship races may be
negotiated by the ADW provider, the racing associations accepting
wagers on those races pursuant to Section 19596.2, and the
horsemen’s organization.

(C) In order to ensure fair and consistent market access fee
distributions to associations, fairs, horsemen, and breeders, for
each breed of racing, the percentage of wagers paid as contractual
compensation to an ADW provider pursuant to the terms of a hub
agreement with a racing association or fair when that racing
association or fair is conducting live racing shall be the same as
the percentage of wagers paid as contractual compensation to that
ADW provider when that racing association or fair is not
conducting live racing.

(6) “Horsemen’s organization” means, with respect to a
particular racing meeting, the organization recognized by the board
as responsible for negotiating purse agreements on behalf of
horsemen participating in that racing meeting.

(7) “Hub agreement” means a written agreement providing for
contractual compensation paid with respect to advance deposit
wagers placed by California residents on a particular breed of
racing conducted outside of California. In the event a hub
agreement exceeds a term of two years, then an ADW provider,
one or more racing associations or fairs that together conduct no
fewer than five weeks of live racing for the breed covered by the
hub agreement, and the horsemen’s organization responsible for
negotiating purse agreements for the breed covered by the hub
agreement shall be signatories to the hub agreement. A hub
agreement is required for an ADW provider to receive contractual
compensation for races conducted outside of California.

(8) “Hub agreement arbitration” means an arbitration proceeding
pursuant to which the disputed provisions of the hub agreement
pertaining to the hub or host fees from wagers on races conducted
outside of California provided pursuant to paragraph (2) of
subdivision (b) are determined in accordance with the provisions
of this paragraph. If a hub agreement arbitration is requested, all
of the following shall apply:

(A) The ADW provider shall be permitted to accept advance
deposit wagers from California residents.

(B) The contractual compensation received by the ADW
provider shall be the contractual compensation specified in the
hub agreement that is the subject of the hub agreement arbitration.

(C) The difference between the contractual compensation
specified in subparagraph (B) and the contractual compensation
determined to be payable at the conclusion of the hub agreement
arbitration shall be calculated and paid within 15 days following
the arbitrator’s decision and order. The hub agreement arbitration
shall be held as promptly as possible, but in no event more than
60 days following the demand for that arbitration. The arbitrator
shall issue a decision no later than 15 days following the conclusion
of the arbitration. A single arbitrator jointly selected by the ADW
provider and the party requesting a hub agreement arbitration shall
conduct the hub agreement arbitration. However, if the parties
cannot agree on the arbitrator within seven days of issuance of the
written demand for arbitration, then the arbitrator shall be selected
pursuant to the Streamlined Arbitration Rules and Procedures of
the Judicial Arbitration and Mediation Services, or pursuant to the
applicable rules of its successor organization. In making the hub
agreement arbitration determination, the arbitrator shall be required
to choose between the contractual compensation of the hub
agreement agreed to by the ADW provider or whatever different
terms for the hub agreement were proposed by the party requesting
the hub agreement arbitration. The arbitrator shall not be permitted
to impose new, different, or compromised terms to the hub
agreement. The arbitrator’s decision shall be final and binding on
the parties. If an arbitration is requested, either party may bring
an action in state court to compel a party to go into arbitration or
to enforce the decision of the arbitrator. The cost of the hub
agreement arbitration, including the cost of the arbitrator, shall be
borne in equal shares by the parties to the hub agreement and the
party or parties requesting a hub agreement arbitration. The hub
agreement arbitration shall be administered by the Judicial
Arbitration and Mediation Services pursuant to its Streamlined
Arbitration Rules and Procedures or its successor organization.

(9) “Incentive awards” means those payments provided for in
Sections 19617.2, 19617.7, 19617.8, 19617.9, and 19619. The
amount determined to be payable for incentive awards under this
section shall be payable to the applicable official registering agency
and thereafter distributed as provided in this chapter.

(10) “Licensee” means any racing association or fair licensed
to conduct a live racing meet in this state, or affiliation thereof,
authorized under this section.

(11) “Market access fee” means the amount of advance deposit
wagering handle remaining after the payment of winning wagers,
and after the payment of contractual compensation, if any, to an
ADW provider. Market access fees shall be distributed in
accordance with subdivision (f).

(12) “Multijurisdictional wagering hub” means a business
conducted in more than one jurisdiction that facilitates parimutuel
wagering on races it simulcasts and other races it offers in its
wagering menu.

(13) “Racing fair” means a fair authorized by the board to
conduct live racing.

(14) “Zone” means the zone of the state, as defined in Section
19530.5, except as modified by the provisions of subdivision (f)
of Section 19601. For these purposes, the central and southern
zones shall together be considered one zone.

(b) Wagers shall be accepted according to the procedures set
forth in this subdivision.

(1) No ADW provider shall accept wagers or wagering
instructions on races conducted in California from a resident of
California unless all of the following conditions are met:

(A) The ADW provider is licensed by the board.

(B) A written agreement allowing those wagers exists with the
racing association or fair conducting the races on which the wagers
are made.

(C) The agreement referenced in subparagraph (B) shall have
been approved in writing by the horsemen’s organization
responsible for negotiating purse agreements for the breed on
which the wagers are made in accordance with the Interstate
Horseracing Act (15 U.S.C. Sec. 3001 et seq.), regardless of the
location of the ADW provider, whether in California or otherwise,
including, without limitation, any and all requirements contained
therein with respect to written consents and required written
agreements of horsemen’s groups to the terms and conditions of
the acceptance of those wagers and any arrangements as to the
exclusivity between the host racing association or fair and the
ADW provider. For purposes of this subdivision, the substantive
provisions of the Interstate Horseracing Act shall be taken into
account without regard to whether, by its own terms, that act is
applicable to advance deposit wagering on races conducted in
California accepted from residents of California.

(2) No ADW provider shall accept wagers or wagering
instructions on races conducted outside of California from a
resident of California unless all of the following conditions are
met:

(A) The ADW provider is licensed by the board.

(B) There is a hub agreement between the ADW provider and
one or both of (i) one or more racing associations or fairs that
together conduct no fewer than five weeks of live racing on the
breed on which wagering is conducted during the calendar year
during which the wager is placed, and (ii) the horsemen’s
organization responsible for negotiating purse agreements for the
breed on which wagering is conducted.

(C) If the parties referenced in clauses (i) and (ii) of
subparagraph (B) are both signatories to the hub agreement, then
no party shall have the right to request a hub agreement arbitration.

(D) If only the party or parties referenced in clause (i) of
subparagraph (B) is a signatory to the hub agreement, then the
signatories to the hub agreement shall, within five days of
execution of the hub agreement, provide a copy of the hub
agreement to the horsemen’s organization responsible for
negotiating purse agreements for the breed on which wagering is
conducted for each race conducted outside of California on which
California residents may place advance deposit wagers. begin delete Prior to end delete
begin insert Before end insert receipt of the hub agreement, the horsemen’s organization
shall sign a nondisclosure agreement with the ADW provider
agreeing to hold confidential all terms of the hub agreement. If the
horsemen’s organization wants to request a hub agreement
arbitration, it shall send written notice of its election to the
signatories to the hub agreement within 10 days after receipt of
the copy of the hub agreement, and shall provide its alternate
proposal to the hub and host fees specified in the hub agreement
with that written notice. If the horsemen’s organization does not
provide that written notice within the 10-day period, then no party
shall have the right to request a hub agreement arbitration. If the
horsemen’s organization does provide that written notice within
the 10-day period, then the ADW provider shall have 10 days to
elect in writing to do one of the following:

(i) Abandon the hub agreement.

(ii) Accept the alternate proposal submitted by the horsemen’s
organization.

(iii) Proceed with a hub agreement arbitration.

(E) If only the party referenced in clause (ii) of subparagraph
(B) is a signatory to the hub agreement, then the signatories to the
hub agreement shall, within five days of execution of the hub
agreement, provide written notice of the host and hub fees
applicable pursuant to the hub agreement for each race conducted
outside of California on which California residents may place
advance deposit wagers, which notice shall be provided to all
racing associations and fairs conducting live racing of the same
breed covered by the hub agreement. If any racing association or
fair wants to request a hub agreement arbitration, it shall send
written notice of its election to the signatories to the hub agreement
within 10 days after receipt of the notice of host and hub fees. It
shall also provide its alternate proposal to the hub and host fees
specified in the hub agreement with the notice of its election. If
more than one racing association or fair provides notice of their
request for hub agreement arbitration, those racing associations or
fairs, or both, shall have a period of five days to jointly agree upon
which of their alternate proposals shall be the official proposal for
purposes of the hub agreement arbitration. If one or more racing
associations or fairs that together conduct no fewer than five weeks
of live racing on the breed on which wagering is conducted during
the calendar year during which the wager is placed does not provide
written notice of their election to arbitrate within the 10-day period,
then no party shall have the right to request a hub agreement
arbitration. If a valid hub agreement arbitration request is made,
then the ADW provider shall have 10 days to elect in writing to
do one of the following:

(i) Abandon the hub agreement.

(ii) Accept the alternate proposal submitted by the racing
associations or fairs.

(iii) Proceed with a hub agreement arbitration.

The results of any hub agreement arbitration elected pursuant
to this subdivision shall be binding on all other associations and
fairs conducting live racing on that breed.

(F) The acceptance thereof is in compliance with the provisions
of the Interstate Horseracing Act (15 U.S.C. Sec. 3001 et seq.),
regardless of the location of the ADW provider, whether in
California or otherwise, including, without limitation, any and all
requirements contained therein with respect to written consents
and required written agreements of horsemen’s groups to the terms
and conditions of the acceptance of the wagers and any
arrangements as to the exclusivity between the host racing
association or fair and the ADW provider.

(c) An advance deposit wager may be made only by the ADW
provider holding the account pursuant to wagering instructions
issued by the owner of the funds communicated by telephone call
or through other electronic media. The ADW provider shall ensure
the identification of the account’s owner by using methods and
technologies approved by the board. Any ADW provider that
accepts wagering instructions concerning races conducted in
California, or accepts wagering instructions originating in
California, shall provide a full accounting and verification of the
source of the wagers thereby made, including the postal ZIP Code
and breed of the source of the wagers, in the form of a daily
download of parimutuel data to a database designated by the board.
The daily download shall be delivered in a timely basis using file
formats specified by the database designated by the board, and
shall include any and all data necessary to calculate and distribute
moneys according to the rules and regulations governing California
parimutuel wagering. Any and all reasonable costs associated with
the creation, provision, and transfer of this data shall be borne by
the ADW provider.

(d) (1) (A) The board shall develop and adopt rules to license
and regulate all phases of operation of advance deposit wagering
for ADW providers operating in California, including advance
deposit wagering activity that takes place within a minisatellite
wagering facility. The board may recover any costs associated
with the licensing or regulation of advance deposit wagering
activities in a minisatellite wagering facility either directly from
the ADW provider or through an appropriate increase in the
funding formula devised by the board pursuant to paragraph (1)
of subdivision (a) of Section 19616.51.

(B) The board shall not approve an application for an original
or renewal license as an ADW provider unless the entity, if
requested in writing by a bona fide labor organization no later than
90 days begin delete prior to end delete begin insert before end insert licensing, has entered into a contractual
agreement with that labor organization that provides all of the
following:

(i) The labor organization has historically represented employees
who accept or process any form of wagering at the nearest horse
racing meeting located in California.

(ii) The agreement establishes the method by which the ADW
provider will agree to recognize and bargain in good faith with a
labor organization begin delete which end delete begin insert that end insert has demonstrated majority status by
submitting authorization cards signed by those employees who
accept or process any form of wagering for which a California
ADW license is required.

(iii) The agreement requires the ADW provider to maintain its
neutrality concerning the choice of those employees who accept
or process any form of wagering for which a California ADW
license is required whether or not to authorize the labor
organization to represent them with regard to wages, hours, and
other terms and conditions of employment.

(iv) The agreement applies to those classifications of employees
who accept or process wagers for which a California ADW license
is required whether the facility is located within or outside of
California.

(C) (i) The agreement required by subparagraph (B) shall not
be conditioned by either party upon the other party agreeing to
matters outside the requirements of subparagraph (B).

(ii) The requirement in subparagraph (B) shall not apply to an
ADW provider begin delete which end delete begin insert that end insert has entered into a collective bargaining
agreement with a bona fide labor organization that is the exclusive
bargaining representative of employees who accept or process
parimutuel wagers on races for which an ADW license is required
whether the facility is located within or outside of California.

(D) Permanent state or county employees and nonprofit
organizations that have historically performed certain services at
county, state, or district fairs may continue to provide those
services.

(E) Parimutuel clerks employed by racing associations or fairs
or employees of ADW providers who accept or process any form
of wagers who are laid off due to lack of work shall have
preferential hiring rights for new positions with their employer in
occupations whose duties include accepting or processing any
form of wagers, or the operation, repair, service, or maintenance
of equipment that accepts or processes any form of wagering at a
racetrack, satellite wagering facility, or ADW provider licensed
by the board. The preferential hiring rights established by this
subdivision shall be conditioned upon the employee meeting the
minimum qualification requirements of the new job.

(2) The board shall develop and adopt rules and regulations
requiring ADW providers to establish security access policies and
safeguards, including, but not limited to, the following:

(A) The ADW provider shall use board-approved methods to
perform location and age verification confirmation with respect
to persons establishing an advance deposit wagering account.

(B) The ADW provider shall use personal identification numbers
(PINs) or other technologies to assure that only the accountholder
has access to the advance deposit wagering account.

(C) The ADW provider shall provide for withdrawals from the
wagering account only by means of a check made payable to the
accountholder and sent to the address of the accountholder or by
means of an electronic transfer to an account held by the verified
accountholder or the accountholder may withdraw funds from the
wagering account at a facility approved by the board by presenting
verifiable account identification information.

(D) The ADW provider shall allow the board access to its
premises to visit, investigate, audit, and place expert accountants
and other persons it deems necessary for the purpose of ensuring
that its rules and regulations concerning credit authorization,
account access, and other security provisions are strictly complied
with. To ensure that the amounts retained from the parimutuel
handle are distributed under law, rules, or agreements, any ADW
provider that accepts wagering instructions concerning races
conducted in California or accepts wagering instructions originating
in California shall provide an independent “agreed-upon
procedures” audit for each California racing meeting, within 60
days of the conclusion of the race meeting. The auditing firm to
be used and the content and scope of the audit, including host fee
obligations, shall be set forth in the applicable agreement. The
ADW provider shall provide the board, horsemen’s organizations,
and the host racing association with an annual parimutuel audit of
the financial transactions of the ADW provider with respect to
wagers authorized pursuant to this section, prepared in accordance
with generally accepted auditing standards and the requirements
of the board. Any and all reasonable costs associated with those
audits shall be borne by the ADW provider.

(3) The board shall prohibit advance deposit wagering
advertising that it determines to be deceptive to the public. The
board shall also require, by regulation, that every form of
advertising contain a statement that minors are not allowed to open
or have access to advance deposit wagering accounts.

(e) In order for a licensee, betting system, or multijurisdictional
wagering hub to be approved by the board as an ADW provider,
it shall meet both of the following requirements:

(1) All wagers thereby made shall be included in the appropriate
parimutuel pool under a contractual agreement with the applicable
host track.

(2) The amounts deducted from advance deposit wagers shall
be in accordance with the provisions of this chapter.

(f) After the payment of contractual compensation, the amounts
received as market access fees from advance deposit wagers, which
shall not be considered for purposes of Section 19616.51, shall be
distributed as follows:

(1) An amount equal to 0.0011 multiplied by the amount handled
on advance deposit wagers originating in California for each racing
meeting shall be distributed to the Center for Equine Health to
establish the Kenneth L. Maddy Fund for the benefit of the School
of Veterinary Medicine at the University of California at Davis.

(2) An amount equal to 0.0003 multiplied by the amount handled
on advance deposit wagers originating in California for each racing
meeting shall be distributed to the Public Employment Relations
Board to cover costs associated with audits conducted pursuant to
Section 19526 and for begin delete the end delete purposes of reimbursing the State
Mediation and Conciliation Service for costs incurred pursuant to
this section. However, if that amount would exceed the costs of
the Public Employment Relations Board, the amount distributed
to that board shall be reduced, and that reduction shall be forwarded
to an organization designated by the racing association or fair
described in subdivision (a) for the purpose of augmenting a
compulsive gambling prevention program specifically addressing
that problem.

(3) An amount equal to 0.00165 multiplied by the amount
handled on advance deposit wagers that originate in California for
each racing meeting shall be distributed as follows:

(A) One-half of the amount shall be distributed to supplement
the trainer-administered pension plans for backstretch personnel
established pursuant to Section 19613. Moneys distributed pursuant
to this subparagraph shall supplement, and not supplant, moneys
distributed to that fund pursuant to Section 19613 or any other
provision of law.

(B) One-half of the amount shall be distributed to the welfare
fund established for the benefit of horsemen and backstretch
personnel pursuant to subdivision (b) of Section 19641. Moneys
distributed pursuant to this subparagraph shall supplement, and
not supplant, moneys distributed to that fund pursuant to Section
19641 or any other provision of law.

(4) With respect to wagers on each breed of racing that originate
in California, an amount equal to 2 percent of the first two hundred
fifty million dollars ($250,000,000) of handle from all advance
deposit wagers originating from within California annually, an
amount equal to 1.5 percent of the next two hundred fifty million
dollars ($250,000,000) of handle from all advance deposit wagers
originating from within California annually, an amount equal to
1 percent of the next two hundred fifty million dollars
($250,000,000) of handle from all advance deposit wagers
originating from within California annually, and an amount equal
to 0.50 percent of handle from all advance deposit wagers
originating from within California in excess of seven hundred fifty
million dollars ($750,000,000) annually, shall be distributed as
satellite wagering commissions. Satellite wagering facilities that
were not operational in 2001, other than one each in the Cities of
Inglewood and San Mateo, and two additional facilities each
operated by the Alameda County Fair and the Los Angeles County
Fair and their partners and other than existing facilities begin delete which end delete begin insert that end insert
are relocated, are not eligible for satellite wagering commission
distributions under this section. The satellite wagering facility
commissions calculated in accordance with this subdivision shall
be distributed to each satellite wagering facility and racing
association or fair in the zone in which the wager originated in the
same relative proportions that the satellite wagering facility or the
racing association or fair generated satellite commissions during
the previous calendar year. If there is a reduction in the satellite
wagering commissions pursuant to this section, the benefits
therefrom shall be distributed equitably as purses and commissions
to all associations and racing fairs generating advance deposit
wagers in proportion to the handle generated by those associations
and racing fairs. If a satellite wagering facility is permanently
closed other than for renovation or remodeling, or if a satellite
wagering facility is unwilling or unable to accept all of the signals
that are available to that facility, the commissions otherwise
provided for in this subdivision that would be payable to that
facility shall be proportionately reduced to take into account the
time that satellite wagering is no longer conducted by that facility,
or the payment of those commissions shall be eliminated entirely
if the facility is permanently closed, and, in either case, the satellite
wagering commissions not paid shall be proportionately
redistributed to the other eligible satellite wagering facilities. For
purposes of this section, the purse funds distributed pursuant to
Section 19605.72 shall be considered to be satellite wagering
facility commissions attributable to thoroughbred races at the
locations described in that section.

(5) After the distribution of the amounts set forth in paragraphs
(1) to (4), inclusive, the remaining market access fees from advance
deposit wagers originating in California shall be as follows:

(A) With respect to wagers on each breed of racing, the amount
remaining shall be distributed to the racing association or fair that
is conducting live racing on that breed during the calendar period
in the zone in which the wager originated. That amount shall be
allocated to that racing association or fair as commissions, to
horsemen participating in that racing meeting in the form of purses,
and as incentive awards, in the same relative proportion as they
were generated or earned during the prior calendar year at that
racing association or fair on races conducted or imported by that
racing association or fair after making all deductions required by
applicable law. Notwithstanding any other begin delete provision of end delete law, the
distributions with respect to each breed of racing set forth in this
subparagraph may be altered upon the approval of the board, in
accordance with an agreement signed by the respective
associations, fairs, horsemen’s organizations, and breeders
organizations receiving those distributions.

(B) If the provisions of Section 19601.2 apply, then the amount
distributed to the applicable racing associations or fairs shall first
be divided between those racing associations or fairs in direct
proportion to the total amount wagered in the applicable zone on
the live races conducted by the respective association or fair.
Notwithstanding this requirement, when the provisions of
subdivision (b) of Section 19607.5 apply to the 2nd District
Agricultural Association in Stockton or the California Exposition
and State Fair in Sacramento, then the total amount distributed to
the applicable racing associations or fairs shall first be divided
equally, with 50 percent distributed to applicable fairs and 50
percent distributed to applicable associations.

(C) Notwithstanding any provisions of this section to the
contrary, with respect to wagers on out-of-state and out-of-country
thoroughbred races conducted after 6 p.m., Pacific time, 50 percent
of the amount remaining shall be distributed as commissions to
thoroughbred associations and racing fairs, as thoroughbred and
fair purses, and as incentive awards in accordance with
subparagraph (A), and the remaining 50 percent, together with the
total amount remaining from advance deposit wagering originating
from California out-of-state and out-of-country harness and quarter
horse races conducted after 6 p.m., Pacific time, shall be distributed
as commissions on a pro rata basis to the applicable licensed
quarter horse association and the applicable licensed harness
association, based upon the amount handled in state, both on- and
off-track, on each breed’s own live races in the previous year by
that association, or its predecessor association. One-half of the
amount thereby received by each association shall be retained by
that association as a commission, and the other half of the money
received shall be distributed as purses to the horsemen participating
in its current or next scheduled licensed racing meeting.

(D) Notwithstanding any provisions of this section to the
contrary, with respect to wagers on out-of-state and out-of-country
nonthoroughbred races conducted before 6 p.m., Pacific time, 50
percent of the amount remaining shall be distributed as
commissions as provided in subparagraph (C) for licensed quarter
horse and harness associations, and the remaining 50 percent shall
be distributed as commissions to the applicable thoroughbred
associations or fairs, as thoroughbred and fair purses, and as
incentive awards in accordance with subparagraph (A).

(E) Notwithstanding any provision of this section to the contrary,
the distribution of market access fees pursuant to this subparagraph
may be altered upon the approval of the board, in accordance with
an agreement signed by all parties whose distributions would be
affected.

(g) A racing association, a fair, a satellite wagering facility, or
a minisatellite wagering facility may enter into an agreement with
an ADW provider to accept and facilitate the placement of any
wager from a patron at its facility that a California resident could
make through that ADW provider. Deductions from wagers made
pursuant to the agreement shall be distributed in accordance with
the provisions of this chapter governing wagers placed at that
facility, except that the board may authorize alternative
distributions as agreed to by the ADW provider, the operator of
the facility accepting the wager, the association or fair conducting
that breed of racing in the zone where the wager is placed, and the
respective horsemen’s organization.

(h) Any issues concerning the interpretation or application of
this section shall be resolved by the board.

(i) Amounts distributed under this section shall be proportionally
reduced by an amount equal to 0.00295 multiplied by the amount
handled on advance deposit wagers originating in California for
each racing meeting, except for harness racing meetings, provided
that the amount of this reduction shall not exceed two million
dollars ($2,000,000). The method used to calculate the reduction
in proportionate share shall be approved by the board. The amount
deducted shall be distributed as follows:

(1) Fifty percent of the money to the board to establish and to
administer jointly with the organization certified as the majority
representative of California-licensed jockeys pursuant to Section
19612.9, a defined contribution retirement plan for
California-licensed jockeys who retired from racing on or after
January 1, 2009.

(2) The remaining 50 percent of the money shall be distributed
as follows:

(A) Seventy percent shall be distributed to supplement the
trainer-administered pension plans for backstretch personnel
established pursuant to Section 19613. Moneys distributed pursuant
to this subparagraph shall supplement, and not supplant, moneys
distributed to that fund pursuant to Section 19613 or any other
provision of law.

(B) Thirty percent shall be distributed to the welfare fund
established for the benefit of horsemen and backstretch personnel
pursuant to subdivision (b) of Section 19641. Moneys distributed
pursuant to this subparagraph shall supplement, and not supplant,
moneys distributed to that fund pursuant to Section 19641 or any
other provision of law.

(j) Amounts distributed under this section shall be proportionally
reduced by an amount equal to 0.00295 multiplied by the amount
handled on advance deposit wagers originating in California for
each harness racing meeting, provided that the amount of this
reduction shall not exceed five hundred thousand dollars
($500,000). The method used to calculate the reduction in
proportionate share shall be approved by the board. The amount
deducted shall be distributed as follows:

(1) First to the welfare fund established for the benefit of
horsemen and backstretch personnel, pursuant to subdivision (b)
of Section 19641, and administered by the organization
representing the horsemen participating in the race meeting, in the
amount requested by the welfare fund. Moneys distributed pursuant
to this paragraph shall supplement, and not supplant, moneys
distributed to that fund pursuant to Section 19641 or any other
provision of law.

(2) The amount remaining, if any, shall be utilized for the benefit
of the horsemen as specified in a written agreement between the
racing association that conducts the live harness race meeting and
the organization representing the horsemen participating in the
race meeting.

begin insert

(k) Notwithstanding subdivision (j), amounts generated that
were deducted from amounts handled on advance deposit wagering
for harness racing meetings pursuant to subdivision (i), as that
section read before the enactment of subdivision (j), that have been
held in trust by the California Exposition and State Fair shall be
distributed as follows:

end insert begin insert

(1) Fifty percent to the harness racing horsemen who
participated in the racing meeting that concluded June 16, 2012,
in the form of purses.

end insert begin insert

(2) Fifty percent to the California Exposition and State Fair in
the form of commissions.

end insert

SEC. 2.  

Section 19604.5 of the Business and Professions Code
is amended to read:

19604.5.  

(a) As used in this section, the following definitions
apply:

(1) “Back” means to wager on a selected outcome occurring in
a given market.

(2) “Board” means the California Horse Racing Board.

(3) “Corrective wager” means an exchange wager placed by the
exchange wagering licensee in a given market, under circumstances
approved by the board, in order to address the impact on that
market of the cancellation or voiding of a given matched wager
or a given part of a matched wager.

(4) “Exchange” means a system operated by an exchange
wagering licensee in which the exchange wagering licensee
maintains one or more markets in which persons may back or lay
a selected outcome.

(5) “Exchange revenues” means all charges, fees, income,
payments, revenues, and deductions of any kind assessed or
collected by, or paid or delivered to, an exchange wagering licensee
in connection with the submission of any exchange wagers to the
exchange wagering licensee by residents of California and residents
of jurisdictions outside of California on the results of horse races
conducted in California, and by residents of California on the
results of horse races conducted outside of California.

(6) “Exchange wagers” means wagers submitted to an exchange
wagering licensee to be posted in a market on an exchange.

(7) “Exchange wagering” means a form of parimutuel wagering
in which two or more persons place identically opposing wagers
in a given market.

(8) “Exchange wagering account” means the account established
with an exchange wagering licensee by a person participating in
exchange wagering. An exchange wagering account may only be
established or maintained with an exchange wagering licensee by
a natural person.

(9) “Exchange wagering agreement” means 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 provisions for, but
are not limited to, all of the following:

(A) Calculation of any and all amounts earned and payable to
the applicable racing association or racing fair and horsemen’s
organization.

(B) Audit rights and conditions.

(C) Duration terms.

(D) Contractual remedies.

(10) “Exchange wagering licensee” means a person located
within or outside of California that is authorized to offer exchange
wagering to residents of California pursuant to this section.

(11) “Identically opposing wagers” means wagers in which one
or more persons offer to lay a selected outcome at the same price
at which one or more persons offer to back that same outcome,
with the amount subject to the lay being proportionately
commensurate to the amount subject to the back.

(12) “Lay” means to wager on a selected outcome not occurring
in a given market.

(13) “Market” means, in relation to a given horse race or a given
set of horse races, a particular outcome that is subject to exchange
wagering as determined by an exchange wagering licensee.

(14) “Matched wager” means the wager that is formed when
two or more persons are confirmed by the exchange operator as
having placed identically opposing wagers in a given market on
the exchange.

(15) “Net winnings” means the aggregate amounts payable to
a person as a result of that person’s winning matched wagers in a
pool less the aggregate amount paid by that person as a result of
that person’s losing matched wagers in that pool.

(16) “Parimutuel” means any system whereby wagers with
respect to the outcome of a horse race are placed with, or in, a
wagering pool conducted by an authorized person, and in which
the participants are wagering with each other and not against the
person conducting the wagering pool.

(17) “Person” means any individual, partnership, corporation,
limited liability company, or other association or organization.

(18) “Pool” means the total of all matched wagers in a given
market.

(19) “Price” means the odds for a given exchange wager.

(20) “Unmatched wager” means a wager or portion of a wager
placed in a given market within an exchange that does not become
part of a matched wager because there are not one or more available
exchange wagers in that market with which to form one or more
identically opposing wagers.

(21) “Zone” has the same meaning as defined in Section
19530.5, as modified by subdivision (f) of Section 19601, except
that for begin delete the end delete purposes of this section the combined central and
southern zones shall be considered one “central/southern” zone.

(b) Notwithstanding any other law, rule, or regulation, exchange
wagering by residents of California and residents of jurisdictions
outside of California on the results of horse races conducted in
California, and by residents of California on the results of horse
races conducted outside of California, shall be lawful provided
that all of the following apply:

(1) Exchange wagering shall only be conducted by an exchange
wagering licensee pursuant to a valid exchange wagering license
issued by the board.

(2) 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 exists allowing these wagers.

(3) Exchange wagering shall be conducted pursuant to and in
compliance with the provisions of the Interstate Horseracing Act
of 1978 (15 U.S.C. Sec. 3001 et seq.), as amended, this section,
all applicable federal laws, and rules and regulations promulgated
by the board pursuant to this section.

(4) An exchange wagering licensee may only offer exchange
wagering on thoroughbred horse races, whether these thoroughbred
races are conducted within or outside of this state, to persons whose
primary residence address is in the northern zone of this state if it
has an exchange wagering agreement with (A) the racing
association or racing fair located in the northern zone authorized
by the board to conduct a live thoroughbred racing meeting in
accordance with the provisions of Article 4 (commencing with
Section 19480) at that time, or during the calendar period, when
the exchange wagering licensee is offering exchange wagering to
persons whose primary residence is in the northern zone of this
state, and (B) the horsemen’s organization responsible for
negotiating purse agreements for a live thoroughbred racing
meeting.

(5) An exchange wagering licensee may only offer exchange
wagering on thoroughbred horse races, whether these thoroughbred
races are conducted within or outside of this state, to persons whose
primary residence address is in the central/southern zone of this
state if it has an exchange wagering agreement with (A) the racing
association or racing fair located in the central/southern zone
authorized by the board to conduct a live thoroughbred racing
meeting in accordance with the provisions of Article 4
(commencing with Section 19480) at that time, or during the
calendar period, when the exchange wagering licensee is offering
exchange wagering to persons whose primary residence is in the
central/southern zone of this state, and (B) the horsemen’s
organization responsible for negotiating purse agreements for a
live thoroughbred racing meeting.

(6) An exchange wagering licensee may only offer exchange
wagering on quarter horse races, whether these quarter horse races
are conducted within or outside of this state, to persons whose
primary residence address is in this state if it has an exchange
wagering agreement with (A) the racing association or racing fair
located in the state authorized by the board to conduct a live quarter
horse racing meeting in accordance with the provisions of Article
4 (commencing with Section 19480) at that time, or during the
calendar period, when the exchange wagering licensee is offering
exchange wagering to persons whose primary residence is this
state, and (B) the horsemen’s organization responsible for
negotiating purse agreements for the live quarter horse racing
meeting.

(7) An exchange wagering licensee may only offer exchange
wagering on standardbred horse races, whether these standardbred
horse races are conducted within or outside of this state, to persons
whose primary residence address is in this state if it has an
exchange wagering agreement with (A) the racing association or
racing fair located in the state authorized by the board to conduct
a live standardbred racing meeting in accordance with the
provisions of Article 4 (commencing with Section 19480) at that
time, or during the calendar period, when the exchange wagering
licensee is offering exchange wagering to persons whose primary
residence is this state, and (B) the horsemen’s organization
responsible for negotiating purse agreements for the live
standardbred racing meeting.

(8) Exchange wagers are submitted to, and accepted by, an
exchange wagering licensee in person, by direct telephone call, or
by communication through other electronic media.

(c) A person shall not be permitted to open an exchange
wagering account, or place an exchange wager, except in
accordance with federal law, this section, and rules and regulations
promulgated by the board. Only natural persons with valid
exchange wagering accounts may place wagers through an
exchange. To establish an exchange wagering account, a person
shall be at least 18 years of age and a resident of California or of
another jurisdiction within which the placement of exchange
wagers would not be unlawful under United States federal law or
the law of that jurisdiction.

(d) The board shall approve, as part of the exchange wagering
licensee’s application for an exchange wagering license, security
policies and safeguards to ensure player protection and integrity,
including, but not limited to, provisions governing the acceptance
of electronic applications for persons establishing exchange
wagering accounts, location and age verification confirmation for
persons establishing exchange wagering accounts, the use of
identifying factors to ensure security of individual accounts, and
the requirements for management of funds in exchange wagering
accounts. An exchange wagering licensee may not accept a wager,
or series of wagers, if the results of the wager or wagers would
create a liability for the exchange wagering accountholder that is
in excess of the funds on deposit in the exchange wagering account
of that holder.

(e) Notwithstanding any other law, rule, or regulation:

(1) The board shall have full power to prescribe rules,
regulations, and conditions under which exchange wagering may
be conducted in California consistent with this section, including
the manner in which exchange wagers may be accepted and the
requirements for any person to participate in exchange wagering.

(2)  begin delete Prior to end delete begin insert Before end insert promulgating rules, regulations, and
conditions under which exchange wagering may be conducted in
California, the board shall consider studies or comments submitted
by interested parties on the impact of exchange wagering on
parimutuel betting and the economics of the California 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 California horse racing industry. The board may
set a timeframe for comments and studies to be submitted by
interested parties and for the board to consider the studies and
comments so as to allow sufficient time, in the discretion of the
board, to allow for the promulgation of rules, regulations, and
conditions for exchange wagering and the issuance of licenses for
exchange wagering begin delete prior to end delete begin insert before end insert May 1, 2012.

(3) Notwithstanding paragraph (1), the board shall adopt the
following rules:

(A) An owner, authorized agent, trainer, jockey, jockey’s agent,
driver, or stable employee shall not place an exchange wager to
lay any entrant in a horse race that is owned in whole or part by
that owner or the owner represented by that authorized agent,
trained by that trainer or stable employee, ridden by that jockey
or the jockey represented by that jockey’s agent, or driven by that
driver.

(B) No exchange wagers shall be placed on a market after the
conclusion of a live race. Exchange wagering on previously run
races is prohibited.

(C) The exchange wagering licensee shall provide a person with
information on the race, including the track where the race will
take place and the names of the participating horses, before the
person may place an exchange wager.

(D) The exchange wagering licensee shall require the person
making the exchange wager to select the specific race and horse
for the wager. The use of automatic, quick-pick, or similar features
to aid in the placing of a wager shall be prohibited.

(E) The results of a wager shall not be displayed through the
use of video or mechanical reels or other slot machine or casino
game themes, including, but not limited to, dice games, wheel
games, card games, and lotto.

(4) The board shall have full power to prescribe rules,
regulations, and conditions under which all exchange wagering
licenses are issued or renewed in California, including requiring
an annual audit of the exchange wagering licensee’s books and
records pertaining to exchange wagering, and to revoke, suspend,
or refuse to renew a license pursuant to the authority granted to
the board in this chapter.

(5) The board may reasonably require licensure or registration
of officers or directors of any exchange wagering licensee.

(6) The board may recover any costs associated with the
licensing or regulation of exchange wagering from the exchange
wagering licensee 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 exchange
wagering. Funds received pursuant to this subdivision shall be
deposited in the Horse Racing Fund, to be available upon
appropriation by the Legislature for the sole purpose of regulating
exchange wagering.

(f) (1) The board shall not approve an application for an original
or renewal license as an exchange wagering licensee unless the
entity, if requested in writing by a bona fide labor organization no
later than 90 days begin delete prior to end delete begin insert before end insert licensing, has entered into a
contractual agreement with that labor organization that provides
all of the following:

(A) The labor organization has historically represented
employees who accept or process any form of wagering at the
nearest horse racing meeting located in California.

(B) The agreement establishes the method by which the
exchange wagering licensee will agree to recognize and bargain
in good faith with a labor organization begin delete which end delete begin insert that end insert has demonstrated
majority status by submitting authorization cards signed by those
employees who accept or process any form of wagering for which
a California exchange wagering license is required.

(C) The agreement requires the exchange wagering licensee to
maintain its neutrality concerning the choice of those employees
who accept or process any form of wagering for which a California
exchange wagering license is required and whether or not to
authorize the labor organization to represent them with regard to
wages, hours, and other terms and conditions of employment.

(D) The agreement applies to those classifications of employees
who accept or process wagers for which a California exchange
wagering license is required, whether the facility is located within
or outside of California.

(2) (A) The agreement required by paragraph (1) shall not be
conditioned by either party upon the other party agreeing to matters
outside the requirements of paragraph (1).

(B) The requirement in paragraph (1) shall not apply to an
exchange wagering licensee that has entered into a collective
bargaining agreement with a bona fide labor organization that is
the exclusive bargaining representative of employees who accept
or process parimutuel wagers on races for which an exchange
wagering license is required, whether the facility is located within
or outside of California.

(3) Permanent state or county employees and nonprofit
organizations that have historically performed certain services at
county, state, or district fairs may continue to provide those
services.

(4) Parimutuel clerks employed by racing associations or fairs
or employees of exchange wagering licensees who accept or
process any form of wagers who are laid off due to lack of work
shall have preferential hiring rights for new positions with their
employer in occupations whose duties include accepting or
processing any form of wagers, or the operation, repair, service,
or maintenance of equipment that accepts or processes any form
of wagering at a racetrack, satellite wagering facility, or exchange
wagering licensee licensed by the board. The preferential hiring
rights established by this paragraph shall be conditioned upon the
employee meeting the minimum qualification requirements of the
new job.

(g) Notwithstanding any other law, rule, or regulation, an
exchange wagering licensee shall not be required to include any
pools of exchange wagers in the wagering pools at the racing
association or racing fair conducting the races, nor shall an
exchange wagering licensee be required to retain, withhold, or
take out any amounts from any exchange wagers, except as
expressly set forth in the applicable exchange wagering agreement.

(h) Subject to the approval of the board, an exchange wagering
licensee shall be permitted to collect exchange revenues in the
manner and amounts determined by the exchange wagering
licensee, including, but not limited to, assessing a surcharge on
any person’s net winnings.

(i) Notwithstanding any other law, rule, or regulation, the board
shall require all of the following:

(1) Each exchange wagering licensee shall distribute all moneys
in each pool, net of any fees, charges, or deductions of any kind
assessed or collected by the exchange wagering licensee in
connection with matched wagers in that pool, at the conclusion of
the race or races associated with that pool.

(2) Each exchange wagering licensee shall distribute the portions
of the exchange wagering licensee’s exchange revenues as may
be required pursuant to the exchange wagering agreement pursuant
to paragraphs (2) to (7), inclusive, of subdivision (b).

(3) Fifty percent of the amounts received by a racing association
or racing fair from exchange wagering shall be paid to horsemen
participating in the meetings conducted by that racing association
or racing fair in the form of purses. The allocation of amounts
received by a racing association or racing fair from exchange
wagering between that racing association or racing fair and the
horsemen participating in the meetings conducted by that racing
association or racing fair may be modified by a written agreement
between those entities.

(4) In addition to payments set forth in paragraphs (1) and (2),
each exchange wagering licensee shall distribute, on an annual
basis, begin insert for the purposes specified in Section 19612.9, end insert an amount
equal to the greater of (A) one hundred thousand dollars
($100,000), or (B) an amount equal to 0.001 multiplied by the total
amount of exchange revenues collected by the exchange wagering
licensee in that calendar year. The distribution shall be made at
the direction of the board pursuant to Section 19612.9. This
paragraph shall become inoperative on January 1 begin delete , 2021, end delete
begin insert immediately following the year in which the 10th annual
distribution of funds is made pursuant to Section 19612.9, end insert and,
as of that date, is repealed begin delete , unless a later enacted statute that is
enacted before January 1, 2021, deletes or extends that date end delete .

(j) An exchange wagering licensee may cancel or allow to be
canceled any unmatched wagers, without cause, at any time.

(k) The board may prescribe rules governing when an exchange
wagering licensee may cancel or void a matched wager or part of
a matched wager, and the actions begin delete which end delete begin insert that end insert an exchange wagering
licensee may take when all or part of a matched wager is canceled
or voided. The rules may include, but are not limited to, permitting
the exchange wagering licensee to place corrective wagers under
circumstances approved in the rules adopted by the board.
Exchange wagers placed on a market after the start of a race shall
be lawful if authorized by the board, racing association, or racing
fair conducting the races, and the horsemen’s organization
responsible for negotiating purse agreements for the breed on
which the exchange wager is made.

(l) The provisions of this section shall be deemed to be
severable, and if any phrase, clause, sentence, or provision of this
section is declared to be unconstitutional or the applicability thereof
to any person is held invalid, the remainder of this section shall
not thereby be deemed to be unconstitutional or invalid.

(m) The board shall promulgate administrative rules and
regulations to effectuate the purposes of this section.

(n) No exchange wagering licensee may accept exchange wagers
pursuant to this section begin delete prior to end delete begin insert before end insert May 1, 2012.

SEC. 3.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.