BILL ANALYSIS Ó Bill No: AB 1423 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2013-2014 Regular Session Staff Analysis AB 1423 Author: Committee on Governmental Organization As Introduced: March 21, 2013 Hearing Date: June 25, 2013 Consultant: Art Terzakis SUBJECT Horse Racing: advance deposit wagering and exchange wagering DESCRIPTION AB 1423 corrects an oversight in existing Horse Racing Law governing the distribution of funds from advanced deposit wagering for harness racing by the California Exposition and State Fair (Cal Expo) and adds clarity with respect to the time-frame for distribution of exchange wagering revenues that provide health and welfare benefits to jockeys and their dependents. Specifically, this measure: 1)Specifies that funds generated that were deducted from amounts handled on advance deposit wagering at harness race meetings that are held in trust by Cal Expo shall be distributed in the following manner: 50% to the harness racing horsemen who participated in the meeting concluding June 16, 2012, in the form of purses and 50% to Cal Expo, in the form of commissions. 2)Deletes the January 1, 2021 sunset date for the distribution of the revenue collected through exchange wagering for health and welfare benefits to jockeys and instead sunsets the provisions after the 10th annual distribution of those funds. 3)Also, makes minor technical and code maintenance changes. AB 1423 (Committee on Governmental Organization) continued Page 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 provides that the California Horse Racing Board (CHRB) shall regulate the various forms of horse racing authorized in this state and authorizes advance deposit wagering to be conducted, with the approval of the CHRB, 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. Existing law directs the CHRB to promulgate rules and regulations governing the conditions under which exchange wagering may be conducted and 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 (ADW) Law. The law provides that no exchange wagering licensee may accept wagers prior to May 1, 2012 and defines "exchange wagering" as a form of parimutuel wagering in which two or more persons place identically opposing wagers in a given market. In addition, existing law, until January 1, 2021, on an annual basis, requires that a specific amount of exchange wagering AB 1423 (Committee on Governmental Organization) continued Page 3 revenues, collected by exchange wagering licensees, be distributed to provide health and welfare benefits to jockeys and their dependents. BACKGROUND Purpose of AB 1423: According to the author's office, this measure is intended to correct an oversight in previous legislation. Specifically, it provides that money generated at harness racing meetings which are being held in trust by Cal Expo must be distributed in accordance with specified percentages to the harness horsemen who ran horses at the 2012 race meeting and to Cal Expo. The funds are currently being held in escrow because the defined distribution from ADW wagers on harness races requires the money be paid to an organization that does not have any association with California's harness industry. The original ADW statute called for the distribution to be made to the Jockeys' Guild Welfare Fund even though harness drivers are not a beneficiary of that fund. This measure corrects this distribution error by mandating that the monies stay within the harness racing industry and be split 50/50 between purses and commissions. By requiring the distribution of the previously escrowed funds, this measure is expected to result in immediate financial assistance to the horsemen and horsewomen that participated in the prior race meeting while also providing a benefit to Cal Expo, as the former operator. Additionally, this measure is intended to ensure that distributions from exchange wagering revenues will continue for a period of 10 years after the implementation of exchange wagering to provide health and welfare benefits to jockeys and their dependents, as intended in previous legislation. Staff Comments: Cal Expo is the only racetrack in the State that conducts harness racing. This year Cal Expo entered into an agreement with a private operator to continue the tradition of harness racing at the facility. The industry is hopeful that the new operator will be financially successful and secure the long-range future of the sport in California. "Exchange wagering" is a form of gambling in which two or AB 1423 (Committee on Governmental Organization) continued Page 4 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. 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 432 (V. Manuel Perez), 2013-14 Session. Would require 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 current law. (Pending in Senate Appropriations 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 AB 1423 (Committee on Governmental Organization) continued Page 5 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 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. 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 21, 2013: California Exposition and State Fair Golden Bear Racing Jockeys' Guild AB 1423 (Committee on Governmental Organization) continued Page 6 OPPOSE: None on file as of June 21, 2013. FISCAL COMMITTEE: Senate Appropriations Committee **********