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.





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                                   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  




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          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  




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          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  




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          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




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           OPPOSE:   None on file as of June 21, 2013.

           FISCAL COMMITTEE:   Senate Appropriations Committee

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