BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2808


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          Date of Hearing:  April 6, 2016


                   ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION


                                  Adam Gray, Chair


          AB 2808  
          (Gipson) - As Introduced February 19, 2016


          SUBJECT:  Horse racing:  exchange wagering:  repeal deletion


          SUMMARY:  Existing law allows the California Horse Racing Board  
          (CHRB) to authorize exchange wagering, as specified, and makes  
          the exchange wagering provisions inoperative on May 1, 2016, and  
          repeals them on January 1, 2017.  This bill would delete the  
          inoperative and repeal dates.


          


          EXISTING LAW:  


          1)Provides that California Horse Racing Board (CHRB) shall  
            regulate the various forms of horse racing authorized in this  
            state.  



          2)Provides that CHRB shall have all powers necessary to carry  
            out the purposes of the Horse Racing Law, such as adopting  
            rules and regulations to protect the public, allocating dates  
            for and controlling horse racing and pari-mutuel wagering, and  








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            enforcing all rules and regulations.



          3)Provides that "pari-mutuel wagering" is a form of wagering in  
            which bettors either purchase tickets of various  
            denominations, or issue wagering instructions leading to the  
            placement of wagers, on the outcome of one or more horse  
            races.  When the outcome of the race or races has been  
            declared official, the association distributes the total  
            wagers comprising each pool, less the amounts retained for  
            purposes specified in this chapter, to winning bettors.

          4)Provides that CHRB may authorize any racing association,  
            racing fair, betting system, or multijurisdictional wagering  
            hub to conduct Advance Deposit Wagering (ADW), as specified.   
            Permits racing associations, racing fairs, and their  
            respective horsemen's organizations to form a partnership,  
            joint venture, or any other affiliation, as specified.
          5)Authorizes exchange wagering, as provided, and 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 exchange wagering.


          6)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 specified manner.


          7)Makes these exchange wagering provisions inoperative on May 1,  
            2016, and repeals them on January 1, 2017.


          FISCAL EFFECT:  Unknown









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          COMMENTS:  





           Purpose of the bill  .  According to the author, this bill seeks  
          to remove a sunset in current law that allows for exchange  
          wagering on horse races in California.  To date, exchange  
          wagering has not been implemented by any racing association in  
          California.  Exchange wagering cannot be conducted unless the  
          horsemen who participate at the live race meet grant consent.   
          The current law sunsets on January 1, 2017.  AB 2808 is  
          necessary to ensure that more time is provided for current  
          negotiations so that the original vision of exchange wagering  
          might be realized in California to provide the industry with a  
          tool to increase track commissions, purses, and breeder's  
          awards.  


           Background  .  SB 1072 (Ron Calderon), Statutes of 2010,  
          authorized the CHRB to license entities to operate exchange  
          wagering systems that accept "exchange wagers" from individuals  
          residing either within or outside of this state on horse races  
          run in California or in other states, so long as the process is  
          conducted in compliance with the federal Interstate Horseracing  
          Act.  "Exchange wagering" is defined as a means of pari-mutuel  
          wagering in which two or more persons place identically opposing  
          wagers on a horse race.  The bill required exchange wagering  
          agreements to be entered into by the exchange wagering licensee,  
          the applicable racing association or fair conducting live racing  
          in the state, and the horsemen's organization representing the  
          particular breed currently racing at the meet. 


          Wagering on horse races in California is conducted using the  
          "pari-mutuel method" in which bettors are betting against each  
          other, with no other entity having an interest or stake in the  








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          outcome of the race.  


          In pari-mutuel "exchange wagering" (which involves bettors  
          betting against each other, with no other entity having an  
          interest or stake in the outcome of the race), each bettor again  
          selects a horse, an outcome, and the amount the bettor desires  
          to wager.  Another bettor can match that wager, choosing to  
          wager the opposite of the original wager.  For example, if  
          bettor "A" thinks a horse will win a race and would like to  
          wager $2 to win on that horse at 1-1 odds, bettor "B" can match  
          the wager for $2 at 1-1 odds if bettor B has the opinion that  
          the horse will not win the race.  When wagers are matched, they  
          are pooled together and the pari-mutuel exchange wagering  
          operator is responsible for paying the winning bettors out of  
          the pool (just as is the case in all other forms of pari-mutuel  
          wagering on horse races in California.)  Pari-mutuel exchange  
          wagering is limited to win, place and show wagering.  


          The effort in California to launch an exchange wagering platform  
          has been stymied by disagreements among the exchange wagering  
          provider, horsemen, and racetracks over the amount of money the  
          racing industry would receive from the operation's revenue. 


          Supporters of exchange wagering contend that the practice will  
          reinvigorate interest in racing by offering players a new way to  
          wager on the game, at a price to the player of approximately 5  
          percent of winnings, compared to existing takeout rates in the  
          pari-mutuel pools remain around 20 percent.  The service has  
          proved very popular in Britain and Ireland, where bookmaking was  
          an established part of horserace betting markets hundreds of  
          years prior to the advent of exchange wagering.  Exchanges  
          typically return 95 percent of money bet to players, compared to  
          the 80 percent return commonly offered by U.S. pari-mutuels  
          systems.  










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           Exchange wagering in New Jersey  :  The New Jersey State Racing  
          Commission issued its first horse racing exchange wagering  
          license on November 18, 2015 but horseplayers will not be able  
          to match bets on the exchange until Spring 2016 at the earliest,  
          according to published reports.  In addition, the first-ever  
          licensed betting exchange in the United States will be limited  
          to New Jersey resident-at least initially.  


           In support  : Betfair US TVG Network, the sponsor of this bill,  
          states this bill would merely extend the "sunset" clause in  
          current law for four more years and give the horse racing  
          industry more time to implement this new and exciting form of  
          wagering.  The CHRB has adopted regulations for exchange  
          wagering in California but the respective parties have not  
          agreed to a business arrangement for implementation.  If  
          exchange wagering were to be authorized in California,  
          proponents believe it would not only increase the wagering  
          handle but purses and breeders awards for horsemen and  
          horsewoman.


           In opposition  :  The California Thoroughbred Trainers of  
          California writes, it has now been six years since exchange  
          wagering was authorized in California and the industry still has  
          not agreed on a plan to implement this new form of wagering.   
          The implementation of exchange wagering will continue to stall  
          unless and until there is a business model that satisfies the  
          financial needs of horsemen.  Other issues raised include the  
          various business models available, the potential for  
          cannibalization of the existing wagering dollar, and whether  
          exchange wagering would compromise the integrity of horse racing  
          in California.  At this point, the CTT states that there is no  
          need to eliminate the current sunset date on what clearly is a  
          failed enterprise.


           Prior legislation  :  AB 2414 (John A. Perez), Chapter 299,  
          Statutes of 2010.  Added a sunset date of May 1, 2016, to a  








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          provision contained in SB 1072 (Ron Calderon) of the 2009-10  
          Regular Session relating to exchange wagering on horse racing.


          SB 1072 (Ron Calderon), Chapter 283, Statutes of 2010.  Among  
          other things, the bill authorized the CHRB to license entities  
          to operate "exchange wagering" systems, as defined, that accept  
          exchange wagers from individuals residing either within or  
          outside of this state on horse races run in California or other  
          states and makes it explicit that exchange wagering shall not  
          become operative until May 1, 2012. 


          REGISTERED SUPPORT / OPPOSITION:




          Support




          Betfair US TVG Network




          Opposition


          California Thoroughbred Trainers of California















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          Analysis Prepared by:Eric Johnson / G.O. / (916) 319-2531