BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                              Senator Isadore Hall, III
                                        Chair
                                2015 - 2016  Regular 

          Bill No:           AB 2808          Hearing Date:    6/28/2016
           ----------------------------------------------------------------- 
          |Author:    |Gipson                                               |
          |-----------+-----------------------------------------------------|
          |Version:   |4/13/2016    Amended                                 |
           ----------------------------------------------------------------- 
           ------------------------------------------------------------------ 
          |Urgency:   |No                     |Fiscal:      |Yes             |
           ------------------------------------------------------------------ 
           ----------------------------------------------------------------- 
          |Consultant:|Arthur Terzakis                                      |
          |           |                                                     |
           ----------------------------------------------------------------- 
          

          SUBJECT: Horse racing:  exchange wagering:  operative extension


            DIGEST:    This bill extends the January 1, 2017 sunset date of  
          Horse Racing Law's exchange wagering provisions by four years.

          ANALYSIS:
          
          Existing law:
          
          1)Grants the California Horse Racing Board (CHRB) the authority  
            to regulate the various forms of horse racing authorized in  
            this state.

          2)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.

          3)Defines "exchange wagering" as a form of parimutuel wagering  
            in which two or more persons place identically opposing wagers  
            in a given market, provided that the entity offering exchange  
            wagering is licensed by the CHRB and has entered into an  
            exchange wagering agreement between the licensee, the  
            applicable racing association or fair conducting live racing,  
            and the horsemen's organization responsible for negotiated  
            purse agreements for the breed on which exchange wagers are  







          AB 2808 (Gipson)                                   Page 2 of ?
          
          
            accepted, as provided.

          4)Defines "exchange wagering agreement" to mean a written  
            agreement by and among the applicable exchange wagering  
            licensee, the applicable racing association or racing fair  
            conducting live racing in this state and the horsemen's  
            organization responsible for negotiating purse agreements for  
            the breed on which exchange wagers are accepted, provided that  
            the terms and conditions for the permitted use of signal by  
            the exchange wagering licensee, and the compensation to the  
            applicable racing association or racing fair and the  
            horsemen's organization include certain specified provisions.

          5)Requires the CHRB to promulgate rules and regulations  
            governing the conditions under which exchange wagering may be  
            conducted, including requiring an annual audit of an exchange  
            wagering licensee.  Also, allows exchange wagers to be  
            submitted and accepted by licensed exchange wagering systems  
            in the same manner as is currently provided for Advanced  
            Deposit Wagers (e.g., in person, telephone, or Internet). 

          6)Provides that only persons 18 years of age or older could  
            establish exchange wagering accounts and requires CHRB to  
            approve security policies and safeguards to ensure player  
            protections, age verification and location.

          7)Directs the CHRB to adopt rules prohibiting any owner,  
            trainer, jockey, or stable employee from placing an exchange  
            wager on any horse owned, trained, or ridden by any of those  
            individuals.

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

          This bill extends the inoperative and repeal dates of Horse  
          Racing Law's exchange wagering provisions, to May 1, 2020 and  
          January 1, 2021, respectively. 

          Background

          Exchange wagering made its debut more than a decade ago in  
          Britain, where most wagering is done through bookmakers on horse  
          racing.  In England, exchange wagering has been reported to have  
          contributed to a double-digit increase in wagering handle as  
          well as helping to appeal to a different segment of the betting  








          AB 2808 (Gipson)                                   Page 3 of ?
          
          
          public that generally does not gravitate to conventional  
          parimutuel wagering opportunities.  Exchange wagering was also  
          legalized by New Jersey's legislature in 2011 and the New Jersey  
          State Racing Commission issued its first horse racing exchange  
          wagering license on November 18, 2015 and in May 2016 Monmouth  
          Racetrack became the first track in the U.S. to offer exchange  
          wagering.  
            
          Wagering on horse races in California is conducted using the  
          "parimutuel method" in which bettors are betting against each  
          other, with no other entity having an interest or stake in the  
          outcome of the race.  In traditional parimutuel wagering, each  
          bettor selects the horse or horses they choose to wager on an  
          outcome (how those individual horses will finish in a race -  
          Win, Place, and Show wagering) or the order of finish for  
          multiple numbers of horses (exotic wagers such as exacta,  
          trifecta, superfecta), and the amount which they desire to  
          wager. The odds on any particular horse are determined by the  
          total amount bet on the race by the individual bettors.  The  
          bets made are pooled together and the parimutuel operator is  
          responsible for paying the winning bets from that pool. 

          In parimutuel "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 parimutuel exchange wagering  
          operator is responsible for paying the winning bettors out of  
          the pool (just as is the case in all other forms of parimutuel  
          wagering on horse races in California.)  Parimutuel exchange  
          wagering is limited to win, place and show wagering.  

          The racing industry derives revenue from traditional parimutuel  
          wagering from a "takeout" or "commission" that is charged on  
          every wager placed in the pool, and from parimutuel exchange  
          wagering from a "commission" that is charged only on a bettor's  
          net winnings on a particular race.  In either case, those  
          revenues are shared among the horse owners (purses), the race  
          tracks and the provider of the parimutuel wagering service.  








          AB 2808 (Gipson)                                   Page 4 of ?
          
          

          Purpose of AB 2808.  According to the author's office, this bill  
          seeks to extend a sunset date 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.  California's existing exchange wagering  
          provisions are scheduled to sunset on January 1, 2017.  The  
          author's office states that this bill 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.

          Prior/Related Legislation
          
          SB 1072 (Calderon, Chapter 283, Statutes of 2010) among other  
          things, authorized exchange wagering and granted the CHRB the  
          authority 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 provided that the process is  
          conducted in compliance with the federal Interstate Horse Racing  
          Act.

          AB 2414 (John A. Perez, Chapter 299, Statutes of 2010) made the  
          exchange wagering provisions inoperative on May 1, 2016, and  
          repealed them on January 1, 2017. 

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          Yes


            SUPPORT:  

          TVG/Betfair (source)

          OPPOSITION:

          California Thoroughbred Trainers

          ARGUMENTS IN SUPPORT:    Proponents state that AB 2808 merely  
          extends the sunset clause in current law in order to give the  
          horse racing industry more time to implement this new and  
          exciting form of wagering.  Proponents note that the CHRB has  








          AB 2808 (Gipson)                                   Page 5 of ?
          
          
          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 instituted in  
          California, proponents believe it would not only increase the  
          wagering handle but purses and breeders awards for horsemen and  
          horsewomen.

          ARGUMENTS IN OPPOSITION:    Opponents point out that since  
          enactment of exchange wagering in California six years ago the  
          horse racing industry has not reached agreement on a plan to  
          implement this new form of wagering.  Opponents contend that  
          implementation of exchange wagering will continue to stall  
          unless and until there is a business model that satisfies the  
          financial needs of horsemen and horsewomen.  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.  Opponents believe there is no need to eliminate  
          the current sunset date on a failed enterprise.