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.