BILL ANALYSIS
Bill No: AB
246
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 246 Author: Price
As Amended: June 17, 2009
Hearing Date: June 23, 2009
Consultant: Chris Lindstrom
SUBJECT
Horse racing: deductions and distributions: trust funds.
DESCRIPTION
AB 246, an urgency measure, adds a two new section to Horse
Racing Law to: (1) require a person licensed to conduct a
horse racing meeting to hold in trust the distributions
required to be made pursuant to law until the funds are
paid to the various statutorily designated distributees,
and, (2) authorize a quarter horse association and a
harness racing association to deduct up to 2 percent more
from the total amount wagered in the parimutuel pool for
any type of wager, and, specifies how the funds shall be
distributed to eligible satellite wagering facilities,
owners purses and racetrack commissions. Specifically,
this bill:
1)Adds Section 19597.5 to the Business and Professions Code
to provide that:
a) A person licensed to conduct a horse racing meeting
shall hold in trust the distributions required to be
made pursuant to law until the funds are paid to the
various statutorily designated distributees.
b) The required deductions, except for those that
enure to the benefit of the racing association, are
trust funds and shall not be used by the racing
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Page 2
association for any purpose other than for payment to
those various distributees as directed by law.
c) The deductions are not the property of the racing
association, but are merely held in trust for the
benefit of the various distributees until the funds
are distributed to the distributees in accordance with
law. These funds shall be held in a separate
depository account until they are actually
distributed.
2)Adds Section 19601.3 to the Business and Professions Code
to provide that:
a) A quarter horse racing association may deduct from
the total amount handled in the parimutuel pool for
any type of wager up to 2 percent more of the total
amount handled than was authorized on May 1, 2009.
Funds deducted pursuant to this additional authority
shall be distributed as follows:
i) All of the funds, up to 1 percent on the first
$50,000 per day handled, to eligible satellite
wagering facilities that are in compliance with
Article 9.2 (commencing with Section 19605), based
on the wagers they accept, and provided further that
they accept all available signals from the quarter
horse racing association.
ii) The remainder of the funds shall be
distributed with 50 percent going to the quarter
horse horsemen's organization for purses and the
other 50 percent being retained by the racing
association.
b) A harness racing association may deduct from the
total amount handled in the parimutuel pool for any
type of wager up to 2 percent more of the total amount
handled than was authorized on May 1, 2009. Funds
deducted pursuant to this additional authority shall
be distributed as follows:
i) All of the funds, up to 1 percent on the first
$50,000 per day handled, to eligible satellite
wagering facilities that are in compliance with
Article 9.2 (commencing with Section 19605), based
AB 246 (Price) continued
Page 3
on the wagers they accept, and provided further that
they accept all available signals from the quarter
horse racing association.
ii) The remainder of the funds shall be
distributed with 50 percent going to the quarter
horse horsemen's organization for purses and the
other 50 percent being retained by the racing
association.
3)Makes legislative findings and declarations.
4)Goes into effect upon enactment in order to protect the
public's funds placed as wagers on horse racing and to
ensure the economic stability and survival of, and the
protection and preservation of jobs in, the harness and
quarter horse racing industries at the earliest possible
time.
EXISTING LAW
Existing law provides CHRB shall regulate the various forms
of horse racing authorized in this state.
Existing law requires various deductions and distributions
to be made from pari-mutuel pools, as specified
BACKGROUND
Purpose of the bill. According to the author, it has long
been established in California that a licensed racing
association and its pari-mutuel operation is actually a
stakes holder. The funds wagered are not the property of
the specific licensed racing association. The licensed
racing association merely holds the funds wagered until the
results of the race are known, and then the association
pays the winning wagers, and holds funds for others
pursuant to California Horse Racing Law.
The author further states, it has always been known that
the funds due the various designated beneficiaries are not
the property of the licensed racing association. The
racing association is merely acting as a trustee until the
funds are paid to those as provided for in statute.
Therefore, the intent of this bill is to codify this
trustee relationship in statute.
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Additionally, the sponsor states that "there are a number
of satellite wagering facilities that find it difficult to
stay open and accept the night signal because they do not
make a profit. One percent of the increased takeout
proposed by the bill (for the first $50,000 handled) will
be dedicated to increasing the commission for those who
operate satellite facilities and take the harness and
quarter horse signal. The additional funds from the
takeout will be dedicated to both purses and commissions on
an equal basis.
Distributions held in trust. According to the author, this
bill relates to the prevailing economic condition of horse
racing in California and takes into consideration the
recent Chapter 11 bankruptcy protection filing by Magna
Entertainment Corp (MEC), the largest operator of horse
racing tracks in the country, including Golden Gate Fields
and Santa Anita Park which operate live racing activities
in California. The author states, this bill is necessary
to ensure that all of California's licensed racing
participants and entities receive their statutorily
prescribed share of the takeout which is generated each
time a wager is placed.
At a CHRB meeting on Thursday, March 19, 2009, according to
a CHRB press release, "a representative of MEC provided an
update on MEC's Chapter 11 bankruptcy filing, including
motions concerning the sale of Santa Anita, Golden Gate
Fields, and other MEC-owned properties, and the status of
funds due to various industry programs considered vital to
on-going racing operations."
The press release further stated that after the meeting,
CHRB Chairman Harris "stressed that several persons in the
racing industry expressed concerns about delays in the
distribution of funds that MEC held in trust for various
programs and operations that are not believed to be general
creditors, including the Stabling and Vanning Fund and
satellite location fees." Chairman Harris noted that such
programs as the Stabling and Vanning might be forced to
close down - to the detriment of Santa Anita and Golden
Gate's continuing operations and the overall industry - if
payments are not made soon. Chairman Harris said that
although all pari-mutuel tickets have been and will be
paid, the bankruptcy filing has delayed the distribution of
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millions of dollars from pari-mutuel wagering due to other
beneficiaries, including $1.2 million in license fees due
the State of California."
Satellite wagering facilities. Under current law,
satellite-wagering facilities in California allow patrons
to watch and wager on live horse racing from in-state and
out-of-state locations. A satellite wagering facility
receives 2% on every dollar wagered at the location (a
location fee) each day. This commission has been the
standard since satellite wagering was authorized in 1985.
Some in the industry argue that the current satellite
commission is not sufficient and has caused an increasing
number of fair satellite wagering facilities to lay off
workers, reduce hours, or simply cease business operations
because of increased costs and a general downturn in
wagering on horse racing in California.
Industry representatives state that additional factors have
also negatively impacted satellite-wagering facilities at
county and state fairs over the last decade including
on-line gambling both legal and illegal, an increase in
regulated gambling facilities throughout the state, and the
recent economic downturn. The combination of these factors
has driven a number of smaller satellite facilities to the
brink of closure.
Many of California's fairs are faced with the decision to
close or reduce operations at their satellite facilities
(Anderson, Eureka, Lake Perris, Santa Maria, Santa Barbara,
Tulare and Victorville). Some fairs, even after initiating
cost-cutting steps have been forced to cease or restrict
its wagering opportunities for their nighttime patrons
(Santa Barbara, Santa Maria, Tulare and Victorville).
The above-mentioned closures have affected the California
State Fair (harness) and Los Alamitos Racing Association
(Quarter horse) who conduct live horse racing operations at
night. Horse owners, trainers and employees at these
racing associations are impacted because less money is
being wagered which generates less revenue for the track
and purse monies for the horsemen.
AB 246 is intended to assist fairs who operate satellite
wagering facilities at night and offer harness racing and
quarter horse racing signals which will allow them to
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remain open and, in turn, continue to generate much needed
revenue for tracks, horsemen, breeders, and the network of
California fairs.
Arguments in support. Proponents argue that "this measure
seeks to clarify existing law to indicate that the
deductions from wagers are held in trust by the race
tracks, and are not the property of the race tracks. The
racing industry always believed that these funds were, in
fact, held in trust, however, the recent bankruptcy
proceedings of Magna Entertainment has cast doubt on
whether or not these funds are in fact trust funds.
"Additionally, this bill will increase the takeout for both
the quarter horse industry and the harness industry.
Currently, there are a number of satellite wagering
facilities that find it difficult to stay open and accept
the night signal because they do not make a profit. One
percent of this takeout increase will be dedicated to
increasing the commission for those who operate satellite
facilities and take the harness and quarter horse signal.
The additional funds from the takeout will be dedicated to
both purses and commissions on an equal basis.
Arguments in opposition. The Thoroughbred Owners of
California (TOC) oppose the provision in the bill that
would increase the takeout and use a portion of the
additional funds to subsidize satellite wagering
facilities.
TOC writes, "that increasing "location fees" for some
satellite facilities will only serve to subsidize
operational inefficiencies/losses without meaningful
accountability. Horse racing stakeholders have long
requested a complete accounting of the satellite wagering
facilities' operations in order to assess their
effectiveness in the marketplace and long-term
profitability. These requests have been met with delayed
responses, incomplete information, and a reluctance to take
into account revenue streams from non-traditional wagering
sources."
TOC adds, "that adopting this subsidy for night industry
races and using increased takeout for this purpose sets a
very poor precedent for day races. Horse racing in
California is threatened by a combination of factors,
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including competition from racing in other states, other
forms of gaming within California, pressure from developers
and race track bankruptcies. We need to be extremely
thoughtful about any increase in takeout and make certain
that related funds are used to support initiatives that
improve the industry's overall health."
Staff comments. (1) Require CHRB approval. A number of
bills that have authorized changes to the takeout and
distribution have required CHRB approval for the proposed
changes to become effective. AB 246 would authorize an
increase to the takeout of up to 2% more from of the total
amount handled than was authorized on May 1, 2009 for both
a quarter horse and harness racing association in
California. To conform to past and current legislation,
and given the fact that an increase in the takeout will
reduce the amount of money available to be returned to
bettors and the increase may occur in serial manner,
depending upon need, should this bill be amended to subject
the increase to CHRB approval?
(2) $50,000 threshold. AB 246 provides that the
distribution of takeout authorized by this bill will be
split amongst the operators of the satellite facilities,
horsemen and track commissions. For the satellite
facilities, the bill provides up to 1% percent on the first
$50,000 per day handled at the respective satellite
facilities will be retained by the satellite facility.
That would mean up to $500 per day per facility. Is an
additional $500 a day enough economic incentive to help
keep the doors open at those satellite wagering facilities
that are considering reducing operations or at those
premises that are considering opening mini-satellite
wagering facilities?
PRIOR/RELATED LEGISLATION
SB 517 (Florez), 2009-2010 Legislative Session . Allows a
thoroughbred association or fair, subject to the approval
of the CHRB, to alter the amount deducted from horse racing
wagering. Allows the distribution of funds from the amount
deducted to be modified or redirected, subject to the
approval of CHRB. (Pending in Assembly Governmental
Organization Committee)
AB 1308 (Torrico), Chapter 410, Statutes of 2007 .
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Authorizes a thoroughbred association or fair and the
horsemen's organization, subject to approval by CHRB, to
deduct an amount of not less than 10 percent nor more than
25 percent from the pari-mutuel pool for any type of wager.
AB 765 (Evans), Chapter 613, Statutes of 2007 . Among other
things, allows racing fairs to deduct an additional one
percent of their wager pools to be deposited into a special
account for facilities maintenance and improvements at the
fairs.
AB 241 (Price), Chapter 594, Statutes of 2007 . Authorizes,
per CHRB approval, all fairs to operate a satellite
wagering facility off of the fair grounds and the
establishment of up to 45 mini-satellite wagering sites to
be operated by private industry throughout California.
AB 388 (Strickland), Chapter 174, Statutes of 2003 .
Permits CHRB to set the deduction for any new type of wager
introduced after January 1, 2004, in an amount of not less
than 10 percent nor more than 30 percent at the joint
request of an association or fair and the horsemen's
organization.
AB 2869 (Horton), Chapter 924, Statutes of 2002 . Allows
CHRB to authorize a racing association and the organization
representing horsemen to reduce the portion deducted from
the pari-mutuel pool for purses and commissions, provided
that the change only affected funds available for purses
and commissions.
SUPPORT: As of June 19, 2009:
California Harness Horsemen
Hollywood Park Casino
Los Alamitos Race Course
Pacific Coast Quarter Horse Racing Association
OPPOSE: As of June 19, 2009:
Thoroughbred Owners of California
FISCAL COMMITTEE: Senate Appropriations Committee
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