BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2414|
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THIRD READING
Bill No: AB 2414
Author: John A. Perez (D)
Amended: 8/20/10 in Senate
Vote: 27 - Urgency
SENATE GOVERNMENTAL ORG. COMMITTEE : 8-0, 6/29/10
AYES: Wright, Harman, Calderon, Florez, Negrete McLeod,
Padilla, Price, Yee
NO VOTE RECORDED: Denham, Oropeza, Wyland
SENATE APPROPRIATIONS COMMITTEE : 11-0, 8/12/10
AYES: Kehoe, Ashburn, Alquist, Corbett, Emmerson, Leno,
Price, Walters, Wolk, Wyland, Yee
ASSEMBLY FLOOR : 74-1, 6/1/10 - See last page for vote
SUBJECT : Horse racing: thoroughbred racing: Breeders
Cup: wagering
SOURCE : Author
DIGEST : This bill increases the takeout from wagers made
on horse racing to increase the purses and make other
changes to allow greater flexibility and distribution of
funds to maximize the benefits to the industry. This bill
authorizes the thoroughbred racing industry to use monies
from horse racing wagering pools to promote the Breeders'
Cup, in order that California might be considered the
permanent home of this championship series of races.
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Senate Floor Amendments of 8/20/10 (1) make changes to the
horse racing law by increasing the takeout from wagers in
order to augment purses and to authorize "exchange
wagering" in California, which is a form of pari-mutual
wagering in which two or more persons place identically
opposing wagers in a given market, and (2) add an urgency
clause.
ANALYSIS :
Existing law
1. Existing law provides that the California Horse Racing
Board (CHRB) shall regulate the various forms of horse
racing authorized in this state.
2. Existing law 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.
3. Existing law requires racing associations to pay out
certain percentages of the total amount wagered and of
the portion deducted from the pari-mutuel pool (i.e.,
the takeout), for state license fees, owner purses,
racing association commissions, and breeding incentive
programs. The amounts vary depending upon the type of
breed bet upon (Thoroughbred, Quarter Horse, harness,
etc.), the type of bet made (e.g., conventional or
exotic), and whether the wager was made on-track or at a
satellite wagering facility.
4. Existing law authorizes a Thoroughbred association or
fair, at the joint request of the association or fair
and the organization representing the horseman, and
subject to approval of CHRB, to deduct from the
pari-mutuel pool for any type of wager, an amount of 10
percent to 25 percent, inclusive, of the total amount
handled for the meeting of the thoroughbred association
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or fair that accepts the wager. Existing law allows the
distribution of funds from the amount deducted to be
modified or redirected, subject to the approval of CHRB,
as specified.
5. Existing law 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.
6. Authorizes a quarter horse association, subject to
approval by the CHRB, and a harness racing association
to deduct up to two percent more from the total amount
wagered in the pari-mutuel pool for any type of wager,
and, specifies how the funds shall be distributed to
eligible satellite wagering facilities, owners' purses
and racetrack commissions.
7. Authorizes a thoroughbred association or fair, subject
to approval by the CHRB, to deduct from the pari-mutuel
pool for any type of wager, a specified percentage for
the meeting of the thoroughbred association or fair that
accepts the wager.
8. Authorizes racing associations, fairs, and the
Thoroughbred Owners of California (TOC) to form a
private statewide marketing organization to market and
promote thoroughbred and fair horse racing. The
California Marketing Committee (CMC) is generally
responsible for promoting horse racing in the state by
developing and implementing a marketing plan that will
increase on-track and off-track attendance throughout
the state. The CMC is required to submit an annual
marketing and promotion plan to the CHRB. These
provisions sunset on January 1, 2011.
9. Provides for the California Travel & Tourism Commission
(CTTC). The CTTC is a not-for-profit, 501(C)(6)
corporation formed in 1998 to work jointly with the
State of California's Division of Tourism to implement
the annual Marketing Plan, which promotes California as
a travel destination. While these two partners (CTTC
and Division of Tourism) are separate legal entities,
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they are commonly referred to jointly as California
Tourism.
This bill:
1. Adds new findings and declarations relative to the fact
that California has one of the lowest takeouts on
wagering and concern that horse owners are not bringing
their horses to California because of lower purses and
horses are leaving the state in order to compete for
higher purses.
2. Provides that every thoroughbred association or fair
that conducts a live race meet shall deduct an
additional two percent of the total amount handled on
exotic wagers requiring the selection of two wagering
interests, and three percent of the total amount handled
on exotic wagers requiring the selection of three or
more wagering interests. (The additional takeout is
intended to augment purses.)
3. Grants the CHRB the authority postpone or revoke
implementation of the takeout increase, as specified and
would also stipulate this increase in takeout is to
become operative on December 24, 2010.
4. Adds new Article (Article 9.1) to the Horse Racing Law
authorizing "exchange wagering" and declare that the
Legislature has determined that the CHRB is best suited
to oversee, license, and regulate exchange wagering in
California. Also, declares legislative intent to
promote the economic future of the horse racing industry
in California and to foster the potential for increased
commerce, employment and recreational opportunities by
authorizing exchange wagering.
5. Defines a host of new terms, as specified, for purposes
of exchange wagering including the term "exchange
wagering" which means a form of pari-mutuel wagering in
which two or more persons place identically opposing
wagers in a given market.
6. Stipulates that exchange wagering shall only be
conducted by an exchange wagering licensee pursuant to a
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valid exchange wagering license issued by the CHRB.
7. Makes it explicit that no exchange wagering licensee
shall accept exchange wagers on races conducted in
California from a resident of California or a resident
of a jurisdiction outside California, or conducted
outside California from a resident of California, unless
an exchange wagering agreement, as defined, exists
allowing such wagers. Additionally, exchange wagering
must be conducted pursuant to and in compliance with the
federal Interstate Horse Racing Act of 1978.
8. 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).
9. Provides that only persons 18 years of age or older
could establish exchange wagering accounts. The CHRB is
required to approve security policies and safeguards to
ensure player protections, age verification and
location.
10.Direct 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.
11.Includes language (similar to Advance Deposit Wagering
law) relative to supporting the contracting rights of
pari-mutuel clerks that have been displaced due to the
increased automation of the wagering process, in
addition to a specific distribution to the existing
jockey health and benefit welfare fund.
12.Provides that monies that would have been otherwise
distributed to a purse account from the increased
takeout on Breeders' Cup day(s) shall be available for
the purpose of promoting and sponsoring the Breeders'
Cup.
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13.Requires the host track of the Breeders' Cup to enter
into a written agreement with the Breeders' Cup, LTD, in
consultation and cooperation with the California Tourism
Commission and the statewide marketing organization
relative to the manner in which the funds set aside to
support and promote the Breeders' Cup are to be
expended.
14.Requires that a written report be made to the CHRB
detailing the manner in which the set aside funds were
utilized to promote and support the Breeders' Cup.
15.Allows a thoroughbred association hosting the Breeders'
Cup races, upon approval of the CHRB and with written
agreement of the thoroughbred association and the
horsemen's organization for the meeting of the
thoroughbred association accepting the wager to deduct
from the total handle (wagering pools) during the days
when Breeders' Cup races are being run, an amount of not
less than 10 percent nor more than 25 percent.
16.Stipulates that the private, statewide marketing
organization formed pursuant to existing law to market
and promote thoroughbred and fair horse racing, shall
enter into an agreement, in consultation and cooperation
with the California Tourism Commission, with the
organization that operates the Breeders' Cup
Championship series to sponsor and promote the Breeders'
Cup Championship series of races.
17.Stipulates that the agreement must provide a minimum of
$2,000,000 annually in support of the organization
operating the Breeders' Cup Championship series and to
promote the Breeders' Cup Championship series.
18.Provides that the CHRB may require that a percentage of
the takeout (funds from horse racing wagering pools)
that is attributable to the Breeders' Cup races that
otherwise would not have been generated absent the
Breeders' Cup races be made available to support the
private horse racing marketing organization.
Takeout Background : AB 1308 (Torrico), Chapter 410,
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Statutes of 2007, gave a racing association and the owners'
organization flexibility, subject to CHRB approval, to set
takeout rates at an amount of not less than 10 percent nor
more than 25 percent from the pari-mutuel pool for any type
of wager. AB 1308 provided the horse racing industry with
greater flexibility to make adjustments to the takeout.
Comments
This bill expands on the concept contained in AB 1308 by
directing the increased takeout directly to purses which
benefits owners, trainers, and jockeys. This bill intends
to allow greater flexibility to direct the distribution of
funds generated by a takeout increase to an area with the
greatest economic benefit for the industry. This bill
enables the California racing industry to increase its
competitiveness by establishing purses more consistent with
purses in other major racing states (e.g., New York,
Pennsylvania, West Virginia, Delaware, Iowa, Indiana,
Louisiana, New Mexico, and Florida) that benefit from the
operation of slot machines and video lottery terminals,
which are prohibited at California racetracks. Even with
an increase in the takeout rate, California would still
rank among the top twenty lowest takeout structures on
specific exotic wagers in the country. Proponents indicate
that the increased takeout revenue would be focused on an
agreed upon strategy for stabilizing industry operations.
Proponents argue that in the end, this bill is about
self-reliance, re-investing in California for growth, and
protecting jobs for the future.
The takeout is the amount deducted from wagers before
winnings are paid out to bettors. The state, racetracks,
breeders, and horsemen through purses, receive a
distribution from the takeout. Currently, California's
takeout rate on Thoroughbred races is 15.43 percent for
win, place, and show wagers, and 20.68 for other types of
wagers (i.e., Exacta, Trifecta, and Pick-6). Over the last
couple of years, there has been a movement within the
racing industry in other states to have greater flexibility
to either lower or increase the takeout. For instance,
Keeneland Racetrack in Kentucky and Saratoga in New York
lowered their takeout structure while the Maryland Jockey
Club increased their pari-mutuel takeout. The various
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racing jurisdictions experienced varied results after
altering the takeout.
Many within the racing industry have a view that moderating
takeout rates on specific pools might stimulate handle as
well as overall revenue for purses. Today's racing
customer is not just a local resident who comes to a
California racetrack but a patron sitting in a simulcast
facility in another state with a wide choice of tracks to
wager on. Ultimately, racing's patrons drive the
pari-mutuel market and their response to an increased or
decreased takeout on any type of wager will determine the
rate of takeout. Many within the racing industry have a
view that moderating takeout rates on specific pools might
stimulate handle as well as overall revenue for purses.
This bill allows the CHRB to postpone and/or revoke the
implementation of the takeout increase, as defined, if the
board determines that the incremental amount received from
out-of-state betting systems is insufficient to achieve the
objective.
Takeout rate comparisons : Currently, California has one of
the lowest takeouts on rates on exotic wagering (20.68) in
the nation. Del Mar Thoroughbred Club, Santa Anita Park,
Hollywood Park, and Golden Gate Fields rank in the top ten
nationally for offering the lowest takeout rate on exotic
wagers.
Exchange Wagering Background: This bill additionally
authorizes 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. This bill requires 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, and that provides for the contractual terms and
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conditions specifying the use of the racing signal and the
compensation returned to the respective parties to the
agreement, audit terms and conditions, and contractual
remedies.
Exchange wagering on horse racing is currently permitted in
England, where it 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
public that generally did not gravitate to conventional
pari-mutuel wagering opportunities. Similar legislation
has been introduced and is moving through the New Jersey
State Legislature as well.
Comments
According to the author's office, this bill also intends to
encourage the Breeders' Cup to consider locating its series
of championship races on a permanent basis in California.
The State of California is in competition with the states
of Kentucky and New York to be the permanent home of the
Breeders Cup, which is actively looking at a permanent host
location as a potential option as part of its ongoing
strategic planning initiative. The Breeders' Cup
Championship series of races were held in California in
2008 and 2009 and generated significant revenue and tourism
for the State.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee analysis:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
Marketing program-----------$2,000 annually------------
Special*
Admin expenses
------------------minor---------------- General
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*California Marketing Committee Fund
TSM:do 8/23/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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