BILL ANALYSIS
Bill No: SB
662
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 662 Author: Yee
As Amended: April 13, 2009
Hearing Date: April 28, 2009
Consultant: Chris Lindstrom
SUBJECT
Horse racing: board powers: advance deposit wagering.
DESCRIPTION
SB 662 authorizes the California Horse Racing Board (CHRB)
to provide real time monitoring of all parimutuel wagering
transactions on California horse races. Specifically, the
bill:
1)Expands the responsibilities of CHRB to include:
a) Providing real time transactional monitoring of all
parimutuel wagering on California horse races.
b) Maintaining independent technology services to
provide for capturing, saving, transmitting,
receiving, and otherwise disseminating technology
resources. CHRB may contract with the Department of
Technology Services or seek suitable accommodations
with vendors of CHRB's choosing for the purpose of
furthering the CHRB's chosen business objectives.
2)Requires any association or fair that conducts a racing
meeting to pay a license fee to the state to fund real
time transactional monitoring of all parimutuel wagering
on California horse races.
EXISTING LAW
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Page 2
Article IV, Section 19(b) of the Constitution of the State
of California provides that the Legislature may provide for
the regulation of horse races and horse race meetings and
wagering on the results.
Existing law provides CHRB shall have all powers necessary
and proper to enable it to carry out the purposes of the
Horse Racing Law and specifies certain responsibilities of
CHRB including, but not limited to, all of the following:
1) Adopting rules and regulations for the
protection of the public and the control of horse
racing and parimutuel wagering.
2) Administration and enforcement of all laws,
rules, and regulations affecting horse racing and
parimutuel wagering.
3) Adjudication of controversies arising from the
enforcement of those laws and regulations dealing
with horse racing and parimutuel wagering.
4) Licensing of each racing association and all
persons, other than the public at large, who
participate in a horse racing meeting with
parimutuel wagering.
5) Allocation of racing dates to qualified
associations in accordance with law.
Existing law provides that, as of July 1, 2009, any
association or fair that conducts a racing meeting shall
only pay a license fee to the state to fund CHRB and the
Kenneth L. Maddy Equine Research Laboratory at UC Davis as
follows:
1) All racing associations and fairs including all
breeds of racing shall participate in the funding of
CHRB in accordance with a formula devised by CHRB in
consultation with the horse racing industry.
2) The baseline funding for CHRB and equine drug
testing in the first fiscal year after the enactment
of this section shall be the amount approved in the
2008-2009 state budget.
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3) Adjustments to the funding in subsequent budget
years may only be made by an act of the Legislature.
Existing law provides that, after payments to fund CHRB and
the equine drug testing program, the remaining amount of
license fees shall be distributed to the association that
conducts the meet and the horsemen participating in the
meet as follows, 50 percent to the association as
commissions, and 50 percent to the horsemen as purses.
Existing law authorizes CHRB to permit licensed racing
associations and fairs to operate satellite wagering
facilities.
Existing law authorizes and defines "advance deposit
wagering (ADW)" as a form of parimutuel wagering in which a
person "establishes an account with a CHRB-approved betting
system or wagering hub where the account owner provides
'wagering instructions' authorizing the entity holding the
account to place wagers on the owner's behalf."
Existing law allows CHRB to authorize 15 mini-satellite
wagering sites in each of the northern, central and
southern racing zones.
Existing law establishes the Maddy Lab to take advantage of
the expertise of the veterinary specialists at UC Davis'
School of Veterinary Medicine. The laboratory is a part of
the California Animal Health and Food Safety Laboratory.
Existing law authorizes the allocation of $11 million from
the Satellite Wagering Account to pay for the costs and
expenses of CHRB and the Maddy Lab.
BACKGROUND
Purpose of the bill. According to the author's office,
"The appearance of evil is sometimes worse than the evil
itself. This quote is from the former chairman of the
California Horse Racing Board, Nathaniel Colley. What's
even worse, is not knowing and not caring.
"SB 662 requires the California Horse Racing Board to
provide for real time transactional monitoring of all
parimutuel wagering on California races. The Board sorely
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needs to have the independence and ability to monitor all
parimutuel wagers on California horse races.
"This need was brought to the forefront during the 2008
Kentucky Derby. A California bettor placed a "Quick Pick"
wager of $1,500 on the Kentucky Derby. This wager was
intended to randomly select horses from numbers 1 through
20 to fill the wager. The winner of the Derby was the
number 20 horse.
"Two days after the running of the Derby, the California
bettor came into the Stewards Office at Golden Gate Fields
and told the official, "It's really strange that out of all
these tickets the number 20 horse did not show up
anywhere." The steward asked the mutuel manager (an
employee of the race track) what he thought about this
coincidence and the employee said something to the effect
that it was "bad luck." The steward (a contract employee
of CHRB) then reported the coincidence, or bad luck, to the
Executive Director (ED) of CHRB. The ED then contacted the
mutuel manager who stated: "there may be a problem with the
tote machines."
"The tote machines are property of a contractor, who
contracts with the racing associations. The ED then
contacted the tote company's Regional Manager who stated
that he had heard of a similar problem nine months earlier
in Indiana. Based on this information, the ED ordered an
audit of the tote system in California.
"At that point in time, about two weeks after the Derby,
the possible failure in the tote system became public
knowledge. Senator Leland Yee called the ED to ask the
question: "Don't you have any way of monitoring the system
to know if something is going wrong?" The ED responded
that the Board is conducting an audit of the tote company
to find out if there was or is a problem, and, that the
Board is dependent on the numbers furnished by the tote
company through a system called the Consolidated Horse
Racing Information Management System (CHRIMS). Senator Yee
stated, "Well that's only going to tell you what they want
you to hear."
"The audit of the tote company revealed an "anomaly" on
some machines and only on the "Quick Pick" wager. The
Quick Pick wager was withdrawn from the betting format, and
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the tote company was ordered to pay restitution for not
bringing this to the attention of the CHRB in a more timely
fashion.
"In addition, on April 23, 2009, ThoroughbredTimes.com
reported that a wagering system foul-up on April 22 (less
than a week ago) impacted wagering pools in five states and
affected bettors across the country. $2 bets placed at New
York City Off-Track Betting and processed through AmTote
were deposited into wagering pools as $200 bets.
Thoroughbred facilities affected were Aqueduct, Golden Gate
Fields, Gulfstream Park, Indiana Downs, Keeneland Race
Course, and Tampa Bay Downs.
"These known incidents make it clear that California
consumers need independent, real time oversight of all
parimutuel wagering on California horse races."
Background. For more than a decade, horse racing has been
a declining industry. Some argue that the decline stems
from increased competition from expanded gaming in
California to the inability of the industry to attract new
fans. Regardless of the reasons, the closure and
threatened closure of racetracks, a decline in the handle,
purses and the size of racing fields are indicators that
the sport of kings is in a precarious position.
Over the years, in an effort to secure the business footing
of horse racing, the industry has endeavored to modify its
business model to attract more fans and to make wagering
more convenient. In 1984, legislation was enacted to
authorize satellite wagering via off-track facilities. In
2001, legislation was enacted to authorize advance deposit
wagering (ADW) which allows a fan or customers to deposit
funds into an account in order to wager online and over the
telephone. In 2007, legislation authorized the
establishment of 45 mini-satellite wagering facilities
throughout the state - 15 in each racing zone.
Without getting into the debate regarding the impact of
satellite wagering and ADW on the business of horse racing,
as a whole, one thing is clear - electronic wagering
systems are critical components of horse racing's future.
Illustrating this is the fact that ADW is the only segment
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of the horse racing industry that is growing.
Consolidated Horse Racing Information Management System
(CHRIMS). CHRIMS is a database system developed in 1989
that keeps track of wagers and the flow of money in horse
racing. CHRIMS provides end-users access to information by
selected data ranges and a variety of data-sorting options.
Using CHRIMS, end-users can see what has actually taken
place on the prior day, in terms of handle, takeout, total
amount payable to the public, distributions, etc., and can
be further sorted by location groups (California on-track,
off-track, and out-of-state wagers) or by various date
ranges, breeds and a variety of other options. CHRIMS can
also run "what-if" scenarios to project the effects of
proposed changes to law that would change distribution
percentages.
CHRIMS does not provide real time information. Utilizing
software tools, CHRIMS staff loads and balances California
parimutuel data on a daily basis. Each night following the
close of wagering, CHRIMS computers download complete
wagering files from the three totalizator hubs. The
following morning, CHRIMS personnel supervise the
compilation of tote data into usable formats (pool by pool,
site by site, handle, takeout, breakage, and payout), which
is then processed, per statutory and contractual takeout
distribution formulas and made available for review.
Further, CHRIMS is not completely independent. CHRIMS is
the property of the state. The members of the CHRIMS board
are also its clients -- racing association operators. The
members of the CHRIMS board also, as part of their duties
as racetrack operators, contract with the tote company for
services. Moreover, CHRIMS contracts with other states and
the tote company contracts back with CHRIMS.
Best approach. With more and more wagering occurring on
the Internet and electronically, it could be argued that
the opportunities for fraud have grown. At this time,
CHRB, who is responsible for protecting the betting public,
depends significantly on CHRIMS in its oversight role.
CHRB does not have an independent monitoring system that in
"real time" can pick up, not only anomalies in the tote
system, but also detect money laundering schemes and trends
in wagering that may put the betting public at a
disadvantage.
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By all accounts, all stakeholders want to ensure the
integrity of horse racing to protect the betting public,
the track operators, and everyone involved in horse racing,
and consider that real time wagering monitoring system
would be beneficial. However, what approach is the best
approach? Should the real time monitoring system be
developed and implemented on a state-by-state basis or
should it be done via a national monitoring system? Do any
such systems exist or are any in service today? Who should
pay for the system, each state in which the system is
located and operated, or all states that benefit?
Currently, New York State Racing and Wagering Board passed
legislation requiring independent real time monitoring of
all parimutuel wagering. New York aimed to have the system
in place by January 1, 2009, but missed that target date.
New York is working closely with the industry and system
providers to develop the parameters of and implement the
system. The state of Indiana and Minnesota are looking at
adding oversight software for its horse racing parimutuel
wagering pools.
The author, through SB 662, is committed to working with
the industry to establish a real time system to protect
California's wagering public as soon as possible. The
author indicates that if and when a national system is
developed, then California could participate in the
national program.
Totalizator. A totalizator is the name of the system which
runs parimutuel wagering, calculating payoff odds as wagers
are made and payouts once a race is complete. Electronic
terminals are used by parimutuel clerks to key in wagers
into the system and by customers who place bets into the
system directly or through a wagering hub.
Independent Monitoring System (IMS). IMS is a computerized
system that has been designed, built and/or operated or
supported by a company or companies other than the
totalizator provider or related entity and is not related
to the totalizator provider or authorized parimutuel
wagering entity in any way. The system must, among other
things, monitor all transactions received and processed by
the totalizator, produce alerts corresponding to potential
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wagering rule violations or other situations that could
compromise the integrity of the wagering process.
Real Time Transactional Monitoring System. A real time
transactional monitoring system is an operating system that
can respond to input immediately (ranging from a few
seconds to minutes depending on the function). The system
must be able to react to a steady flow of new information
without interruption and perform its tasks within the same
time constraints of the totalizator system it monitors.
PRIOR/RELATED LEGISLATION
SB 16xx (Ashburn), Chapter 12, Statutes of 2009-10 Second
Extraordinary Session . Among other things, establishes the
baseline funding for CHRB and equine drug testing at the
amount approved in the 2008-09 Budget Act. Provides that
subsequent funding for CHRB and equine drug testing shall
be pursuant to a formula devised by CHRB in consultation
with the horse racing industry.
AB 765 (Evans), Chapter 613, Statute of 2007 . Reauthorizes,
expands and revises state authorization for Advance Deposit
Wagering.
AB 471 (Hertzberg), Chapter 198, Statutes of 2001 .
Authorized Advance Deposit Wagering.
SB 428 (Maddy), Chapter 825, Statutes of 1995 . Authorized
the construction of an Equine Drug Testing Laboratory at UC
Davis. Created the Equine Research Laboratory Account in
the Fair and Exposition Fund for the deposit of funds
distributed from the wagering on horse racing for purposes
of the laboratory.
SB 14 (Maddy), Chapter 1273, Statutes of 1987 . Expanded
satellite wagering statewide. License fees from satellite
wagering are deposited into the Satellite Wagering Account.
SB 1499 (Maddy), Chapter 1698, Statutes of 1984 .
Implemented satellite wagering in the central and southern
part of the state, and made conforming and technical
changes in the northern part of the state.
Proposition 3 of 1933 . Legalized parimutuel wagering on
horse racing in California.
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SUPPORT: As of April 24, 2009:
Center for Public Interest Law, University of San Diego
School of Law
OPPOSE: None on file as of April 24, 2009.
FISCAL COMMITTEE: Senate Appropriations Committee.
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