Exchange Wagering Facing Delay in California

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Implementation of exchange wagering in California will be delayed for several months after the state's Office of Administrative Law rejected provisions approved earlier this year by the California Horse Racing Board.

In an 18-page report issued by the OAL March 21, senior counsel George C. Shaw found problems with the manner in which the CHRB would assess its licensing fee to conduct exchange wagering. He also cited 18 different instances from subsection provisions found in the regulations that failed to comply with government rule-making standards for clarity, consistency, and administrative procedures

Rules for exchange wagering cannot go into effect until approved by the OAL and sent to the Secretary of State's office for final consideration.

A spokesman for the OAL said the racing board would have 120 days to submit the required changes to the document. The revisions, once approved by the CHRB, would require at least a follow-up 15-day comment period.

Legislation that would make California the first state to allow exchange wagering was approved and signed into law in 2010. Following a lengthy process that began in August 2011, the CHRB gave approval to 25 sections of new rules last November and submitted those to the OAL Jan. 31. They were rejected March 15.

Exchange wagering, conducted electronically via betting platforms, is popular in Great Britain. It would allow California bettors to wager head-to-head on horses to win or lose and could also be used to allow wagering on races in progress. Advance deposit wagering provider TVG, owned by British bookmaking company Betfair, has been a major proponent for exchange wagering in California.

Kirk Breed, executive director of the CHRB, said he did not anticipate the agency having great difficulty complying with the OAL's objections. But he said it would be a time-consuming process to resubmit the amended rules.

"I think they are easy enough to get through," he said. "It's just going to take time to do it."

He said the changes would not be ready for the CHRB's consideration at its April 11 meeting. The next scheduled board meeting is May 23.

"We may need the entire 120 days," Breed said.

While most of the issues found were of clarity, the report found fault with CHRB provisions for assessing licensing fees. The regulations require a $1.4 million fee for two years, although a subsection provides for a smaller payment if the board elects to adjust the amount.

The OAL questioned the amount, $700,000 for one year, when the "the total annual estimate" to regulate exchange wagering was $510,000 annually. With just one licensee, the fee amount is $380,000 more than required to oversee the program over a two-year period, it noted.

Breed said the original $1.4 million figure was based on an estimate provided by the British Horse Racing Authority for enforcement and regulation. The board, he said, wanted the flexibility to adjust the license fee downward if there was more than one license holder.

At the Nov. 15 meeting in which the board approved the original rules, Churchill Downs Inc. also said it plans to conduct exchange wagering, though it objected to the amount of the license fee. Both TVG and CDI were approved for provisional licenses at that meeting, pending final approval of exchange wagering rules by the state and a settlement with CDI over the amount of the license fee.

In its license application, TVG indicated it had reached agreements with Standardbred track Cal Expo and Quarter Horse track Los Alamitos, as well as the respective horsemen's groups, and would be ready to launch in March.

Exchange betting providers are required to reach agreements with the tracks and horsemen involved before offering races on their exchange platforms. Del Mar has indicated it hoped to have exchange wagering for its upcoming summer meet, although that now appears to be unlikely.