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Calif. OKs Exchange Wagering, Takeout Hike

State would be the first to adopt gaming proposal; measure goes to governor's office.

California legislation that would redirect perhaps as much as $70 million from winning bets to Thoroughbred purses and make the state the first in the nation to approve head-to-head wagering on horse races gained approval on the final day of the regular legislative session Aug. 31.

It now goes to Gov. Arnold Schwarzenegger, who has expressed support for legislation to bolster the state's struggling racing industry but has not indicated whether he is in favor of this bill.

The California Senate approved the measure, SB 1072 authored by Sen. Ron Calderon (D-Montebello), by a 23-6 vote a day after it cleared the Assembly on a 56-10 count.

The racing industry was not 100% in favor of the legislation, especially the so-called "exchange wagering" portion of it. The originally amended bill, by Assemblyman John Perez (D-Los Angeles) drew heated opposition from MI Developments, which owns Santa Anita Park and Golden Gate Fields; Churchill Downs Inc.; and the California Thoroughbred Trainers.

MID dropped its opposition after Calderon offered a compromise that delayed the implementation of exchange wagering until May 2012.

The delay will give the California Horse Racing Board, potential exchange wagering licensees, tracks, and owners the opportunity to work out details of the new betting scheme, which would not be subject to traditional takeout rates, said Kirk Breed, the CHRB's executive director.

"We have to create something here that people will want to play," Breed said. "We have to come up with regulations that make sense but protect the regular wagering public from any wrong-doing."

The Legislature also approved a companion bill that establishes a May 1, 2016 expiration date for exchange wagering unless further action is taken to prolong it.

The CHRB would have the power to approve regulations and agreements between tracks, horsemen, and exchange wagering companies, and would decide whether to license applicants.

Exchange wagering allows bettors to wager directly against one another over the outcome of a horse race, establishing their own odds and the amount bet, and could be even applied to races that are in progress. It is supported by TVG, whose owner, Betfair, has had great success with exchange betting in Great Britain, where it was popularized. In particular, Betfair sees such wagers as a way to attract younger customers to the sport, according to a compmay spokseman.

The bill approves exchange wagering for Thoroughbred, Quarter Horse, and Standardbred racing.

Less controversial, at least within the racing industry, was the portion of the bill that will bump the takeout rate for exotic wagering on Thoroughbred races, with the additional revenue redirected to purses.

Races involving two betting interests (such as an exacta or double) would be subject to a 2% increase to 22.68%. A 3% hike would be tacked onto exotic wagers involving three or more wagering interests (trifecta, superfecta, Pick 3, Pick 4, Pick 6, etc.), bringing the deduction for those types of wagers to 23.68%.  Everyone making such wagers on California races, whether inside the state or out, would be affected.

Higher takeout means less is returned to bettors for winning wagers. The current rate on win, place, and show wagers is 15.43% and 16.77% for the fairs. Those rates would not be affected.

If signed into law and approved by the CHRB, the new rates would take effect in time for the opening of the 2010-11 Santa Anita season Dec. 26.

Racing officials said the increase would mean an additional $30 million in purses annually, which they believe could help attract owners who have left the state for more lucrative returns in other states. A legislative analysis done for the Assembly estimates the addition in purses at closer to $70 million annually.

"Currently, over $4 billion is wagered each year in the state on horse races and almost $800 million is withheld as the takeout to fund such things as horsemen's purses, racetrack operations, state oversight of the industry," the report states. "If an increase in the handle for exotic wagers results in a 2% increase in the takeout it would result in approximately $70 million in horse racing revenue being redirected toward the industry, rather than provided to bettors as winnings."

Supporters say the increase will stimulate purses, leading to increased field size and more wagering while keeping the traditionally lower takeout rates in California comparable to other major racing states.

Horseplayer groups believe increasing the takeout will reduce the amount wagered and therefore will not benefit the industry.

A 2009 law intended to give racing associations more flexibility on takeout rates, subject to CHRB approval, caps such deductions at 25%.

The Calderon bill would also set aside some of the takeout increase for promotion of the Breeders' Cup on years it is held in California.

Messages to Calderon's office seeking comment were not returned.