Law Gives CA Tracks More Takeout Flexibility

A new law gives California racing more flexibility in regard to pari-mutuel revenue.

California Thoroughbred racetracks, subject to regulatory approval, could increase pari-mutuel takeout—return less money to bettors—and change how the revenue is distributed under legislation signed into law Oct. 23 by Republican Gov. Arnold Schwarzenegger.

The measure was sponsored by Democratic Sen. Dean Florez, who said it will allow the horse racing industry to “increase its competitiveness” with other states whose racetracks benefit from alternative gaming, and “create a funding mechanism for the industry to invest in infrastructure.”

California law establishes takeout, the amount removed from pari-mutuel pools before bettors are paid. The current rates are 15.43% for win, place, and show wagers, and 20.18% for all other wagers, including the pick six.

Takeout rates could be changed before; the new law allows “the industry greater flexibility to make adjustments to the distribution,” Florez said.

“Even with a small increase in the takeout rate, California racing would still rank among the five lowest takeout structures in the country,” Florez said in an analysis of the legislation. “Any proposed redirection of distributions would be focused on an agreed-upon strategy for stabilizing industry operations.  In the end, this bill is about self-reliance, reinvesting in California for growth, and protecting jobs for the future.”

“Traditional takeout, allocation, and distribution formulas are no longer able to sustain ongoing operations. As the value of racing operations declines, track ownership is struggling to maximize shareholders’ return on the investment, and tempted by alternative uses of the property that yield higher returns. As a consequence, the racing industry is suffering unprecedented instability and capital flight.”

Revenue provided to the California Horse Racing Board won’t change if takeout increases.

Some California track officials told Daily Racing Form they don't intend to increase takeout at a time when the industry is struggling to increase pari-mutuel handle.

The analysis said that according to the Assembly Appropriations Committee, “to the extent that this makes it easier for racing associations to increase the amount of the takeout, it would reduce the amount of money provided to winning bettors, and thus the amount of taxable income reported as gambling winnings by those bettors.”

A fiscal analysis states more than $4 billion is wagered in California each year on horse racing. Thus, a 5% hike in takeout rates would produce $200 million in revenue “that would be redirected toward the industry rather than provided to bettors as winnings," the analysis states.

The analysis didn’t discuss a scenario in which pari-mutuel handle could fall because of the increase in takeout.

The analysis indicates the measure had the support of Del Mar, Golden Gate Fields, Fairplex Park, Oak Tree Racing Association, Santa Anita Park, and the Thoroughbred Owners of California.