California Horse Racing's ADW Licensing System to Undergo Change

26 January 2006

With the legislation that authorizes advance deposit wagering (ADW) in California set to expire at the end of 2007, the state's Racing Board is set to undertake extensive deliberations with the racing industry and the California Legislature in order to improve the ADW licensing model. ADW wagering has certainly brought in huge wagering amounts for the state, but there exists a few problematic areas that the Board would like to improve upon.

Perhaps the largest critical issue facing the horse racing board will be determining whether the horse racing industry is receiving maximum benefit from the (ADW) model, which permits operators to offer wagers via the telephone and Internet. California Horse Racing Board Chairman Richard Shapiro stated, "While I appreciate the growth in handle, the issue to be studied is where is the growth coming from, and is it in fact benefiting the owners, trainers, and track operators.

"The net benefit is the real issue to be studied. We need to make ADW as profitable as possible for all interests, including the ADW companies, yet ensure it serves the purpose for which I believe it was intended-growing our business as a whole."

At least one organization, the Thoroughbred Owners of California, has voiced its concerns with the current distribution of revenue under the current ADW model. The group notes that ADW provider TVG contributes less revenue to horsemen, owners, and the rest of the industry than do the state's other two providers-- and Magna (Xpressbet)-- even though TVG receives the greatest amount of handle.

But TVG counters that it is responsible for putting the most racing on television and exposing it to more fans than the other providers. The company also says that if it were not allowed to operate under its current business model then it would not be able to afford to put racing on television as frequently as it does.

At the same time, other parts of the racing industry are extremely grateful for TVG's racing coverage on television. Ed Alred, owner of Las Alamitas Racetrack, for example, views TVG's racing coverage night heats at his track as essential to its business.

So a large problem facing the Racing Board Commissioners will be determining how to balance television coverage of racing with the need to increase revenue for other parts of the racing industry; on the one hand there are individuals who are more concerned with bottom line revenue while on the other are individuals who view television exposure as critical.

A second matter under consideration when reviewing the ADW model is the fact that racing fans have a desire for one single account they can use to place wagers on races at all tracks. This isn't possible at the moment because of exclusivity contracts between some of the tracks and the providers. Some parts of the industry believe that exclusivity is the best business model to promote growth and investments in television programming, while others feel that eliminating exclusivity would result in increased competition among ADW providers, better products and services, and increased revenue to the industry.

Another matter to be addressed is the declining attendance at California racetracks. Chairman Shapiro is concerned at the abundance of marketing for ADW that takes place at the tracks. He and the other commissioners would prefer that the ADW providers not try to take customers away from the tracks but instead concentrate their efforts on other demographics.

Still another problem is that ADW has not created as many jobs in California as they were thought to be able to at the time of their introduction. The belief had been that the operators would move their hubs to California and have customer service people there to take wagers, but to date very few jobs have been created.

So the goal of the Commissioners is now to extensively examine all of these issues and more with the aim of improving the ADW system to benefit everyone involved. They already discussed altering ADW model at a meeting last Thursday that was attended by many industry representatives who have widely divergent views on the various matters.

Mike Marten, The Commission's Public Information Officer, stated, "We're looking for input; we're looking for everyone from fans to industry reps to let us know their thoughts, and believe me, they're passionate all around. A lot of them say 'Listen, you can't impose conditions on a way a business operates to the point where they can't do it profitably, otherwise you're going to curtail their investment.'"

With the legislation permitting ADW set to expire at the end of next year, the Commission will eventually need to enlist the assistance of lawmakers if it wishes to make significant changes to the system, and it seems that the legislators would be willing to comply.

"This week, I met with Senator Dean Florez, the chairman of the Senate Governmental Organization Committee, and we discussed jointly convening a meeting of the industry representative to continue a meaningful dialogue about the best way to shape ADW," stated Shapiro.

"The discussion will include evaluating whether the exclusive agreements (between one ADW provider and a racing association) are in the best interests of California horse racing, among other issues. I am very pleased that Senator Florez is interested and willing to participate in this discussion."

Shapiro closed last week'ss meeting by stating, "Whatever we do eventually decide to do, our intent will be to get purses up. If we can improve our ADW system and increase revenue to the industry, we will increase purses and we will attract more horses to race in California. That should be the goal of everyone."

The licenses of all three ADW providers in California are set to expire at the end of this year. They were all granted two-year licenses in 2005. No conditions pertaining to the problematic areas explained above were included in the terms of the current licenses, although including such conditions for the next round of licensing is certainly possible.

Bradley Vallerius

Articles by Bradley P. Vallerius, JD manages For the Bettor Good, a comprehensive resource for information related to Internet gaming policy in the U.S. federal and state governments. For the Bettor Good provides official government documents, jurisdiction updates, policy analysis, and many other helpful research materials. Bradley has been researching and writing about the business and law of internet gaming since 2003. His work has covered all aspects of the industry, including technology, finance, advertising, taxation, poker, betting exchanges, and laws and regulations around the world.

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