California HorseRacing Bill - More Background

13 July 1997

Looks like there's a little activity in California on the internet gambling bill for horse tracks. Here's the latest on Senate bill 141:

California HorseRacing Bill - More Background

Date of Hearing: July 14, 1997

Valerie Brown, Chair

SB 141 (Maddy) - As Amended: April 15, 1997


SUBJECT: Horseracing: Out-of-state Wagers

SUMMARY: Authorizes California racing associations to establish accounts with out-of-state bettors to accept wagers placed by telephone or other communication technology on races conducted by the association. Specifically, this bill:

Authorizes any California racing association, with the approval of the California Horse Racing Board (CHRB), to establish accounts with out-of-state bettors and to accept wagers placed by telephone or other communication means approved by the CHRB on races conducted or disseminated by the association.


Authorizes any California racing association, with the approval of the CHRB, to accept out-of-state wagers on races conducted or disseminated by the association and to transmit the simulcast of those races to locations in other states.

California Penal Code Section 337i provides that every person who transmits information relating to the progress or results of a horserace, or other information relating to wagers, odds, etc., by any means whatsoever including, but not limited to telephone, to persons engaged in illegal gambling operations is punishable by imprisonment for not more than one year. This does not apply to wagering activity conducted under the auspices of the CHRB.


Potential increase in license fee revenues to the General Fund.


1. Purpose of the bill. According to the author, the purpose of this bill is to retain additional revenues for the California racing industry and the state's General Fund which are now lost when wagering on California racing is conducted through out-of-state betting systems. The author notes in support of this bill that interstate telephone wagering is legal in New York, Pennsylvania, and Michigan, where they permit people from various parts of the country to establish accounts with both tracks and off-track betting facilities.

California racing associations contract with these out-of-state, off-track betting systems to simulcast and accept wagers on California racing. The contracts pay the host California track a percentage of the handle (usually in the 3-4 percent range) for this service. California horse racing law stipulates that out-of-state betting systems must provide for a take-out which is equal to the take-out at the California host track, which depending on the type of wager is generally in the 15-20 percent range. Therefore, minus the contract at 3-4 percent with the California host track, the out-of-state betting system retains somewhere between 12-17 percent of the take-out on the California races they show, and they are not required to distribute these revenues with the other industry participants, as is required in California where the three percent retained by the California racing association has to be divided among the horsemen, breeders, racing associations, and the state (which taxes the contract at an 8 percent rate).

The author supports removing the "middleman" from every out-of-state wager placed by telephone and in doing so allow the California horse racing industry to share the full 15-20 percent now retained by the out-of-state betting system. The state would likewise benefit in that significantly more General Fund revenues would be generated. This is important, the author notes, to continue to support the competitiveness of the California horse racing industry which continues to experience stagnant growth.

2. Attorney General Opposition. The Attorney General opposes this bill on the grounds that it would expand gambling by making it easier for out-of-state gamblers to bet on California horse races. The Attorney General additionally notes that the bill appears to be in conflict with federal law which prohibits the use of a wire communication facility to transmit bets or wagers in interstate or foreign commerce.

3. Federal Law. Section 1084 of Title 18 of the United States Code (The Federal Interstate Wire Act) regulates the transmission of wagers and wagering information by means of a wire communication facility in interstate or foreign commerce. The purpose of that act was to assist the various states in the enforcement of their laws pertaining to gambling and bookmaking and to aid in the suppression of organized gambling activities by prohibiting the use of wire communication facilities which could be used for the transmission of bets or wagers.

Legislative Counsel has opined (June 9, 1997; #15435) that this legislation, if enacted, would be prohibited under this federal law, in that a California racing association would be precluded from accepting wagers placed by out-of-state bettors by means of telephone or other communication technology (e.g., the Internet) on a race conducted or disseminated by the racing association - despite the fact that pari-mutuel wagering on the outcome of horse races is legal in California. (However, a legal wager may be placed or accepted in one state by an off-track betting system with respect to the outcome of a horserace taking place in another state pursuant to the Interstate Horseracing Act of 1978.)

The author has responded to this opinion with the following question: "If wagering by telephone or through the Internet is prohibited by federal law, how can public corporations in various states accept wagers made by telephone and computer across the country." The authors cites numerous companies which advertise in racing publications and solicit this type of wagering activity.

On a related matter, U.S. Sen. Jon Kyl (D-Arizona) has introduced S. 474, the Internet Gambling Prohibition Act of 1997, which is presently before the Senate Judiciary Committee. This legislation would outlaw gambling on the Internet and require the Federal Communication commission to discontinue the services of the violating entity upon notification by any law enforcement agency.

4. Opposition. Opponents are concerned that legalizing telephone or Internet wagering on California horse races for out-of-state residents would set the stage for expanding this practice for California residents, and perhaps usher in other means of wagering on horse races such as in-home interactive betting, which has been legal in New York since 1995. Opponents also express concern that compulsive gamblers and minors would have access via the telephone and Internet to gambling on horseracing.

An additional issue has been raised with respect to whether by authorizing this practice, the state would essentially be "regulating" this activity (as opposed to prohibiting), which under federal Indian gaming law could potentially allow those Indian gaming tribes which have compacted with the state to allow pari-mutuel wagering on horseracing (there are five) to aggressively enter into this area of gambling. Furthermore, opponents of this bill note that as a sovereign entity, the Indians could possibly target residents of California with this activity.



California Thoroughbred Breeders Association
Ladbroke/Pacific Racing Association
Del Mar Thoroughbred Club
Hollywood Park Racecourse
Los Angeles Turf Club at Santa Anita
Bay Meadows Race Track
Federation of California Racing Associations
California Authority of Racing Fairs
Thoroughbred Owners of California
Wytec, Inc.


Attorney General
Committee on Moral Concerns
California Church Impact
California Council on Alcohol Problems
National Coalition Against Legalized Gambling
Stand Up For California
Pari-Mutuel Employees Guild, Local 280,