CHRB June Meeting: Funding Fight Resolved, CAW Discussed, Elite Turf Club To Open Fiscal Books For Scrutiny

Del Mar opening bell | Benoit

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It was déjà vu all over again at June's California Horse Racing Board (CHRB) meeting.

Three months after a contentious meeting that saw board members vote unanimously to give race dates to Pleasanton Racetrack for a Thoroughbred meet this fall (in opposition to the wishes of Southern California track operators), the CHRB wrestled with another weighty conundrum: How to fund horse racing in California for the next fiscal year.

Ultimately, the board approved what was termed a “compromise” funding model that will see each racing association cover the “direct costs” of drug testing, and the salaries of stewards and regulatory veterinarians, along with the everyday “indirect” expenses of running a government agency.

The new funding system is a blended model based on a percentage (60%) of licensing fees in place prior to 2009, and a percentage (40%) of ADW wagering.

CHRB vice chairman Oscar Gonzalez was the only board member to vote “no” on the new funding model, having previously shown support for a more gradual phased approach.

For the next fiscal year, Santa Anita is expected to pay some $7.9 million, a decrease from $8.9 million, while Del Mar is expected to pay just under $5 million, a slight increase for the track. Golden State Racing, the Northern California entity replacing Golden Gate Fields, will pay roughly $1.6 million. (In real terms, the new model will actually benefit Del Mar, as that number is based on their hosting of the 2024 Breeders' Cup).

Dr. Greg Ferraro | courtesy of the CHRB

There appeared to be a difference in perspective within the board as to the likely fiscal impacts from the funding switch. CHRB chairman Greg Ferraro indicated that the new funding model would be a “small change” from the status quo.

CHRB executive director, Scott Chaney, pushed back on that assessment, saying that the new model will “not be a small change” for Californian tracks that card Harness and Quarter Horse racing.

“It's still a major change–just paying your direct costs is a major imposition. Though not so much for the Thoroughbred [tracks],” said Chaney.

Reached after the meeting, attorney Drew Couto, who represents Los Alamitos, said that the agreed upon model will see the track pay “more than double” what it currently pays annually based on current projections.

“Nobody else works on a fiscal year, only the board,” said Couto. “Los Alamitos is in the middle of a one-year meet and they're told a significant cost to them just doubled.”

Larry Swartzlander, California Association of Racing Fairs (CARF) executive director, told the TDN that the extra costs to the organization's tracks will be a “major additional expense,” but it won't affect day-to-day operations. “Business as usual,” he said.

Traditionally, Southern California tracks have shouldered most of the financial costs associated with key parts of the sport's infrastructure, including agency staff, steward and regulatory veterinarian salaries, as well as drug testing operations at the Maddy Lab at UC Davis.

These costs total just over $18 million, with about $8 million in so called “direct” cost earmarks for stewards, veterinarians and drug testing costs, and about $10 million funneled towards the everyday “indirect” expenses of running a government agency.

Scott Chaney | CHRB

For years, this funding schedule has been prefaced upon handle generated at each track. According to a CHRB analysis, Santa Anita and Del Mar covered about 75% of these costs, at 49.2% and 25.8% respectively. Golden Gate Fields covered nearly 12% of the costs.

In the tectonic landscape left in the wake of The Stronach Group's abruptly announced closure of Golden Gate Fields, Southern California interests have pushed for a revision to that funding model, requiring smaller tracks to increase their overall share of the financial costs-a scenario that smaller cash-strapped venues argue could put them out of business.

Indeed, prior to the meeting, David Neumeister, president of the California Harness Horsemen's Association, wrote a letter to the board stating that there was “no way” the harness industry “could survive” under some of the proposed models.

A key legal conundrum for the board to wrestle with was whether tracks are mandated to pay for laboratory testing as a part of their “direct cost” obligations. Los Alamitos and CARF among others argued that provisions in state statute preclude that requirement.

The CHRB, as well as the state's larger track operators, disagreed.

“When looking at the canons of statutory construction, one of the things that courts have said repeatedly is, 'we look to the plain language of the statute,'” said Robert Brodnik, a state attorney representing the CHRB, at Thursday's meeting. “Well, the plain langue of the statutes includes laboratory testing, stewards and vets, and indicates that it's an obligation of the racing associations.”

California law provides no hard guidance as to a funding formula. The CHRB largely left it to industry stakeholders to thrash it out. Several meetings over the past few weeks proved fruitless, however.

Kenneth L. Maddy Equine Analytical Chemistry Laboratory | ARCI

In another letter submitted to the board prior to the meeting, Los Alamitos owner Ed Allred, writing on behalf of the Los Alamitos Quarter Horse Racing Association (LAQHRA), pushed for a phased in approach “so that we may collectively solve the funding problem without a figurative piano hanging over our heads.”

Representatives from Santa Anita and Del Mar objected to the phased approach presented by Los Alamitos, arguing that the two tracks would end up shouldering 94% of the indirect costs the next fiscal year.

Santa Anita and Del Mar's joint proposal would have seen all tracks pay their proportionate share of the “direct” costs, and the two facilities combined pay around 66% of all indirect costs.

In discussion prior to the vote, commission members stressed how the funding model will likely prove a temporary measure amid the moving furniture of California racing.

Chaney also addressed the need to trim expenses within the CHRB, especially with a state budget deficit looming large.

“I think going down is going to be possible in the future-I think there's going to be some contraction with employees, simply because HISA repeats (roles),” said Chaney. “And to be fair, with contraction of race days we just need less personnel.”

 

Computer Assisted Wagering

The prior agenda item was a discussion on computer assisted wagering (CAW), a thorny topic due to the major edge that a small number of deep-pocketed punters wield over regular gamblers thanks to their use of sophisticated wagering technologies and the attractive rates and rebates offered to them-inducements not available to the average punter.

Bill Nader | Scott Daruty

There have always been gamblers more skilled than others, said Thoroughbred Owners of California (TOC) president, Bill Nader. “This is taking it to another level,” he added.

“The market share of CAW, let's say it's more like 25% in California, and they're winning at a rate of 90-92%, it is going to impact the other segments. There's no doubt about that,” said Nader.

“What we're trying to do is make sure the core customers and the retail market is not feeling too much of a pinch. Because if they are, and their money dries up too quickly, or their experience is not up to their expectations, then we do run the risk they will go away,” he added.

Scott Daruty, president of both The Stronach Group's Monarch Content Management and of the Elite Turf Club (majority owned by TSG), spoke first, mainly giving a broad overview of the issue.

For a summary on the basic mechanics of the subject, read this TDN piece breaking the topic down into its essential parts.

A TDN investigation from earlier in the year provided a rare glimpse into the tremendous sway these individual players can wield over track and racing officials, the potentially lopsided economic ramifications of such deals, and the tremendous pressures that California executives are under with competing jurisdictions that enjoy purse subsidies not available in the Golden State.

The TDN found that last year, Del Mar continued a deal with a player identified as Elite 17 that saw them enjoy a significantly more favorable rate of play than other high-volume players that wager through the CAW platform, Elite Turf Club. At the enormous volumes CAW gamblers play, such deals can give individual players a significant financial edge.

The result was that this one player constituted nearly 47% of Elite Turf Club's total handle on Del Mar last year. Two years prior, Elite 17's play had constituted just over 36% of Elite Turf Club's total handle on Del Mar.

At the same time, the amount of money another major Elite Turf Club player (Elite 2) wagered on the track dropped off by over $32 million between 2021 and 2023-from around $45 million in 2021 to around $13 million last year. In 2021, Elite 2's play came to just over 27% of Elite Turf Club's total handle on Del Mar. Last year, that number had dropped to around 12%.

Scott Daruty | Horsephotos

Nader indicated that the TOC has made progress in correcting the imbalance of CAW play in California.

“Over the past year, I'd say the TOC has taken a real hard look at CAW, and we've had long discussions with the track partners, and we've agreed to make pricing adjustments… that will be implemented at the start of the summer meet at Del Mar,” said Nader. “I think we've got a good outcome here, for the start of the Del Mar summer meet.”

In raising the issue of CAW play potentially having a negative impact on the state's dwindling purse accounts, Gonzalez brought up an offer by 1/ST Racing CEO Craig Fravel at prior meetings, that the company would open its books up to the regulators.

“Mr. Fravel sat here a couple meetings ago and really just said we could look at the books,” said Gonzalez. “Does that offer hold true to your operation, if we really wanted to take a look at what you guys are pulling in profit wise, certain negations, the impacts on purse accounts etcetera?”

“Are we willing to open our books for the CHRB? There's a caveat here, which is, our players are private individuals and their wagers are their own private information. So, we wouldn't be comfortable sharing individual player data,” said Daruty.

“What is Elite [Turf Club]. Elite is no different than TVG or TwinSpires or Xpressbet. So, again under the regulatory authority of this agency, would we be open with you on that? Yes, we would be. But would I then wonder whether the same diligence would take place on TVG or TwinSpires or Xpressbet? I guess it would be affair question to ask, if you're going to look at them,” said Daruty.

“But then, let me preface that by saying yes, we will cooperate in any way you want. There are no secrets here,” he added. “We're not hiding anything.”

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