Rough Draft
SENATE SELECT COMMITTEE ON CALIFORNIA’S HORSE RACING INDUSTRY Informational Hearing “The Closure of Hollywood Park Race Track: Ensuring the Long Term Viability and Competitiveness of California’s Horse Racing Industry” June 26, 2009 Inglewood, California Senator Roderick Wright, Chair


We’re going to go ahead and get

started. I want to thank everyone for coming. Let me point out a couple of things: As some of you may know, the Legislature is in session and there was some debate as to whether or not we’d be able to continue. Some of my colleagues may be coming. The Senate just adjourned. They did not get the budget done, so again, as I mentioned earlier, we’re going to have a meeting on Sunday to go back and do budget stuff. But what we wanted to do today was get into a couple of issues about horse racing. My name is Rod Wright. I am the senator from the 25th district. And let me first welcome all of you to my senate district. This is Hollywood Park in the city of Inglewood, for those of you who didn’t know. I believe this is still one of the great horse racing venues in the world—certainly in California. I want to say thank you at the outset, to the staff here at Hollywood Park. Mr. Liebau and all of his folk have been very gracious to open up their doors to us and certainly wanted to extend, just again, a thank you, for letting us come and do this. As we’re looking at horse racing particularly in California, we want to make sure that we’re able to do that. And we’re always searching for, and it’s the purpose of this committee, to find ways to enhance and protect the horse racing business.

I also chair, as some of you know, the committee on Governmental Organization, the standing committee in the Legislature. And we’ve had several bills in that committee that dealt with horse racing. The other day we were talking about cloned horses and quarter horse racing. We’re looking at changing some of the handle pots; all the things that we can do to make it a more viable business. As some of you know probably better than I, in our February budget we actually altered the requirement to pay the fairs so that we alleviated some of that pressure from horse racing. But we’re always looking—and we’ll have to certainly look toward, many of you in this room—at ways that we can protect and preserve horse racing in California. My predecessor in the 25th district, Ed Vincent, probably more than anybody that I know or ever met, is a true horse racing aficionado. Not only does he bet them but he also rides them and he grooms them. involves a horse, Ed has probably done it two or three times. So we want to continue as best we can here at Hollywood Park to see that at the state level we do all that we can to maintain horse racing. And I say horse racing in broad strokes because I’d like to see horse racing continue at Santa Anita; I’d like to see horse racing continue at Del Mar and all of the other tracks in northern California that we still have. I think that this is a sport that’s vital to the economy and the strength of California and I think it would be a terrible thing if we just let it get away without a fight. We’ve got a number of people on panels. And I’m glad, again, that you’re all here. The idea that we want to try to get across (and it might be legislation and it might be policy) is what things can we do here in California as the state government, to protect and preserve an industry that most of us love? And I’m going to say most of us because if you didn’t love it you’d probably be doing something else today. So I’m going to make an assumption and go way out on a limb and say that the people in here believe in horse racing and would like to see it continue. And if it


And with that, I want to get to the first witness that we have. I didn’t want to preserve my opening statement for too long but, again, let me just say thank you to all the staff here at Hollywood Park, Mr. Liebau who’s here, and all the people who have helped make this happen. I’m going to take a moment, too, and introduce the staff, people who are on the committee. Now this is actually the staff of the select committee as well as G.O. Some of you know Art. You know Brenda. You know Chris. You don’t know Catherine and you don’t know Cassie Burns because they’re on the select committee staff. But for all of you old timers, you know the regulars and they’re still going to be working with us. And that continuity, I think, is That’s one of the important because we don’t have to reinvent the wheel.

concerns that people have about term limits, is that you’re always starting over with new folk. Well, we’re going to maintain institutional memory with people who’ve been around this business for a while. It helps keep us grounded and getting us going. Let me welcome our first witness, the vice-chair of the California Horse Racing Board. I first met him involved in the Coliseum Commission and things that are all good in southern California. Mr. David Israel, welcome aboard and thank you for showing up. DAVID ISRAEL: Thank you, Senator. As I begin I would like to point out that I’m a member of the Horse Racing Board but I’m not here representing a consensus opinion of the Horse Racing Board. SENATOR WRIGHT: Okay. MR. ISRAEL: We’ve not discussed these issues. SENATOR WRIGHT: You sound like a legislator. MR. ISRAEL: Well, I’ve been around you guys long enough to know how to equivocate with great ________. Nor do I represent in any profound way, the opinions of the governor here even though he appointed me to this position. I’m here because I know that the members of the board were invited and I thought we should be represented. And we need to acknowledge that especially in southern 3

California we’re in a transitional period as it relates to thoroughbred horse racing in particular. Magna which owns Santa Anita, is in bankruptcy. How they emerge The from that isn’t up to any of us, really, it’s up to a judge in Delaware. Hollywood Park is in a state of suspended animation or limbo. owners have made it clear that they hope to develop the property into something other than a race track and they’re proceeding with those plans as best they can given the economic conditions. And Del Mar which has been financially, I guess, the soundest of our race tracks, is operating with less than one season left on its lease with the state of California and the agricultural district. very well. I understand their position Because of the Coliseum we were in that position with the

agricultural district for two years—my first two years on the board—but we negotiated a new 47-year lease and the Coliseum will be there until 2055 at least. But as these transitions were occurring we’re mindful of what we have to prepare for the future. We’re hopeful that all the stakeholders are working on a plan so that we can start working incrementally in larger blocks of time and planning the future of horse racing. I personally think it would be a really good idea if we knew five years out what our racing calendar was going to look like so that all the entities could get together and market this sport together in a really efficient collective way to try to increase interest in this sport. SENATOR WRIGHT: But hold it right there. What would we need to do to make that happen? MR. ISRAEL: Well, we’d need to have some kind of certainty about the future of Hollywood Park. We’d know a date certain, when it intended to close or that they want to continue operating for long period of time. And then I think some of what’s at issue here requires a change in the legislation. As I understand it (and people who have been around longer than I have can correct me) the number of racing days is limited at each racing association and if, for instance, Hollywood Park were to close, legislation would have to change 4

so that Del Mar’s schedule could be expanded, for instance, and Santa Anita’s schedule might be expanded. I am not completely certain about that but I think some legislation would be required. But for me, my personal opinion is the best way to assure the future of horse racing is for the state of California to join with the state of New Jersey and fight to legalize sports gambling and for sports gambling to be limited to the race tracks and, because I’m a practical kind of pragmatic person, the existing casinos and the satellite facilities that are already in existence and I think that would rejuvenate the sport. It would increase interest dramatically and I think the state needs to explore it. It would also produce a hell of a lot of income for the state, not to mention jobs. And I’m aware that sports gambling, the legalization of sports gambling has some natural predators, primarily the National Football League, the National Basketball Association, and major league baseball, the NHL and the NCAA. SENATOR WRIGHT: sports. MR. ISRAEL: Yeah, but sports gambling—I’m not a lawyer but I’ve read the constitution. And sports gambling is legal in four states and illegal in 46 states. It’s legal by a statute passed by Congress in Nevada, Montana, It’s illegal in the other 46 states. The constitution Delaware, and Oregon. That pretty much covers the people that play

requires equal protection under the law. I don’t understand how that’s equal protection for the other 46 states. So were an effort be made by California, especially if it joins with New Jersey which has already indicated it’s going to fight the statute—Governor Corzine supports it and a suit has already been filed by a member of the New Jersey legislature—I think there’s a real chance that the efforts will succeed. The sports leagues, short of participating in gambling already, every one of them operates, in some way, a fantasy league. Fantasy leagues are gambling on the results not of games, but of individual players. Once they participate in doing that they’re just parsing in their objections. Moreover, I think legalized


sports gambling in Las Vegas has shown in the past to be a good way to ensure the integrity of the games. The last couple of point shaving scandals in college basketball were uncovered by the League of Sports Books in Las Vegas, not by anybody else, and they notified the NCAA and the proper authorities. The two scandals I’m talking about are Boston College and Arizona State. So it would actually act, I think, as a policing mechanism. It’s going on. Billions of dollars are bet in an underground economy every year. And the NCAA basketball tournament has flourished because of office pools and all kinds of illegal gambling. So I think the state and the race tracks would benefit tremendously if the state of California were to act on their behalf and try to legalize sports gambling, because it’s not something that’s going to happen tomorrow, it’s not something that’s going to happen by next season, but the process needs to start otherwise it’s not going to happen. I think if you were to come here, or Santa Anita, or Pomona, or Del Mar on a football Saturday or Sunday, you’d find thousands of people there for the sports book who would then, if the race track were running, sort of get involved in horse racing and come to understand it in a way that they haven’t participated in it before and it would really assure the future of the sport. SENATOR WRIGHT: Your sense would be that we would take it to the race tracks and the card clubs as well? MR. ISRAEL: Okay, the card clubs; I hadn’t thought about that. But I also thought the Indian casinos and the existing satellite facilities, mini satellite facilities, and it’s kind of like facilities that participate in off-track horse race betting already. SENATOR WRIGHT: Okay. I mean, it would be an interesting thing for us… MR. ISRAEL: My colleagues here can fill you in on who those are better than I can. SENATOR WRIGHT: And I’m thinking out loud. I’m not trying to quiz. Because one of the things we have to be certain, and I’m fairly comfortable that 6

this would not violate the compacts that we have with Indians vis-à-vis casino style gambling, so I think we’d be safe there; that we’d be adding a new type of gaming and not violating the spirit of the compacts that we… MR. ISRAEL: Well, it’s currently illegal so it can’t be included in the… SENATOR WRIGHT: No. But I’m just saying it’s also illegal to have the other games as well. But we have been discussing, for example, moving into casino style games which would violate the compacts, which causes another set of problems. So if this were a new type of game, the thing that we want to make sure going forward in that is that we didn’t end up picking up some revenue and then losing the revenue that we got from the compacts. And I’m not saying that we do, but it would be a thing to be sure of. MR. ISRAEL: gambling. SENATOR WRIGHT: And it would be worth us checking out the status of New Jersey’s suit. I mean, we were just in a suit that you may be aware of (and I mention it because it’s similar), California is a big wine producing state and after the Volstead Act every state virtually had their own… MR. ISRAEL: Yeah, we couldn’t ship out of state. SENATOR WRIGHT: But we just won that battle a few years ago. And part of what—since that in the Supreme Court was exactly the equal protection clause. And actually, it was the interstate commerce clause that that hinged on that kind of provided some uniformity so that—I mean, we were getting hammered. I mean, you probably know the story of where I think Turning Leaf was one of the big ones where they shipped to Maryland. And in Maryland, if the UPS driver didn’t actually get the signature of an adult when he made the delivery, then the shipper was liable for up to, like, $50- or $60,000. Not Federal Express, but the shipper was liable. Even if the label said “must be received by a person over 21,” the state of Maryland rule was that they sued the shipper. But making the point that the interstate commerce clause trumped what in effect was federal law, relative to how you sold alcohol in the United States. And so, the point that you make is that it may well be that the 7 I think it would bring new players into the world of

court will trump Congress. Again, in the context of equal protection vis-à-vis those four states who do it, in this case, than why would the other 46 states be prohibited from doing something that is deemed illegal? MR. ISRAEL: Right. It makes no sense. And I expect that leagues will threaten to pull their teams out of the state. Well, my experience in sports is they can pull one team out but they can’t afford to operate without teams in California. We’re more than 10 percent of the population in the United States and Los Angeles, in particular, leads sporting trends and culture trends so they absolutely have to be here. People say there’s no football team in Los Angeles, but there are three in California. So I think that would be an empty threat. And if we won the suit, every other state would be able to participate as well. And given the state of the economy and people’s aversion to paying income taxes, it’s a good way for states to raise money that they’re now forfeiting because in the underground economy nobody is paying taxes on the bets that they make or the bets that they win or the bets that they book. And Nevada is getting a hell of a lot of business from driving across the state every week to our detriment. And one of the reasons why I think it’s particularly wise to put those sports books in the existing race tracks and other facilities is because gambling goes on there. It’s not like Louie is going to be shocked to find out that gambling is on like in Casablanca, you know? Gambling occurs here. People come here in large numbers to Hollywood Park, to Santa Anita, to Del Mar to bet on horse races, so we really wouldn’t be changing the culture of the neighborhood in any profound way if we were to do that. SENATOR WRIGHT: Okay. I mean, that’s an idea, I think, that we have to pursue. I mean, certainly to determine what New Jersey’s doing and what the status of their suit is. And fortunately, resolutions can be introduced at any time because ours might be a resolution to Congress because if it’s a court action. I mean, a resolution to Congress wouldn’t necessarily have any effect but I mean, we might instruct…


MR. ISRAEL: Well, Congress can change the law. The law was passed by Congress, I think, in 1991 or ’92, so Congress can change that sports gambling law and legalize sports gambling. I just don’t know that it would. So I think you have to be prepared to wage a court fight and that’s what they’re doing. I think that’s what New Jersey is doing. SENATOR WRIGHT: Yeah, our resolution might be to either memorialize Congress to look at the change, or to instruct our own attorney general to engage with the state of New Jersey in the suit. I mean, those would be the two ways that we would—I mean, we often memorialize Congress to do all kinds of things, so that wouldn’t be unusual. And if we were to have our attorney general join in that suit I think it might add some strength to what New Jersey is attempting to do. I mean, it’s something to look at. We’ll certainly want to verify on our own internal California laws that we’re not violating any of the issues that we have with respect to our own card clubs and our own compacts but I don’t think that it would. But that’s why they have (I’m like you) that’s why they have lawyers who do this every day who could just make sure that we didn’t end up—because at one point, for example, there was discussion of attempting to put casinos at horse racing tracks. It gets complicated on several fronts because you’ve got rules as to where the casino can go, the land it can operate on. If you put casino gambling at—say if you put that at Hollywood Park, if you put slot machines here, then you run into compact issues that you have with the tribes, and so, you’d end up in another fight, so that gets more complicated. This seems like another piece of revenue that is currently unavailable but that would not come with all the strings that are currently a part of trying to move casino gambling into a horse track. MR. ISRAEL: I think you’re right. Look, what I know is, we can’t change the past but we can improve the future. So, I think this is looking to the future; trying to come up with something new. Horse racing in California employs 50- to 55,000 people. It generates $4 billion in revenue annually. And it’s important for people who work in the business and for the economy that we do what we can to preserve it before it’s gone. 9

And I have no vested interest in this even though I’m a member of the Horse Racing Board. I don’t own horses. I never have. I’ve never worked in the horse racing business. I just love it and I think it’s worth preserving; it’s a really important little corner of our sporting culture; it’s important to people’s lives; and it’s a good and sound employer; and it’s a way, also, to bring a little piece of agricultural life to the urban setting which we don’t generally get. I’m a city boy and my familiarity with horses comes from the race track. I wouldn’t know a horse’s head from—well, I’ve met too many horse’s rear ends to not know the difference between a horse’s head and a horse’s rear end. But I learned about horses at the race track. I know what a withers is; I wouldn’t have expected that when I was fifteen. SENATOR WRIGHT: As part of the Horse Racing Board—idea—if we set up, kind of, almost an extension of this committee, a panel to look at horse racing. In fact, we would take, for example, the sports betting concept as a policy. Are there other things that you can think of? See, I’m not sure, for example, that there’s much engagement by the governor’s office, and I’m just not sure that he’s involved or cares. How do we engage the executive branch in horse racing? MR. ISRAEL: I’ll do what I can to help you with that. SENATOR WRIGHT: Okay. MR. ISRAEL: I don’t want to speak out of turn here. SENATOR WRIGHT: Oh, no. I understand. I mean, obviously, those of us in the Legislature look at it oftentimes because we have all the laws that govern it from how you handle a handle and how we trade off. In fact, we had two bills the other day that Mr. Blonion(?) brought that involved you and other elements of how we handle the handle and the distribution and how horses get posted, so I mean, we’re involved in that all the time. But I’m not sure that I’ve seen as much engagement by the governor as much as he’s been involved in the compact aspect of gaming in California. moving back as a concept in the office. Horse racing seems to be just




Well, I think there are members of the

administration who understand the importance of horse racing to the economic life of California and its cultural importance as well. And they would, I think, do what they can to help preserve horse racing in California and provide some leadership. SENATOR WRIGHT: Let me pose two questions to you. Again, in the risk of seeming hypothetical, we’re going to have a Breeders’ Cup here, I think, this year. MR. ISRAEL: November 6th and 7th. SENATOR WRIGHT: November 6th and 7th. We might want to try to get an official presence by the administration at one of the Breeders’ Cup’s even. MR. ISRAEL: Well, last year the governor presented the trophy to the winner of the Breeders’ Cup Classic, so he was there and he was on camera and the state was represented well by him. SENATOR WRIGHT: The last question I have is if we created a kind of circuit, statewide, between racing tracks in the north and south to expand on some of the other things that we do, not speaking for the Horse Racing Board, do you think that would be something that we could get involved with? MR. ISRAEL: I’m not sure I understand what you mean—a circuit? SENATOR WRIGHT: A kind of a gambling—I mean, we already have satellites that we beam down, but the circuits between northern and southern tracks in California, we seem to do a much better job of bringing out of state races in than we do sharing some of the races inside of California. MR. ISRAEL: Well, I think because the real growth in horse race betting in the last few years has been ADW betting in which people bet on, you know, using their computers. They establish accounts and then they can bet on races all around the country. I think you’re tying your hands at the race tracks if you don’t let them bring in all the races that they choose to bring in every day—show them and accept bets on them. And I know there are some limitations imposed by legislation to the number of races that, for instance, Hollywood Park could show here today and accept bets on. I’ll leave it to the 11

members of the industry to discuss that in detail.

But anything that the

Legislature can do to open up and make available more races for people to bet on, which is what I think is what you’re asking, is a good idea. Now, the races that are run up north I think are all available for betting at the southern tracks and vice-versa. They accept bets on each other’s races and at the satellite facilities. SENATOR WRIGHT: And to your earlier point, one of the difficulties that horse racing is beginning to have is that as other avenues of gambling open up, the number of people who understand betting on horses is getting smaller. MR. ISRAEL: Right. That’s why I think sports betting will open up a new world to a whole new group of potential players. For instance, every Saturday and Sunday billions of dollars is bet on football—college and pro. And if they build a sports book here that’s a really great place to hang out, the number of the thousands of people you have here to watch all the games on all the video boards and to bet those games, if they’re here, they’re at Santa Anita, wherever, and they’re also being exposed on all those video boards to horse races. And a football game takes three to three-and-a-half hours to reach a resolution, so you make a bet at 1:00, you don’t know whether you’ve won or lost until 4:00. Well, at a race track you’ve got, now that we bring in races from out of state and from up north, you’ve got a race and a resolution every five or ten minutes and that kind of action will appeal, I think, to those sports gamblers and you will grow new generations of potential horse players. Maybe I’m being Pollyannaish about this, although it’s kind of a weird analogy, being Pollyanna about gambling, but I really believe it could really be a great boost and help grow the business. SENATOR WRIGHT: Alright. Let me give you the last word. MR. ISRAEL: appreciate it. Thank you for the opportunity of letting me appear. I And I appreciate your interest in preserving horse racing,

because it’s the right thing to do.


SENATOR WRIGHT: And there’s an agricultural aspect in the horses. I mean, we were learning the other day about cloning and husbandry. I mean, there’s a great deal that goes on in the business of horses in California. MR. ISRAEL: Well, we have a great veterinary school at Davis and we had a meeting up there in the fall. And they do great work. They’re at the forefront of equine science from what I understand, and as a result of that, we have some of the best rules and regulations that ensure the safety of the horses and the riders and everybody who works in the game. Thank you. SENATOR WRIGHT: I’m going to call the next panel; Mr. Liebau, Mr. Fravel, Mr. Cliff Goodrich, Sherwood Chillingworth, and Aaron Vercruysee. Gentlemen, welcome. And why don’t we start with our host here. Mr. Liebau, again, thank you for your hospitality. And give us an update, kind of, on where we are here at Hollywood Park and whatever else you’d like to share with the group. JACK LIEBAU: Well, first of all, let me welcome you. And I very much appreciate your interest and that of your colleagues in racing. And I know that that’s just not my opinion but is felt on an industry wide basis. I’m always asked the question as to where we stand with respect to Hollywood Park and its anticipated closure at some time in the future. From my own perspective as an operator of the track and my management team, we hope that that is in the distant future. I will say that in November of 1992 when I first entered the career path of being a track executive, it was at Bay Meadows and that track was going to be developed the next year (which would have been 1993). 2008. I will say that I’m not in a position to make any statement as to when Hollywood Park would close. I think that everybody recognizes that the economy is certainly a factor, and perhaps other people are better at predicting what happens in the economy and with the sale of houses and development of commercial property, than me. 13 We lasted there to

I will say that as far as the actual operation of Hollywood Park is concerned, the ownership has always given us the direction to operate racing here on the basis that it would be continuing indefinitely. In other words, we are never to operate it on the basis that we are lame ducks here at Hollywood Park. I will say that when the ownership of Hollywood Park (present ownership) acquired this facility in September of 2005, it was stated at that point in time that the ownership thought that the racing business model needed improvement and that it was hoped that within three years or so that improvement could come about. As you may or may not know, the ownership group here has been in the forefront as far as trying to get other sources of revenue—slot machines, VLTs, or whatever—and trying to create leverage that could be used in connection with the compacts and things of that nature, none of which has been successful. I certainly would welcome the implementation of Commissioner Israel’s idea as far as sports betting. I suspect that that is a difficult road and will take some period of time. And the industry is in need, I think that my colleagues would agree, of desperate help. I would hope that the decision with respect to slot machines and VLTs could be reconsidered. I think that the remedy under the compacts that are outstanding as far as the tribes are concerned is that they simply would not have to pay anymore since they didn’t have their monopoly. I have always been interested in, and I might say unsuccessfully, in trying to find out exactly how much the state is deriving from these compacts but I haven’t yet found anybody that can give me that answer. California is at a distinct disadvantage because we do not have VLTs and compacts. There are many states that simply weren’t competitive until they got them. And one of the examples of that is New Mexico, which is very close to us and is drawing horses away from California. Their purses are now comparable to those in northern California. And the cost of training a horse there is almost 50 percent less than what it is here in California. 14 And to some extent the

competition isn’t as difficult. I can attest to that because I have sent a couple of my slow horses to New Mexico and they seem to be able to win there, where they couldn’t get on the board here. So whatever help we can get from the state. I think that a hearing like this is a very positive step, is trying to get things on the table. SENATOR WRIGHT: What is it that happens in New Mexico that makes the training 50 percent cheaper? MR. LIEBAU: I haven’t figured that out. I know that you’ve got the president of the California Thoroughbred Trainers on another panel and maybe you can direct that to him. But I can tell you, it is about 50 percent cheaper, for whatever reason, and that is a factor, especially when the purses are comparable in New Mexico. SENATOR WRIGHT: So if we were looking at the expansion of sports betting, say here at Hollywood Park, would that be something that would be a welcome addition to what you’re doing? MR. LIEBAU: Oh, absolutely. I mean, any source of revenue. I don’t mean to monopolize this, but I think all my colleagues would agree that we’re competing for horses and the way we compete for horses is by the purses. And owners naturally gravitate to where the purses are the highest. And we have several states that already have slot machines. Recently Pennsylvania, that was never thought of as a thoroughbred racing state, has come on. And I think that in the not too distant future it’s thought that purses in Pennsylvania, at some tracks, will exceed those that are prevailing at, say, Del Mar, which is the highest here in California. You’ve got New York that’s shortly going to come on with VLTs. And all of this incremental money that goes to purses makes those places more attractive as far as racing is concerned. I think I would like to pass to my colleagues. SENATOR WRIGHT: Okay. Well, why don’t we move then? Let me ask that you just state your name. We actually are taping, so we’ll just have that for the record. 15

SHERWOOD CHILLINGWORTH: Sherwood Chillingworth. I’m executive vice-president of Oak Tree Racing Association. We live over at Santa Anita and lease the track from them for about a month every year. And we put the Breeders’ Cup on when it’s here in California. We have for the last four years, four times. And I’m very happy that you brought the fact the racing this year, or the Breeders’ Cup will be November 6th and 7th and we’ll hope that you’re there. If you would like to be there, give me a call. SENATOR WRIGHT: If the Lord’s willing and the creek don’t rise, I plan to be there. MR. CHILLINGWORTH: One of the things that really amazes me, we’ve heard all the statistics about what the economic impact is to the state of California, the fact that we provide 40,000, 48,000 jobs in the industry not only on the race track but out in the farming community. And the majority of these jobs are for low-wage earners that probably couldn’t get a job if they weren’t working where they are now and they would be on public assistance instead of working somewhere. We provide health benefits. We provide education benefits. We provide recreational benefits. And we even take care of addiction benefits—addiction cures, which are benefits, so we do a lot of things for all these people that we’re never given credit for. What amazes me today is that here we are, we’re not asking for a stimulus package, we’re not asking you for a handout, we’re asking you for a tool, or some tools, to make us be able to be somewhat more profitable than we are now and to keep owners here in California. As Jack has already pointed out, New York, Pennsylvania, Maryland is getting slots, Kentucky almost got slots, Arkansas has instant replay which is somewhat akin to a non-live racing arrangement. What I don’t understand is we need revenues in the state of California and local governments and we provide a lot of those. We can provide a lot more by having some means of competing with these other people. Why the recognition in other states is that it’s right for them to do this, right for them to do slot machines or instant replay or whatever they have, VLTs, and


we don’t in California is beyond me. I cannot comprehend why the people of California don’t recognize this benefit to them. And to me, we can talk all we want to about our economic impact—how many jobs we provide—until somebody realizes we’re not asking for a handout, all we’re asking is, is for the tools to do it ourselves. We can spade up our own garden and grow things, but you can’t do it unless you have the tools. And that is what I would like to stress today, because we’ve talked enough to various legislative committees for the last five years, tried to explain this to them and it never seems to sink in. And I think it’s very important that that issue be recognized. We’re not asking for any money; we’re not part of any stimulus program, we just want to be given the right to do what other people do in five or six other states. We used to be the prime racing state in the country. You might say New York thinks they are, but California used to be the place where people liked to go for horse racing. Last year we had the Breeders’ Cup at Oak Tree at Santa Anita. Some of you remember John Gosden, if you were associated with the racing business at all. He was an Englishman who came over here to train for a few years and went back to England. He brought the horse over from England that won the Classic. And I was with him in the winner’s circle and he said, “Chilly, this year we came over with 25 horses; this year we’ll have 50 horses.” I went to a reception afterwards for people from all over the world and I forgot and left my Oak Tree pin on, and people came up to me and said, “You know, Mr. Chillingworth, I wouldn’t have the Breeders’ Cup anywhere else in the world; it should be here every year.” That’s how we’re recognized by people throughout the country and throughout the world. And yet, in our own state we’re neglected; we’re treated like orphan children or something. Anyway, that’s my opinion of it. SENATOR WRIGHT: what people… MR. CHILLINGWORTH: Everybody calls me “Chilly.” 17 Let me ask you a question. And Chilly, is that

SENATOR WRIGHT: Okay. I can see that when you have, like, those multi-syllabic names people kind of… MR. CHILLINGWORTH: Yeah. You ought to try writing my checks. SENATOR WRIGHT: No, I don’t think I could afford it. We have an expression: If you can’t run with the big dogs, you have to stay on the porch. But recognizing that the business of horse racing—and I think at the end of the day—for example, even here at Hollywood Park, you have to create a business model that exceeds the value of the dirt, if I’m making sense. I mean, suddenly if the dirt is worth more doing something else,then it’s difficult to justify maintaining it as a horse track, or for that matter, anything else. I mean, that’s kind of, like, how land economics works, so it shifts and follows what works. Those other states that are engaging in other types of activity to build on their gaming, are they profitable at it to the point where they want to maintain it? Is it the horse racing that is being subsidized by the other? I mean, how is it working on the economic side? MR. CHILLINGWORTH: Well, in the other jurisdictions they are maintaining their racing facilities. It’s being supplemented by slot income, or VLT income, or some other source of wagering income. And take the state of New York: The NYRA (New York Racing Association) was in bankruptcy. It just got out of bankruptcy last year, so they’re in terrible shape. Now they’re getting VLTs and they are going great guns. So it’s hard for us to compete on a level playing field with someone who gets that kind of help and can supplement its purses. Any owner—two percent of the owners in the United States, I understand, break even. So it’s a costly game for the race horse owner. And you’ve got to increase the purses to make it more viable and more interesting for him to get into it. And that’s why you need more money coming from other sources than strictly from the racing handle unless you increase the takeouts and that sort of thing. SENATOR WRIGHT: And the concern you have about the handle—we’re not going to build a broader base of players. I mean, ultimately you can build a handle two ways; you can have more people play, or you can provide other 18

sources of revenue. I mean, at the end you want a larger handle, and I got that. But at the end of the day it’s not like we’re going to create more interest in horse racing as a means of building the handle. Although, to take Commissioner Israel’s idea, if people came to bet on a football game and they were here they might say, “Oh, you mean to tell me I can bet on this race while I’m here.” And I’m thinking out loud, that we’ve got to create the interest in the sport that also brings in new people. I mean, I can tell you, my 30-year-old daughter has never been to a horse racing event in her life. And the kids who are in their twenties go even less, so we’re kind of working on a reduced scale of people who know how to play. At some point, we’ll have 10 people left in the country who gamble and we’ll be subsidizing it with slot machines if we don’t find a way to expand the interest in the sport among younger people. MR. CHILLINGWORTH: I understand; you have two groups of people. You have the existing player. The existing player doesn’t bet unless there are large fields. They don’t bet on four or five horse fields; you need to average about nine horses per race per day to make it attractive to the bettor. So you’re losing the big bettor, the knowledgeable bettor because he doesn’t have the ability to, in his mind, have some ability to make some money by wagering on big fields. Secondly, we’ve been working for five years now on getting new people into the game. NCRA was designed, remember “Go baby, go?” Maybe you don’t remember that slogan. That was to bring new people in. One of the problems we have today is that younger people don’t have—if you’re talking about early twenties, they don’t the money to do most of those things, and so, it’s very difficult. We try all the time to reach out to different communities to get them attracted to the track. And racing is a very difficult sport for the newcomer. He doesn’t know how to read a racing form. We have to take people—we have people—we have our group events where we have 30, 40 people. We assign one or two people to those group events and explain racing. They show them how they should bet.


We do everything possible to accommodate the newcomer. But it’s been a long uphill battle. And I’ve got to tell you one thing. I’ve got a 30-year-old daughter who works for Mr. Fravel down at Del Mar. And she had never been to a race track before in her life until she started there. I guess the note I’d like to leave is that no one has really, in my mind, picked up on—we’re not asking for the state of California to give us anything. We’re not asking for Mr. Obama to give us a stimulus package. All we’re saying is give us the tools so we can do it ourselves. We’re in very bad shape. SENATOR WRIGHT: Okay. The next panelist. CLIFF GOODRICH: My name is Cliff Goodrich. I’m a consultant for And I won’t Fairplex, which is the home for the Los Angeles County Fair. with. I’d like to touch on two things. One is a quick state of the industry off of some remarks Vice-Chairman Israel made, and the second is kind of a peek at the future in this economic model problem that we clearly do have. Right now, the industry, the thoroughbred industry in California is somewhat in a state of paralysis and understandably so. As Vice-Chairman Israel said, we’ve got Hollywood Park, which hopefully will be around for a long time but there are guarantees; we’ve got MEC going through bankruptcy where it is likely by the end of the year that facility will have new owners; I’ve got a gentleman sitting next to me who is an officer of Del Mar Thoroughbred Club in the last year of the lease that has not yet been renewed, and we are asked to make major decisions about where are we going to train and race horses if Hollywood closes; and it’s very difficult to do so when there are so many moving parts and the stakeholders may not be the same stakeholders six months from now. So we are dealing with that. It is very frustrating. There certainly is no unanimity and probably will not be until the smoke clears and we know a little bit more about Hollywood’s future, the perspective owners of Santa Anita, and 20 And we need it desperately.

repeat. I mean, most of the things that Jack and Chilly said I certainly agree

Del Mar, hopefully, gets their lease renewed. So I just wanted to underscore what Commissioner Israel said because I think it’s right on the mark. It’s hard to make progress when you have so many other major issues that you really can’t force a resolution on. The second point I’d like to make that Chilly talked about, and I agree with him, is this industry at some point is going to have to help itself. And we do need a new economic model. We do need new revenue growth, whether it’s through sports betting or other ideas. For better or worse, I think the burden is going to be on us to come to the Legislature (and I fully expect it to be done next legislative session, probably not this one) with some ideas that basically say—as Chilly was saying—let us attempt to run our business as most businesses do. Right now we are so heavily regulated we really have one arm tied behind our back. If somebody came up with a new wager, for example, that we wanted to implement, it would probably take six months if the clock started today, to be able to take the first bet and that’s ludicrous. We ought to be able to do that in a matter of days or weeks. We need more flexibility within the statute. The racing law has to be rewritten so that there is less regulation and we have an ability to be more entrepreneurial. We’ve got to find a way to have a major infusion of purse money because as everyone knows, we’re losing horse owners and we’re losing horses to other states who for whatever reason, have casino gambling. The purses benefit from that. And we are losing horses and owners to those other states. And we’ve got to be bright enough to come up with a plan that significantly increases purses so that not only do those horses stay here, but horses start heading west to California and I think that burden is on us. SENATOR WRIGHT: Let me pose a question. The other states that have gaming that are in some cases eating our lunch, do they regulate the same way that we do? MR. GOODRICH: I am not an expert in the laws of those states. I would take a wild guess and say we are more regulated in most cases than those


states. But there may be other members of the panel or in the audience who could answer that. MR. CHILLINGWORTH: Could I jump in there? SENATOR WRIGHT: Please. MR. CHILLINGWORTH: I think California is the most regulated state in the country. It has the strictest drug prevention, drugging of horses laws and regulations. We’re the model for the rest of the country. There’s a national organization that’s now adopting new regulations about testing horses. And the model for that national ruling is California laws and California regulations. We are the model for the industry. We put on the best horse racing, yet we have trouble competing. SENATOR WRIGHT: Well, let me say; most of the legislators, and I include myself in this group, will never know as much about the industry as you do, and so, you will have to give us—we’ve got a bill, 517, that talks about changing the takeout and distribution. But if there are other things specifically, we might want to have a kind of comprehensive package. I mean, one element, again, that I think we’ll pursue, certainly, will be the sports betting to supplement because I think that’s something that we can do that doesn’t get, other than the people who just hate gambling (period), and there are a number of those, it doesn’t give us the natural enemies that you’ve picked up. But if New York is doing something better than we are, if Kentucky or if Maryland, if there’s a model that we can say these 10 things, whatever they are, would be better for California if we adopted them, then we might want to look at putting that into legislation. I mean, when we took the action earlier this year about the fairs money, even in a tight budget, you wouldn’t have thought two years ago that you could move 30-something million dollars off the horse racing industry’s neck but we attempted to do that. So we’re open to do other things. An obvious concern that we would have would be that we didn’t lower the regulation to the point where it made the gambling unfair and that we created an industry where people’s perception was that the betting itself was somehow corrupted. 22 So

against that backdrop if there are rules that we can do that preserves the integrity of the game and at the same time provides the flexibility and the entrepreneurial spirit that you described, Mr. Goodrich, then we should do that with all deliberate speed. MR. GOODRICH: I have a strong sense that the kind of things we would be bringing to you, the vast majority of those would not compromise the integrity of the game. And an objective legislator would say, “Well, what’s the problem, other businesses can make those kinds of decisions, why shouldn’t racing?” It’s those kinds of things that I think we have to focus on. And the last thing I’d like to say, and this goes without saying, is we’ve got to come up with a plan that creates new jobs. I mean, certainly that is something that would sit well with the executive branch. I’m sure it would sit well with the legislative branch. For years this is an industry that’s been shrinking. We’ve been losing jobs. Part of the reviving the economic model, there certainly has to be a plan to create new jobs and that would certainly be one of our focuses. CRAIG FRAVEL: Mr. Chairman, Craig Fravel. I’m an executive vicepresident at Del Mar. Fravel is a much sexier pronunciation of the name but my parents have never allowed me to adopt that. My wife, who is half Italian, thinks I should pronounce it Fravelli, but I’ve held off for this period of time. Like everyone else, I’m very appreciative that you and your staff members are here today and hopefully some other committee members can make it. We’ve been working with Art and Chris for a long time and that’s a very pleasurable experience for us, as well as Brenda. your staff has put in, in the horse racing industry. I don’t have a huge amount to add to what’s already been said. I do think that one of the frustrations we have as a business, in California in particular, is how long it takes us to implement new things. And partly in response to your earlier question, are there other states that have done things that are maybe more radical or more advanced than we 23 We’ve seen her at more hearings, I think, than anybody. So we do appreciate all the time and effort all

have? I have to tell you that other than authorizing VLTs or slot machines in those states, there are very few states who are nearly as progressive as we are. I think California—and we’ve taken a lot of heat as managers, some of justified, some of it not, but we have as a state typically been among the first to try many new and different things. I think advanced deposit wagering or computer home wagering, we were the first state in the Union to really put statutes together and authorize that and pursue it in a major way. And candidly, if a lot of other states followed our lead on that, we’d all be making a lot more money, but they’ve been much slower to do so. There are other things that I think—to echo what Cliff had to say—it would be a nice change of pace if we could sort of take the shackles off and allow the industry stakeholders to make business decisions about what kind of product offerings we can make without constantly going back to the Legislature and that might be a relatively simple fix in a lot of pieces of legislation. I think that’s something, as Cliff mentioned, we’ll be coming back to you with in the not too distant future. And basically, if we want to come up with a new bet, or a new type of bet, or a new method of delivering a bet, as long as we can all agree on it and get our arms around the economics and who shares in what and whose ox is being gored and whose isn’t, and as long as (as you point out) the integrity issues are addressed and the Racing Board has the staff and financing ability to handle the integrity questions, I think we should be able to do those things. And you’re going to hear later on in this program from our friends from Bet Fair who are new to this country, but they’re a highly progressive internet technology company that engages in exchange wagering not only on horse racing but on sports and other activities. And I personally hope that that’s something that we as a state can be among the first to offer, because again, it would give us a huge head start. I think we can, amongst ourselves, work out the economics. And the integrity issues have proven themselves over the years to be non-existent, in fact, enhancing of integrity issues. So that’s one of the things I think that we’ll be looking at. 24

A couple of years ago we ran a bill related to instant racing which was a way to leverage preexisting horse races and allow people to wager on them in a different format—still pari-mutuel. We’d like to see that happen again. It was viewed as a threat by some other interests in the state. We don’t really believe it is a threat to their livelihoods and interests. And we really need to be able to take our game and repackage it in ways that are interesting to younger people and even older people. As I get older I get more interested in that part. quo is very difficult. I think it’s unfortunate that other than what we were able to accomplish earlier in this year, which is by no means a small item, I think, candidly, if you hadn’t done what you guys did, this industry would be shutting its doors by this time next year—all over this state not just a few select tracks that have decided to redevelop their properties. But had it not been for that effort earlier this year we would be indeed in dire straits. And I do want to thank you, all of you, for that. That was a major step in the right direction for all of us. SENATOR WRIGHT: Let me ask you; you’re one of the tracks that actually is on an agricultural district property and I guess your lease is one year. The prospect for renewal is good, bad, indifferent? MR. FRAVEL: Well, I think it’s excellent but that may be wishful thinking on my part. I think that’s one of the—I was about to mention; we’ve been somewhat stagnant this year in looking forward as opposed to simply sort of blocking and tackling because we’ve been faced with so many uncertainties. The question of who’s going to own Santa Anita by the end of this year; the entitlement process at Hollywood Park? And as Cliff mentioned, our process, which has now been kind of mixed up in the whole issue of statewide asset sales, creates an environment that candidly people are more focused on those issues than they are on how do we grow the business. And we desperately need, I believe, to get back to a much more stable situation where we can focus But repackage it in ways that are more friendly to whomever we might want to entice with those games. So, the status


our efforts and management time and attention on productive things rather than sort of basic structural issues related to the industry. SENATOR WRIGHT: The Coliseum, which is also an agricultural district, and my personal view and I’ll differ from the governor’s, I think it would be dumb to try to sell it; it has a lease; it has a tenant; it’s generating revenue and it has a synergistic effect in Exposition Park. Would the Del Mar racing organization be interested in purchasing the land that the track is on? MR. FRAVEL: Well, let me answer that. SENATOR WRIGHT: And I don’t want to compromise any… MR. FRAVEL: I’m very happy to answer that question. Our company has been operating the race track for approximately 38 years now. And part of the reason is that 20 years ago we were awarded—or 19 years ago we were awarded a 20-year lease to continue to operate the race track. And the reason that I think Del Mar is probably the most successful financial operation in horse racing outside of one track in central Kentucky that has horse sales that far outstrip the rest of us, but I think Del Mar is far and away the most successful financial operation in the country. And the reason for that, I like to think it’s good management but it’s also because of the arrangement that we have that requires, essentially, all of the revenues that are generated, all of the net income, to go back into the property and it is all spent there in one form or another, whether it’s a new exhibit building for the fair, or a new racing surface for the race track, or new barns, or 1992/93 the building of one of the finest race track grandstands in the United States. And so, from my standpoint, the Del Mar example is one that many other states have looked to, to say how should we structure racing? And many of them have said that’s what we want to be; that’s how we want to do it. And now we face ourselves, in this state, with a budget crisis and we’re saying, “Well, let’s abandon something that’s worked really beautifully for 38 years and try to sell it and do something different with it.” I personally think that that is sort of contrary to a very positive history, and therefore, I think that the continuation of that structure and that particular venue would be a very positive thing. And I also believe 26

that the community interests related to the cities of San Diego, Del Mar, Solano Beach and the surrounding areas would also be very supportive of that as well. SENATOR WRIGHT: You raise the point that we have. And again, if you take the Coliseum; if much of the revenue from the Coliseum from offshoots of what it delivers into Exposition Park were taken away you jeopardize the California Science Center and you jeopardize the California African American Museum and you jeopardize the county run Natural History Museum, all of which reside there and call it their home. You risk the Rose Garden, which is also there. Angeles. I think the time that I’ve been to Del Mar there are a number of things that go on there other than simply the racing business, and so, I value Del Mar as an asset to California, particularly to the people of San Diego County who use it for other things other than racing. And I think what we have to continue to let people know is that there is a value in having places where people go that are state owned properties that are not driven by having to make a profit. I mean, we have Hearst Castle that is clearly a facility that’s visited by hundreds of thousands of people every year and we have to maintain those even in these difficult times. So I think that those are good models. Whether you purchased it or not, it would certainly change the land economics and then you’d be back at that same decision of trying to determine whether or not the racing business and the other free things that you provide, offset the value that you’d have to pay for the dirt and then you could end up in the same position as other tracks. So I would hope that we wouldn’t try to sell it. And the state needs to maintain its commitment as we do to some level of horse racing. MR. FRAVEL: Well, I appreciate that. I do want to answer your question more directly as to whether our company would want to buy it. The fact of the matter is our company has no money because over the years we have paid all of our money back over to the fairgrounds and the race track leasing commission so that it could be reinvested in that property and that has in many ways created the positives that you mentioned. I’m not speaking out 27 And all of these are free resources to the people of greater Los

of school here. I think if you asked any member of the Fair Board they’ll tell you that the goose that lays the golden egg at Del Mar is horse racing and that’s what provides the money to build exhibit halls for garden shows and bunny shows and dog shows and pretty much every other activity that goes on around the fairgrounds. It ultimately comes back to what horse racing has done for the local community there and it is a huge part of the local traditions in San Diego County. And I do want to add one other thing. I do not by any stretch give up on horse racing in its purest form as a potential source of entertainment for people who are younger than 40 years old. Every summer—and I hope you’ll come back this summer—you’ll see that at Del Mar we get more than our fair share of sub-30s and sub-20s even, because we try to create an atmosphere that’s welcoming and positive for younger people. And I will tell you, having been to professional football games, I will gladly take my children to racing at Del Mar or Santa Anita or Hollywood Park long before I’ll take them to a Charger game. The comportment of the fan base and the positives of it are much greater than I see at most professional sports other than horse racing. I personally have a huge belief in our ability to appeal to younger generations. I think in order to do that we need to have the ability to create products and offerings that are more interesting to those younger people. And I think since Aaron is by far the youngest at this table, with that segue I should turn it over to him. AARON VERCRUYSSE: I’m Aaron Vercruysse. I’m a vice-president of racing and wagering at Santa Anita. I want to again thank you for having us here today. And I also want to agree with pretty much everything that’s been said by everybody here. I did want to make some comments about a couple of things. First of all, Mr. Liebau mentioned New Mexico and how great they’re doing. Well, it was just announced they’re going to build another race track. So as we tore one down recently and are uncertain about getting rid of another one, the state of 28

New Mexico is actually building another race track, so that should speak volumes about how well they’re doing. And I also wanted to touch on another thing that Mr. Chillingworth mentioned, was the purses—Mr. Liebau and everybody mentioned purses—and how much that drives how well you do. Well, if you read press releases, the state of Pennsylvania, the state of New Mexico, the state of Louisiana, for the last three years have announced purse increases every time they start a race meet. I don’t think you’ll find that press release in California. You asked how the other states work and what they do when they do get the slot infused money or the VLT money. Indiana Downs, actually, is a great example of that. I just want to touch on this and give you a little heads up on that. Indiana Downs has actually made it an entertainment destination. They have seven different restaurants. They have a sports lounge—in Indiana, by the way. California. So using that money to make a race track somewhere where you And if you think about it, it makes sense because the on-track want to go is probably one of the things that we would look at here in dollar when it’s wagered, derives the most revenue for the race track and the horsemen, so you want that wager, wherever it is, to be at the track. If it’s not at the track, you want that wager next best option to be at an off-track facility. Now a lot of our off-track facilities, right now, are outdated. And as the youngest guy here on this panel I can say I wouldn’t take my friends there because they would laugh at me. They would say, “What business are you in and what are you doing?” But I think if you look at our business model as far as mini satellites and how that can maybe change to a more updated, a more new, a more current type of OTB (off track betting facility), I think that you can use the on-track and the mini satellite business model as something that you really need to look at. And we would use money to look at that as well. That is where we derive the most revenue. Roderick, you mentioned your 30-year-old daughter has never been to the race track—never seen a horse race. Well, I guarantee she is not going to 29

become a race fan if she’s betting online first and foremost, or if she’s watching it on TV. You have to catch the love of the sport by being at the track; by watching the horses saddling the ring; by seeing a woman jockey walk right by you as she goes to get in the saddle of a horse. That’s where you will build your fan base. Not from an OTB; not from an ADW company; not from simulcasting, which is pretty much my expertise; it’s from the on-track experience. And if we can’t find a way to get race fans to the track we may as well fold up shop and just become TV rooms because that’s all it’s going to be. And if you look at the on-track experience, Santa Anita and everybody here, really, is dedicated to the on-track experience. Santa Anita has “Days on Us.” That’s where lost leaders such as hot dogs and admission and beers and all those things are lost leaders because the only way to grow that fan base—and Craig knows this; you’re younger fan base is drawn in by those lost leaders but they may come back because they enjoyed the racing. you’re going to do it. And I think that we’ve spent a good amount of time reacting to bad things that happen in the industry, especially in the state of California. I think if we’re not proactive—and I’m going to steal a line from Chilly—in finding the tools and being assisted in finding tools that we can use to make this better, we’re going to be reacting to how bad it is two or three years from now. So I look at this as a real turning point. And I don’t think the bad economy is such a bad thing in the fact that it’s really made us analyze our business model a lot closer than we had in the past. And we’re looking at every single way to make things better. But we need help and we need some tools to do that. SENATOR WRIGHT: You being the youngest person here, what do we do to make other younger folk enjoy—I mean, obviously, we’ve got to put some electronics in it, and part of it’s betting and part of it’s the sport of horse racing. See, part of the difficulty I think you have now is that there’s so many other things that draw off the sports interest and then there’s so many other That’s the only way


avenues for the gambling interest that you have just significant competition for the attention of young people. MR. VERCRUYSSE: Well, I mentioned the mini satellites. And if sports betting were legalized and utilized in the state of California and you could go to a race track or a mini satellite, which would be a new facility, an updated current facility, a sexy facility, somewhere somebody wants to be, I think you that could use those two things together to create that atmosphere that you’re looking for. And if you give the race tracks themselves the ability to offer sports betting, how can you not make the race track an entertainment destination? That would be how you draw them in. Now how they come back is by getting exposed to the racing. SENATOR WRIGHT: I’m posing another question. Some of the tracks I’ve seen have had concerts; you mentioned the hot dogs and other kinds of come-ons; have those been successful at drawing people in? I mean, if you had—and do those people, I know sometimes they may come for the concert and they didn’t come for the horse racing, so it’s almost a push but it gives you another use for the land. MR. FRAVEL: Senator, if I might answer that one since we probably hold more concerts than anybody maybe in San Diego County? But we have about 10 every summer. We only run for seven weeks. And unequivocally, that is a huge part of drawing younger people in. And I can tell you that over and over and over again they not only watch the races but they get incredibly interested in them and enjoy themselves. And when people come to Del Mar, I will tell you, they have a good time. It’s a fun, upbeat, and I hate to tell you, it’s a sexy atmosphere, and so, you know, guys want to come because there going to see attractive women and attractive women come because they’re going to see attractive guys and that’s a big part of our success. And part of doing that is to find, like Aaron said, a lot more entertainment options for them. And one of the problems we have—we have been an economically challenged industry, as you have heard before. Part of the problem is our financial model. And in some instances there hasn’t been enough reinvestment 31

in the facilities to keep them up to date as you might see in sports bars. Our video presentations are still lagging. We wanted to do—I’ll give you one example. We were this close to doing high definition broadcast on-track this summer. Our track is all ready to do it. We had the equipment available to us. But by virtue of the economy and our need to make cutbacks this year, we cut $2½ or $3 million out of our operating budget, candidly, adding, basically, the $2,000 a day to broadcast in high definition on-track was just one thing that we couldn’t do. I think it’s a shame, to be honest with you because if you’ve seen horse racing in high definition it is a method of distribution that’s dramatically better than the way we do it currently. This time next year I hope I’m here to report to you that we’ve installed it and we’re ready to do it and we’ve put in the infrastructure around the race track to do that. That’s just one small example of, I think, some of the challenges we’ve been faced with just because of not only the financial structure of the sport but the current economic situation. And I think as Aaron mentioned, one of the upsides of the recession is that we’ve all actually spent a lot of time, probably more time than any of us wanted to, but, talking together, working together on things. And we’re probably in many ways closer than we have been in a long time and have now the ability to maybe work more closely together on developing initiatives like high definition or other things that will maybe move this sport forward. So, I mean, there’s silver linings. Or, what, the new term is “green shoots,” I guess, but there’s still a lot of challenges ahead. SENATOR WRIGHT: What’s a green shoot? I’m sorry. MR. FRAVEL: A green shoot; I thought that was an Obama thing about the economy. The green shoots were sprouting up and the economy is beginning to recover. SENATOR WRIGHT: Oh, okay. I thought it was a horse racing—alright. MR. FRAVEL: It’s a name for a horse next year, I’m sure. Mr. Liebau will name one of his, Green Shoots. SENATOR WRIGHT: Okay. 32

MR. VERCRUYSSE: One more thing I did want to touch on is the mini satellite issue, I think, is very important that we look at that. And we talked a little bit about less regulation. Well, right now if there’s the best sports bar out there and it’s within a 20-mile radius of another outdated off-track facility, then nothing can be done as far as moving forward to put our races into that sports bar. That’s a big issue. And we need somebody to look at that and say, “If this place already exists, the cost to put racing in there would be minimal.” The desired crowd that we’re looking to capture is already there. Why would it not make sense to look at something like that rather than just know that you can’t possibly do it because of the current regulations? I think that we need to analyze our business a little more in that way. SENATOR WRIGHT: But if you look at—the impediment there though, might be the closest track, I think, has to factor into make that decision. MR. VERCRUYSSE: And that’s absolutely right. But at the same time, why can’t that be discussed? Why can’t that be looked at and thought to be— you know what, why are we supporting a system that currently doesn’t work? Why are we protecting a radius that currently may not work? SENATOR WRIGHT: We did something that’s in process right now—it won’t affect you directly because it’s primarily for quarter horse racing, but it looks to change the takeout for satellites to try to preserve that business, because some of them were saying that they were having problems maintaining business. So we’re trying to give some of the satellite operators more revenue. MR. LIEBAU: Senator Wright? SENATOR WRIGHT: Yes. MR. LIEBAU: Just to amplify a little bit; I think it’s not the race tracks that are stopping the mini satellites from going in. In fact, there is a mini satellite that’s going in on a test basis at a commerce club and all the tracks have consented to that. The problems that have been encountered, which to some extent you can understand, are from some of the fair satellites who look on competition are in cannibalization of their own business. So that’s where we’ve encountered most of the problems, is in the outlying areas as far as mini 33

satellites competing with existing satellite facilities. But I just want to make it clear; it’s not the tracks that are stopping the installation or establishment of mini satellites. SENATOR WRIGHT: Something that we look at; again, we were looking at changing the handle. Obviously, the more mini satellites you have the more gaming sites you have, which cause some issue but I think people are getting over that to a degree. But again, if I’m just continuing here—as we make notes—we’ve looked at the potential of adding sports betting that would provide potential additional revenue. We’ve talked about streamlining the regulations so that the ability to move in a more flexible fashion and now we’re discussing adding more flexibility for satellites and mini satellites to add the interest. But to your point; if we added the satellite at the sports bar, does that bring the sports bar better in tune with racing or did we—I mean, you said earlier… MR. VERCRUYSSE: If we don’t add it to the sports bar we’re never going to know. SENATOR WRIGHT: Okay. But you said earlier, and correct me if I’m off, but I thought I understood you to say that you wanted the horse racing patron at the track. MR. VERCRUYSSE: That’s correct. Yes. SENATOR WRIGHT: MR. VERCRUYSSE: And so, are we working against ourselves if we Those people in the sports bar right now aren’t expand satellites because that makes them less likely to come to play? coming to the track. And if they’re exposed to racing at the sports bar, perhaps they make their way to the track because they liked it; because they won; because there’s a concert. And normally they wouldn’t even put Del Mar on their map but they were at a sports bar, they got exposed to racing and now they see that Del Mar, who’s a race track, hosts a concert and they’re thinking, “Well, that makes sense now.”


SENATOR WRIGHT: Okay. I mean, clearly the more you—it’s kind of like in any business, you’ve got to get them in the door first. If you don’t get them in the door then you don’t get them at all. Okay. MR. GOODRICH: Just on that point, to give you an example, I believe the California Lottery has about 20,000 outlets in the state of California where people can play the lottery. We have 35, Jack? MR. LIEBAU: Thirty-four. MR. GOODRICH: Thirty-four. So you talk about a sport that’s underexposed, compared to the lottery it’s not even close. So as long as there’s the kind of venues that Aaron describes, I think it can only help racing in the end. SENATOR WRIGHT: So if we were to expand the availability of satellite and mini satellites in sports bars that would be… MR. FRAVEL: I think part of Aaron’s—and some of this is our own fault, to be honest with you. We do have that authorization now, up to 45 additional facilities, I believe. And we’re now just putting the first one online at the Commerce Casino, I believe. We’ve signed up. And that’s going to be our beta test, if you will, and we’ll see how successful we are. Some of the issues that Aaron has brought up are things that the industry created itself. I mean, some of us protecting our turf said we want 20 miles between various facilities. So I think part of the answer to your question is, once we see how we do it at Commerce and one or two other beta test sites and we can prove the model, then we’ll probably will be coming back to you and asking you for more flexibility in terms of where we can do those. And another thing we might say is, “Let us sell pari-mutuel tickets of various sorts out of lottery terminals.” I mean, why not go to 28,000 and we’ll take them. SENATOR WRIGHT: But the law now allows you to use some of the lottery facilities as betting facilities. MR. FRAVEL: They can have lottery games that are based on a horse racing theme which we actually get nothing out of. I mean, it was a nice little


marketing thing but it was more of a throwaway at the time, I think. Hopefully, you didn’t author that. SENATOR WRIGHT: No. No. But you know what? And maybe one of— again, it may not be something that they were interested in doing. facility on a race at Santa Anita. MR. FRAVEL: Or even on a lottery style horse racing bet. I mean, you probably remember the old Irish Sweepstakes. I think we’ve talked about putting together new kinds of wages—it kind of goes back to our product development argument earlier, that we need the flexibility to create new things and do them rapidly because the world changes. I mean, you see it everyday. You get a new form of Blackberry every two weeks. And our business is still doing what we did 30 years ago. MR. LIEBAU: Senator, I think it might be a good idea for you to get another panel up here. I’m starting to worry that you won’t get done by post time and these people won’t be able to bet on the first race. SENATOR WRIGHT: We’re not going to do that. And that is important. MR. LIEBAU: That’s of primary importance to me today. SENATOR WRIGHT: Okay. Welcome aboard. Let me again thank you for joining us this afternoon. MARSHA NAIFY: My name is Marsha Naify and I’m chair of the board of directors of the Thoroughbred Owners of California. We represent all of the thoroughbred owners in the state. There’s about 9,500 at present time. You know, I don’t want to repeat too much of what’s been said. I think a lot of good points have been made here today. We have serious challenges facing us today in the industry. But I think, honestly, those challenges can be met if we can get unified and get the state behind us on some issues. Clearly, owners need help in this state. The number one issue which you’ve heard, of course, is how do we increase purses because otherwise owners are going to be leaving the state. 36 They’re going to be sending their But an avenue to explore might be that you might be able to place a bet at a lottery

horses to other states where they get better purses, better revenues. And our tracks need help and better track commissions. We’ve got to increase handle. We’ve got to find ways to increase handle to fuel those purses and fuel those track commissions. Clearly, the industry itself is partly responsible for the state that we’re in today. We have outdated regulations. We are over regulated. Our satellite facilities are old and aging. Some of the things that we put into place, like was said at the previous panel, the 20-mile radius and other things have got to be gotten rid of. There is no reason that in a city like San Francisco you can’t walk into a sports bar facility and place a wager on thoroughbred horse racing. We have one of the best entertainment products in this state. But we’ve got to do a little bit better job of increasing our customer base and letting people know what a great product we have. We do have an aging infrastructure. A lack of money going into facilities has been a problem. But we do need help from the state and that’s why we’re here today. We need alternative forms of gaming to increase our revenues. We need to deregulate the industry. We need to address the shift in handle from on-track wagering to the internet. And I’m very glad that you’re convening this panel here today. SENATOR WRIGHT: When you say “deregulate,” again, part of my background is in the utility business, and so, when you say “deregulate,” some of us go, like, “Oh, my god.” How would you deregulate the industry? MS. NAIFY: Well, I think we have a lot of regulations in this state Some of them have to do with legislation that was There’s a whole slough of regarding horse racing. I think we have two books that are about this thick on different regulations. passed—you’ve heard about the 20-mile radius.

other regulations. And in some of the states, while in some respects it’s good, and certainly we want regulation in areas of medication and drug testing and security, but on other issues we really want to regulate ourselves more and not be regulated so much by the state. This is what some of the other states have in place. So it would help us because sometimes when you have to move 37

things through the Legislature it becomes very difficult, as you know. So we think that if we were more self-regulated we could get things done. SENATOR WRIGHT: Okay. And again, we would always have to preserve the integrity of the games. And earlier this year I guess one of the computers, for example, malfunctioned and there was a perception that some of the bettors were shortchanged. story got a real big play. I mean, and as you would imagine, that All the other issues in horse racing would be

downplayed. But people say, “Oh, I knew they were fixing it.” I mean, betting always carries that level of concern which is why regulations—you’re right up there with alcohol, where people have concerns about how it’s used. MS. NAIFY: Right. Integrity in racing is extremely important. I think fans across the country are concerned about the integrity in racing and concerned about medication issues. I’d say those were the two top priorities for racing fans. So certainly, those areas, you do need that regulation. SENATOR WRIGHT: Okay. I’m going to move down. DOUG BURGE: Senator, Doug Burge, executive vice-president of the California Thoroughbred Breeders Association. I was originally supposed to be on jury duty today but I used you as an excuse, so if I get a subpoena, I’ll forward it to you and you can handle it for me. SENATOR WRIGHT: Please do. MR. BURGE: Before I get started, I just wanted to make maybe one brief comment on this mini satellite discussion because I’ve had a series of meetings with a really upscale restaurant that’s located on Ventura Boulevard, Woodland Hills/Encino area, that have shown considerable interest in basically turning their backroom into a mini turf club satellite facility. It would be more of a members only kind of an upscale setup. Not necessarily targeting the $2 bettors but people in that area that, obviously, would be interested in going to that kind of a setup. And we’ve had some meetings with the San Fernando Valley Fair. Even though they no longer have a fairground, they are still They’re also interested, as well, and are willing, recognized in that area.

basically, to give their consent. So I’m hopeful that very soon we’ll be able to 38

have at least something to look at that will be in an area that really is untapped in the San Fernando Valley. It’s quite a distance, obviously, to any race track or satellite facility. And we’ll be able to use this as something that hopefully we can expand for the future. Earlier you mentioned the agricultural side of horse racing and that’s our focus. We represent over 1,200 thoroughbred breeders, roughly 250 horse farms that are located throughout the state of California. California is still the third largest foal producing, thoroughbred foal producing state in the country behind Kentucky and Florida with an annual foal crop now less than 3,000 and sliding. When I say sliding, along with other major thoroughbred producing states we have seen a significant decline in the number of mares bred and the resulting live foal crop over the past three to four years. In California alone, we’ve probably taken about 1,500 mares out of production over that time period. And with California bred horses making up over 55 percent of the field sizes north and south and thus, racing in California being extremely dependent on the horses bred locally this is, obviously, something that’s very alarming and concerning to all of us. Real quick: As breeders we’re the backbone of the industry. Breed and board the stallions. Raise the foals. Break and train the yearlings; two-yearolds. Provide lay up facilities for race horses and in some cases, even We talked earlier about the 48,000 to 50,000 jobs in horse racing; a large percentage of those jobs are attributed to the breeding or farm sector. You’re talking about besides the employees of the farms, the numerous service providers, the feed and bedding suppliers, veterinarians, ferriers, insurance providers, and many others. I mentioned the decline in the foal crop. What we’re seeing, really, in California, which on one hand is a good thing; we’re seeing more focus on quality. The economics have really forced people to make better decisions in the breedings that are taking place. So we are—and there’s enough evidence to retirement homes for older horses as well.


show that we are breeding a better horse. But at the same time, as I’ve said, we need to be concerned not only with quality but quantity as well. What we’ve done recently, we’ve announced some significant changes to our incentive and racing program. That hopefully will and should provide more incentive or justification for those breeding and racing young horses. Actually, we have—it’s AB 1578. It’s an Assembly G.O. Committee bill. It’s currently sitting in the Senate G.O. Committee. It’s sponsored jointly by the CTBA (Thoroughbred Breeders) and also the TLC and endorsed by the race tracks as well, which hopefully will provide, as I said, what we need to turn things around and to provide the incentives necessary to get people more involved in both the breeding side as well as the purchasing and developing of young horses. But the bottom line, to echo what was said earlier, we’re really just reallocating existing revenues. It will be for the betterment, hopefully, for the Cal bred industry. But what we really need to do is grow the pie. We’ve talked about various things. We’ve talked about this mini satellite. We’ve talked about VLT and slot machines, instant racing machines. You know, as breeders we’re very dependent on—you know, the demand for our product is very dependent on the purse money and the return that’s available. And the more we can increase purses and increase the return, then obviously the healthier our industry is. ED HALPERN: coming too. Thank you, Senator and staff. We appreciate your I’m Ed Halpern. I’m the executive director of the California

Thoroughbred Trainers. And I’ve asked Jack VanBerg, a hall of fame trainer, to join me and with your permission I’d like to ask him to speak after I make a couple of comments. The reason I say after, is Jack is not the kind of act you want to follow, so I’d like to make a couple of comments first. SENATOR WRIGHT: Please. MR. HALPERN: One of our major issues as trainers in California, and there’s 800—well, there was 800 of us, we’re down to about 600 or less at this point—one of our major issues is what do we do for housing for our horses if, 40

and more likely when, Hollywood Park closes? We have between 1,200 and 2,000 horses here at Hollywood Park at any given time. And when we lose those stalls, we’re likely to lose a good percentage of those horses unless we have other logistically convenient places to put them. In the current downfall we’ve probably lost 10- to 15 percent of our horse population and the same of our employee population. And because of that slight change, 10- to 15 percent, we’ve had to cutback from five days to four days a week. So you can imagine if we have to find a place for these 2,000 horses and we don’t have one, what we’re going to have to cut back to. There are two facilities that our board of directors has agreed are probably the most likely facilities; and they are both county or state facilities; and that’s Fairplex and Del Mar. Those are the most logical places. The problem is they’re going to take some funding to bring them up to the kind of standards that’s going to be needed as training facilities to replace Hollywood Park. And at this point, I think we’re probably looking at some kind of bond financing. It’s probably the only practical way of doing it at some point and we’re certainly going to need your help to get that accomplished. Individuals and teams don’t build their own sports facilities these days; it’s just not practical. You need some kind of assistance. The second issue that I would like to mention is a little more esoteric and that’s cost containment. And one of our major issues of cost containment is workers compensation. And this you are, I’m sure in the very near future, going to be hearing from a lot of your constituents in every industry. We run our own workers compensation program that we started about seven years ago because we as an industry made the decision that if we didn’t do something to contain costs we were out of business. Trainers were going other places; trainers were threatening to leave. So we put together a program that’s been very successful. claims double. The alternatives to our program are few and far between. We will spend $11 million on premium this year because of what we’ve done. If people were 41 But we have now, in the last two years, seen

to go—if we were to shut down and go to the only alternative, which is State Fund, that $11 million premium will be $44 million. So what I’m raising at this point is the state is going have to take another look at what’s happened to cost containment in workers comp. Claims have skyrocketed; doctors’ fees have skyrocketed; lawyers’ fees have skyrocketed again. The reforms that were made a few years ago are starting to be reversed. And so, I would ask you to be conscious of that very significant issue that could affect our industry greatly. And finally, not to beat a dead horse, and I hate to use that expression, but the regulation issue is one that at every level of this industry is over done. And historically we can explain it but it’s no longer feasible. And you asked how we can do that? Well, certainly one way we can do that is to redefine the role of the California Horse Racing Board. It sounded like you have a pretty good handle on what’s going on and integrity is the issue that requires regulation. But when you run into situations like we ran into a few weeks ago where Hollywood Park and everybody, all of the groups in the industry, determined that it would be sensible to cutback from five days a week to four days a week (not only sensible but necessary), we had to go to the California Horse Racing Board to get permission to do that. Now fortunately we got it but it could have gone the other way. And there’s no reason to have a board making that kind of decision when the industry is better equipped to make it itself. So the board should be redefined and the law should be redefined to be directed towards only those integrity issues that are important and let the business issues be decided by the industry. And now with your permission, I’d like to turn the mic over to Jack VanBerg. JACK VANBERG: Thank you, Ed. Thank you, Senator Wright, for But we have in here in taking the time out, and your staff, to be here today to listen to the thing ______ ladies and gentlemen’s comments and everything. California—I’m from Nebraska originally; born and raised there—we had the 42

third largest track in the country (it was Aksarben) behind New York and California, and they tore it down. Not letting in slot machines. Went across the river to Iowa, which was bankrupt. Two years they paid off on the loan. The people of Nebraska are devastated to this day that Aksarben is gone. They just can’t believe that it happened. They sat back and let it happen. But we have the finest weather here in California. The feed they bring in and the feed that we use out here, the straw, you can’t go anywhere in the United States and get straw like they raise here in California because it’s dry and wet. And the employment, we’re talking about the state is a $7 billion—they just did a study (it’s 90 days old), $7 billion to the state of California for the industry—the racing, agriculture. The racing industry is $2½ billion. And I think it’s just devastating that we have to sit with one hand tied behind us to fight the other people. I think we ought to be on a level playing field; that’s all we ask. We’ll handle our business from then on. Just give us a level playing field as the rest of them got—the slot machines or the VLT machines—and let us go from there and make our product. And this right here, Hollywood Park, there is not a better stable area nowhere in the country than it is right here in Hollywood Park. And I think that when we talk about losing another track, as we’ve lost Bay Meadows, that it’s going to be the ruination of California racing, I can tell you that much. It’s just devastating to think that we let this go by. We let right here in Inglewood, the Lakers and the Kings leave the city and if we let the horsing racing leave this city, why, they’ve got nothing to come here for, so I think it’s something that we need to look at and look at very hard. And give us a chance to get on a level playing field with the rest of the industries that they get and see what it will bring to you, because I think it would be, before your done, double what you’re taking in now. And the racing industry for the states have been a cash cow for many years—even the admission that they charge to come in the gate, they have to 43

give so much of it to the state for taxes. And they go into these other places and they go in for nothing. If you bet enough you get free drinks and food too. So I appreciate your coming here today to listen to the things. And I’d be happy to help with anything that I can. SENATOR WRIGHT: Well, I mean, certainly, as we develop ways of doing parity—and you think of, say, 40, 50 years ago, gambling was pretty much a few cities that had card clubs and there was horse racing. To that, now you add additional cities that have card clubs and the lottery and Indian casinos and then the bingo tournaments that the churches run and the charitable organizations, the gambling dollar is being pretty well dispersed in ways that just didn’t happen years ago. And to your point, we’re still in many ways regulating horse racing on a model that’s clearly obsolete in terms of where that dollar goes. I mean, you mentioned Inglewood and the Lakers and the Kings, the people in Los Angeles—it’s interesting because I’m actually old enough to remember the day that Jack Kent Cooke went to a Coliseum Commission meeting (I mean, this is like one of those true stories in government, you couldn’t make it up). And he goes to this Coliseum Commission meeting and is trying to bring the Kings, who were at that time an expansion team, into the Sports Arena. The Lakers were already playing there. The Coliseum Commission, at the time, looked at him and said, “Well, we’ll give you a lease on the Lakers but we’re not interested in housing the Kings.” As it turned out, the guy who owned the Rams football team also owned a minor league hockey team. So Jack Kent Cooke was there, perplexed, kind of angry, walked outside (this is pre cell phones) and made a call to a contractor and said, “You know that set of plans I had on that place I was going to build in Nebraska?” He said, “I want to build it in Inglewood on the land I have an option on; and can you build it?” And I think it was, like, in a year-and-a-half or something like that. And they said, “Yeah.” He walked back in and said, “I’ll take a one-year lease for the Lakers.” And they said, “Well, we were trying to give you a 10-year lease.” He said, “No, I’ll take one.” And as everyone was sitting around 44

thinking he was bluffing, he built the Forum in a year-and-a-half. The Lakers moved to Inglewood because the Coliseum Commission essentially drove them away. The Kings never played in the Sports Arena; they played in Inglewood. In fact, they were playing, I think, in Long Beach until the Forum was built. And oddly enough, to make it go full circle, one of the earlier acts to play there was the Jackson Five. So, I mean, to bring that all full circle—it’s interesting to watch—as they’ve now gone back to Los Angeles because… MR. VANBERG: We didn’t move forward. This facility right there with the acreage and the land it has, how would you like to have the Kings, the Lakers and a football franchise and horse racing right here, and one with the finest eating facilities there is? Now food will bring people—I like to eat. I didn’t get this size by not eating, I can tell you that. SENATOR WRIGHT: I do understand. MR. VANBERG: Thank you. You’re not going to be a jockey either, Mr. Wright. (laughter) But, you know, it will bring people to you. And I just think that horse racing, if you can bring young people—the Friday night racing—and I’m a horseman, don’t get me wrong, but I listen to all these old timers in racing with the old timers has a lot to do with our crowd because they, then, generate the young people. But Friday night, when Mrs. Everett first put it in, everybody was against it—all the horsemen… SENATOR WRIGHT: Boy, Marge Everett, that’s a name I haven’t heard in a long time. Okay. MR. VANBERG: And then ________ they had the Friday nights—they still have them. When you go through these grandstands on Friday night, and I may be old but I still like to look and watch. And the young people that come here and have fun on Friday night for a dollar beer and a dollar hotdog. And like I tell these other horsemen, I said, “If we just gain 20 new clients, 20 new people that _____ a few dollars that night and start coming to the races, that’s what we have to do. We have to cultivate a younger group of people because all we’ve had lately was the old cigar smokers that were horse degenerates from 45

day one. And we have to do this. But we have to have facilities to do it with and we have to have help so we can play on a level playing field. SENATOR WRIGHT: Well, let me again, thank this panel and ask if any of you has a final word before we switch up to our last two groups? But thank you for training horses and being a part of the horse racing business. MR. VANBERG: Thank you. SENATOR WRIGHT: Mr. Cunningham, welcome aboard. GERARD CUNNINGHAM: Thank you. Good afternoon, Senator Wright. My name is Gerard Cunningham, president of Betfair USA and of TVG. And I’m accompanied here by Martin Cruddace, who is the chief legal counsel of Betfair based out of the UK. Thank you very much for having us here, and thank you to the staff for inviting us. Maybe we could start with just a key takeaway. We’ve got several things we want to share with you. But the key takeaway that we’d like to make sure we leave with you is that for bettors and owners of horses, horse racing is entertainment, as many of the previous panels have said. Technology has changed every form of entertainment over the last 20 years; more options; more engagement at better value have occurred in every other form of entertainment and in horse racing. But moving forward, we hope that TVG and Betfair can work more closely with other parties in the industry, in this sport, to use technology to make even more changes and make it more attractive to many bettors and owners who want to be more involved. First of all, maybe we should start with just describing Betfair. Betfair is a London based company now operating all over Europe and in Australia. And it was founded by horse owners and lovers of the sport who now own a breeding farm and want to do what is right for horse racing. The company, Betfair, makes voluntary payments to horse racing across the globe, even in territories where it is not legally required to. We have partnerships and sponsorships around the world with tracks and with horsemen. And we give significant charitable support to the sport, again, around the world. 46

We are a technology company. The basic product, the core product that Betfair has been built on is a stock market for racing. It means that people can place a wager and then place more wagers later as the stock market changes the price. So as the odds change, they place multiple bets. They can bet for a horse to win or a horse to lose. That means that they can lock in profit before a race even starts. Every single bet is actually free and people pay a commission on their net winnings. That means it is very easy to get engaged. There is no upfront tax, but an expensive price that actually makes people not want to place a bet. The company is very innovative. It has invested heavily in making horse racing much more exciting. It has brought a younger demographic to the industry in the countries in which it operates. Our customers are typically 10 to 20 years, on average, younger than the average race track attendee. We brought new types of bettors, people who are not just passionate about the sport of horse racing but are also statisticians who are passionate about how the numbers are changing; where they can interact and play a game that is not always about the horse itself. We are a very transparent company who believe in the rule of law. We share data and work very closely with regulators everywhere that we’ve been and do the same thing here. And we, in the UK, now have also, on our technology platform, our website, pari-mutuel wagering feeding into the UK tote. And we on certain days now, account for up to 20 percent of the tote, so have actually helped the tote, the older form of betting, grow in the UK. One of the things worth noting about Betfair, the most prestigious races in the UK, the King George VI and the Queen Elizabeth Stakes at Ascot, we are the sponsors of those races. And we are, in fact, the third biggest sponsor of UK horse racing; the other people actually being forced to do it through legislation. Betfair acquired TVG at the end of January. online betting company in the USA. TVG is the largest legal I mention the legality because we are

competing with online poker companies such as Poker Stars and Full Till Poker 47

who each take more than a billion dollars out of the USA, operating illegally with no consumer protection, no taxation, and no jobs in the country. We’re also a TV station with the largest distribution across the country, as well as more live sports entertainment than any other television station in the world. We do more than 15 hours of live racing everyday. We recently did a 24-hour non-stop racing event where we took racing from the UK through the U.S., through Japan, Singapore, Australia. So I think a couple of things we’d like to share—go back to the bettors and owners. Bettors and owners do fund this sport. For bettors it is a game; it’s an exciting game that they enjoy. For owners, they’re even more invested. They want the chance—from our research, the conversations we’ve had—they want the chance to break even and have a lot of fun. For two minutes when a bettor owns a horse as it runs around the track they feel like an owner. And then afterwards, if they get really into the game, they become owners themselves either owning horses in a large way, like many of our wealthy patrons, or in a small way, through horse ownership with parties of multiple friends. Owners are even more engaged than the bettors. They enjoy the buying, the training, the racing of their horses. And also, they like wagering. So these bettors and owners are incredibly engaged. Now some of the previous panelists have said they get more engaged when they visit the track. So our objective is, as we think about doing the right thing for racing and doing the right thing, well, then, what we expect will be good for us, is to encourage more bettors, to encourage more owners, and to encourage more visits to the track. We think, even as an internet company, overall that will benefit us in the long run as we get more people engaged in this sport. And unfortunately in this industry and this state, we are losing bettors and owners. This is a trend that has gone on for the last three to five years. The recession may have worsened both of those trends, but we are losing them and we were already losing them before the recession.


The loss of Wednesday racing in California has probably hurt us even more, and it’s unfortunate how the trend looks going forward. We would like to be part of the solution here, part of the help in making things better. experiences. And before talking about those experiences and some of our suggestions, can I just take a sideways step for a moment and just mention a couple of the other pieces of competition that we face in the entertainment world? In the sports, the NFL, NBA, MLB, NHL, NCAA, they are all bigger than ever. We also compete with pro bass fishing, bull riding, ultimate fighting; all of these sports are taking eyeballs from us. They’re wagering—I mentioned earlier the online poker businesses—they are taking wagers away from us and they’re doing so at a much cheaper price. The break on poker online is about 5 to 10 percent price. That’s very significantly cheaper than wagering on horse racing right now with a 20 percent takeout on average. We’re also competing with offshore companies that are either operating illegally or operating with large rebates. Fantasy sports, another panelist earlier mentioned fantasy. about 24 million Americans played NFL fantasy sports. something that didn’t exist a few years ago. TV, we now have about a thousand channels. Most of the channels I now watch are in HD. It hurts me every day when I watch TVG being the only sports channel not in HD and that has got to damage us, as well, as we can go forward. And the internet of course. We’ve got a lot of distractions. And I would like to just go back; horse racing has been innovative in some ways, and TVG has been part of it. 49 We’re all on a social networks. We’re all dealing with the new forms of entertainment that the internet has given us. Last year They played on And we think as a sport, as a form of entertainment, horse racing has an opportunity to come together to create new and exciting

average, 2.3 leagues. These are people incredibly engaged in the NFL doing

Mr. Fravel mentioned that online wagering was introduced here in California in part with him. That was a great step forward when the tracks and the horsemen got together to introduce it and keep pace with the developments in the technology world. And, also, to allow people who are at work and busy that cannot make it to a track, to wager even when they are unable to get to the track. We’ve also introduced a new TV channel. TVG was not around 10 years ago. And we’ve got new TV shows like All Access, that every Sunday puts very lightweight mics on jockeys, trainers, owners and puts the viewers right inside the show. But we also want to do more. We’d like closer co-marketing relationships with our track partners to drive more visitors to the tracks. We are doing deals with tracks across the country to have more events and hospitality at the tracks where we invite our online wagers to attend. We’re also partnering with tracks to give free tickets to our customers, again, to attract our bettors who are betting online to the tracks. We’ve got co-marketing partnerships with horsemen’s groups and breeders groups, trainers groups to encourage ownership. would position it. We’re sponsoring We’ve got the Claiming Crown, the competitor to the Breeders’ Cup is the folks who It’s a very big deal for small time owners. competitions to give people share of horses so they can actually experience what it is like to own a horse when it wins. And we would love to be talking more—it’s been particular in the state of California—about new racing series where we can put the weight of our marketing behind it and really drive it forward. We also think that California racing was built on celebrities, the folks who popularized Del Mar and Santa Anita. SENATOR WRIGHT: MR. CUNNINGHAM: Well, clearly this track is called Hollywood Park Right. And we are currently exploring some and it’s in Inglewood; that will give you a sense of that passion. celebrity reality TV as well as a series of celebrity charity events. 50

And finally, we really do think there is a great opportunity for the state of California to be the first state in the country to launch a betting exchange. The betting exchange would introduce new, younger, different players to the sport, offsetting the declines in purses and track revenues. It would bring, we believe, new jobs to the state in terms of the fact that we will be investing in technology in this state and potentially reduce layoffs that will occur at other tracks. And we really think that this is an opportunity to make California an even greater leader in the horse racing sport. Are there any questions? SENATOR WRIGHT: then we’ll come back to you. And let me take a moment and say that—I mentioned earlier that I came into this because of the gentleman seated two seats away from me. He was my predecessor in this senate seat but certainly no stranger to most of the people who are involved in horse racing in California. Vincent. (applause) SENATOR EDWARD VINCENT: Thank you. MARTIN CRUDDACE: Yes, Senator Wright. Just briefly if I could just demonstrate the success of Betfair. It started in 2000, so it’s about 9½ years old. In 2004, I joined and I was employee 425. We now have 1,500 employees. We’re probably on any measure or metric, the tenth largest internet company in the world. And what the reason we were able to purchase TVG is that we took a very early position that we were not going to take any customers from the US. In other words, we were completely legal here. And I think the point that we would like to make is that there is a major, major, major competitor out there for the pound being spent by those who are looking to spend a leisure pound or leisure dollar. And I think that the point is, is that horse racing has to compete with an illegal market at the moment— online market—and not only in poker but in lots of other sports as well. And if you and if the industry believes that the way forward has to be to try and get younger people to look to spend that leisure dollar with horse racing, then we 51 Please welcome Senator Ed Well, we’ll hear from your counterpart here and

are very, very willing, and we hope able, to help, because a vibrant industry is very important for us. Because the more vibrant the horse racing industry is, the better it is for us as well. And we’ve heard a lot over that 9½ years and we are very, very anxious to share that with you and the lessons that we’ve learned. SENATOR WRIGHT: bringing younger people in. You’re probably, of the people here who talked How has your success rate been? And you’ve about new technology—the two of you—and what TVG does in terms of discussed ownership of the horse, or at least that perception of ownership, are you experiencing people appreciate the—it’s almost like you’re describing a video game that becomes horse racing. Are people attracted to that? Is that working? MR. CUNNINGHAM: There are two answers to that, Senator Wright. The first is that we’ve only owned TVG now for four months. We are new to owning the company. We’ve been doing research on the market since we took over and we’ve been learning this about them. We’re now talking to our customers in that way and we’re finding we’re getting great response. We’re also talking to owners in that way and finding we’re getting great response. So it’s early days, but we’re hoping it is the right path to the future. They are certainly the two sources of funds, apart from the government, the two sources of funds that actually support everyone working in the sport and the industry, whether it’s track management, online businesses, trainers, breeders. industry. SENATOR WRIGHT: Listening to the, as you have, some of the other testimony about the challenges that the tracks were having in attracting, what will you and your business model do? I mean, in the internet field you have access to what becomes that new potential bettor—the potential to put betting on his Blackberry or probably more so than the other people who’ve been here today; is that an application that you’d consider that you’re looking at? If we don’t have the owners and we don’t have the bettors, we don’t have an



We currently take wagers in four different ways.

We take wagers online; that’s the bulk of our wagers that’s on our website. The second way is an automated phone system; that’s the second largest. And then the other two ways are through mobile phones and through interactive TV, so actually placing a bet through a set top box on the TV in the comfort of your home. So we will keep marching down those paths. We’re also—I should also share with you, next week we are launching a community so that we can make folks more interactive; be talking to each other while they are wagering; be asking questions about the tracks, about the trainers, about the jockeys. This has been very successful for us in Europe and we are going to replicate it here to try to make things more engaging. We really believe that an engaged bettor and an engaged owner is the only way we’re going to help really make this industry move forward. And we’re all moving online. We’re all embracing technology. When you talk about your 30-year-old daughter, you know, I’m sure that she is very engaged with all of the new technologies that are out there. My kids are very engaged at the age of four in knowing how to use YouTube. growing up in a very different environment than we all grew up in. SENATOR WRIGHT: Well, thank you very much. And I’ll give you the last word. MR. CRUDDACE: I would just say that I think that what we would like to help the industry do is to really enfranchise the next generation of people that want to wager on horse races and to do that, one has to look very, very seriously at the opportunities that new technology can provide. SENATOR WRIGHT: Mr. Hall. DEBORAH RUSSELL: Hello. SENATOR WRIGHT: How are you? MS. RUSSELL: Real good. My name is Deborah Russell and I’m on the executive board, a member of the executive board, SEIU Local 1877 and also a 53 Thank you very much. We’ll move to the next panel; if those folk are here and could come forward; Ms. Russell, Mr. Stilwell, The kids are

32-year race track employee. I would like to thank you for this opportunity. We would like to thank you for this opportunity to be able to speak with you. Rod Wright, the first time I came across that name you were on a panel. And I don’t know if you remember it or not, I asked you about your position and how you would be able to support horse racing here and with the workers—you know, the question was in regards to the race track industry and its workers. And you said that you would do all that you can to support horse racing and the workers here at the race track and we do thank you for that. SENATOR WRIGHT: Oh, thank you. LEE HALL: My name is Lee Hall. I’m the vice president of SEIU 1877. I’m very glad to see you again and all the panel. And I’d like to say shortly and freely that many—I mean, all of the panel before us has put forth a lot of the questions that we wanted to comment on. And the comments as far as sports betting, I’ve been working very hard to get sports betting here in California. And I was very glad to see today, that there is a panel now to say that sports betting has a good chance to come to California because horse racing, to me, means everything. I gave 43 years of my life working here in this industry. I’ve raised all my children and I’ve sent two of my sons to college. And I have a younger daughter who just graduated that’s fitting to go to college. I’m trying very hard to keep this horse racing going. And I would greatly appreciate it if we can put a stimulus in, which is sports betting. That started from the race track out. Not from the satellites out, but from the race tracks out. Because from my point of view, I feel that the race tracks would be the best people to be able to monitor and judge who they would recommend to you to see that they have licenses in the future. Thank you. DAVE STILWELL: My name is Dave Stilwell. I’m the assistant to the president of Local 1877. As Vice President Hall said almost everything, there’s no brilliant suggestions that we have that haven’t already been mentioned here by previous panels. Our main contribution to keeping the industry healthy 54

over the last few years has been by trying to be a responsible economic partner with them, adjusting the economics of the industry through our negotiations on wages, benefits, and other terms and conditions of employment. In the last 30 years, we have, the members of the union, through adjusting the numbers of jobs—jobs in real terms have gone down probably 40 percent since 1979. In the last 30 years, the actual number of jobs at live racing has gone down probably about 40 percent. And adjusting for inflation, wages and all the other benefits have also gone down over that period of time. So the workers have consistently risen to the challenge that’s come up when there’s been problems in this industry by making sacrifices. compensation. Just recently, this move to a four-day racing week, although nobody particularly likes it, we realize it was necessary for the continuation of the industry. But going from five days to four days by itself doesn’t sound like much; that’s a 20 percent drop in income for our members. These are some of the few service industry jobs in California that are still middleclass jobs, or at least have the promise of being middleclass jobs; almost fully employer provided family healthcare benefits; a modest retirement benefit; and wages that again, are at least above the living waging level and that’s the industry’s importance to California, is its employment. And out of all the jobs in the gambling industry in California, these are the best; these are clearly the best jobs in spite of the fact that our employers are hampered by the way that they can conduct their business. All they ask for is to be allowed to invest their money; and many times they’re not allowed to invest their own money. You have a huge tribal gaming industry in California that has slot machines, has everything as much as they can state of the art to produce gambling dollars for revenue in California. It’s as if our employers are being asked to use only faxes; they can’t get into the email age. And they have to run a business with huge amounts of real estate and huge amounts of employees. So really, I think everything that can be done by the industry, both sides of the 55 The ultimate sacrifice in terms of employment and then sacrifice in terms of their

table—labor and management—has already been done. It really, at this point if the people of California and their state government doesn’t step up and take care of these problems that we’ve all mentioned, there really isn’t much of future. Everybody here has done—in this room—has done what they can do. They’re continually thinking of new things to do, but unless the state allows them to invest their own money and operate their businesses that will really give them a return on their investment, frankly, we don’t have much hope. And as people said, what would be one of the questions the paneled opened up, is what is the effects of the demise of the industry in California? For our members it’s unemployment and poverty. It’s a very clear result. The result of the demise of the industry is good quality jobs that are going to disappear and the only good quality jobs in this industry and they’re not going to come back. SENATOR WRIGHT: Well, certainly when we look forward at other things that we can do, I mean, expanding the revenue pool, because it’s clear from the earlier discussions that literally now all the other states are sharing revenue from other pots of money that they virtually subsidized their racing business with, that becomes something that we’ll have to look at. Preserving the jobs and the other things that you described, we have to keep the business alive because as the handle as fallen it affects your folks. As you say, if you go to a four-day week, that’s a 20 percent reduction and it’s like a furlough in so many words. So we have to grow the business and keep it active in order for us to make sure that we keep this business around and going forward. So, I mean, I appreciate the work that you do and I think we might have been at a bill that I think that I did 10, 12 years ago about clerks and how we were doing some betting then to try to expand that, because at the end of the day it becomes a job source and we want to make sure that we’re able to protect good jobs as much as we can. So I appreciate what you guys do. And to the extent that we can ensure that there’s horse racing in the future, there will be jobs for the people in the union as clerks and the other things that happen, whether they’re working in the kitchens, or working at your side. 56

There is significant employment that’s associated in the horse racing business that we want to maintain. MR. STILWELL: And we appreciate that. We know there’s been many times where representatives of the people, the legislators and senators have come to the assistance of our members and have helped protect our jobs and helped protect our income. And pretty much everything that can be done in that area has been done. Our employers are the ones who need the help now. Our employers need to be allowed to run their businesses to grow the employment. As much as we appreciate what the state has done for us in the past, they’re not going to get us anymore jobs in this industry. What the state needs to do is take the handcuffs off of the owners of our race tracks and allow them to move into the 21st century, which is really all they’re asking. They’re asking for a chance to invest their own money. And when an industry that’s regulated by the state comes to the state and asks that, we’re hard pressed to find an argument against it. SENATOR WRIGHT: Thank you both so much. We had two members of the public and they may have already been represented. Richard Eckfield and Mike Martin. UNIDENTIFIED: ____________ (no mic) SENATOR WRIGHT: okay. RICHARD ECKFIELD: Yes, it’s Eckfield; E-C-K-F-I-E-L-D. Thank you, Senator. Actually, I’m here as a reporter covering this for one of our clients. My wife and I write for 11 newspapers and 3 magazines and the Rancho Santa Fe Review, which is adjacent to Del Mar, is very interested in this subject because Del Mar is a very, very important part of that community. However, we’re also part of an activist group that is promoting something that I wanted to bring to your attention and it hasn’t been mentioned and that’s why I thought it would be worthwhile coming up. And it has to do with how you get to the track. Everyone has made the case that getting people to the track is important and 57 Okay. Well, don’t feel like you have to. That’s

when you get there, you fall in love with the horses, you fall in love with the pageantry, you fall in love with everything. The group that we belong to is very, very active in promoting train access to the track. We’ve been working for three years, for example, to try to create a train stop right at the rear of the track where you can walk, literally from here to that wall, where the train passes Del Mar. As many of you know, it was the train that made Del Mar happen in the first place. Bing Crosby brought train access from Los Angeles to Del Mar in 1938, the year after the track opened and it ran until 1965. At that point in time we all thought we’d be driving Jetson cars and be freeway close to everything. It’s been in the plans for 24 years to bring the train stop back. And we’re part of a group that is advocating that. And I’m not here to talk about Del Mar. What I really want to point out to this committee is that there’s been plans, and they’re working on them, to extend the Gold Line to within two blocks of Santa Anita. That same Gold Line is proposed to go onto Fairplex. You currently can get to Fairplex from the other side, from the Inland Empire side, from the Riverside side on Metrolink. There is a stop that way. The potential to attract people in your sports bars and things that the gentleman from Santa Anita said at the end, which was very compelling, you go to a sports bar, you get excited about it, you make a few bets, you think you want to go there and there’s going to be a concert. Getting there by train makes it fun. It also makes it so you don’t have to worry about what you bring at the concert because you’ll be getting back on the train to go back. So I wanted to bring to your attention that one of the things this committee can do is promote, every way possible, promoting train access to all of these race track venues. You can do that by having the California Race Commission put provisions in their renewal contracts to say, “What will you do to try to make it possible to extend train access?” You can have the California Race Board, when they look at allocating the Hollywood Park Days, which everyone hopes won’t be reallocated, but if they are, and I think there’s a fair 58

likelihood that they will be, then if there’s train access, then that’s maybe a plus to give that track the days they want. I have to tell you that I’m compelled by all this discussion, I’m a grandfather of seven, and I take my grandchildren to the track. I’m particularly excited about the comments of Mr. Fravel who talked about it’s better to take kids to the track than it is to a Charger game and I completely agree. I have to tell you that I have taken the train from New York to Belmont Park. I have not taken the train only because I couldn’t get a ticket because the train from downtown Manhattan to Saratoga is sold out weeks in advance. It’s a three-hour ride. But people love taking the train. I’ve taken the train, the Pennsylvania Railroad to Monlith Park. And the best of all is you can go from any place in Chicago out to Arlington Park. And the real fun thing about that, particularly on Saturdays and Sundays, is when you get on the train, it’s not all these stereotypical guys with the cigars—not that you can smoke on the train—but it’s not the typical bettors, it’s families. And when you get out to Arlington Park, actually, they have grass picnic areas, which is terrific. I’ve also, by the way, taken the train from downtown Paris to Longchamp, which is probably one of the finest horse venues in the world. We, unfortunately, are not very good at cooperative planning; that’s why Europe has a lot of mass transit and we don’t. In Del Mar, I will say—I wasn’t here to talk about Del Mar, but in Del Mar there are 11 different governmental jurisdictions that have a piece of the action and you know what, every one of them says they’re in favor of putting the train stop back at Del Mar. But it’s always this, but it’s this person’s ability to do it—it takes somebody, some father figure, some senate committee type figure to say, “Come on guys, you want more days? You want all of these things you can grant? Get with the issue of train access to your place.” They’re trying to work on it. Within two blocks of Santa Anita, they’re trying to work that Gold Line out to the other side so the Los Angeles people can get to Fairplex. We’ve been trying for three 59

years to get the train stop at Del Mar. happen there. Thank you for your time.

You can really make an awful lot

SENATOR WRIGHT: Thank you very much. I’m going to ask Senator Vincent, did you want to make a comment before we get going? SENATOR EDWARD VINCENT (RET): No. I’m just glad to come over and I wish I could have come and been part of this. But I’m just glad to be here. I will say this; I’ve been around. We’ve got the best race—Santa Anita, Hollywood Park and Del Mar. I don’t any tracks anywhere in the world any better than them right here and we’re going to lose it because of somebody says, “How.” And we had an opportunity before to bring machines to this area and the voters voted it down—they voted it down. reservation, there’s Class 3 racing—Class 3. If you go on an Indian And They don’t have it here.

consequently, you can’t have a track with five horses running in a race. If you can run a race in Iowa, I graduated from the University of Iowa—you ought to see the race track now. They even had enough going to get slot machines at the race track and doing great. And the same thing happened with the Indian situation. When we tried to get slot machines here they spent millions and millions and millions of dollars to stop it—millions. So we’ve got to bring that back or try to do something about it because we’re losing the industry. We’ve got the best of everything but it seems like to me, not the best sense. The next time we have voting, work for it. The Indians spent all kind of money making sure that we did not get slot machines here. And this is what you see. You’ve got the small purses, you’ve got the small crowds, you’ve got the small fields, you keep going small you have nothing and that’s where we’re heading. Rod, well, I really did want to come over here because I’ve been sick, but I’m glad you guys had this. I think it’s wonderful. And let’s keep trying. And thanks for having me come over. SENATOR WRIGHT: Thank you. We would not have missed being in your backyard, Senator Vincent. And we almost had him walk across the street. As some of you know, the Senator lives across the street from this great 60

facility. But at the end of the day I think we all agree that we have an industry in California that we need to protect whether it’s from the agricultural side, whether it’s from the job side, whether it’s the entertainment venue that it provides, the people who train the horses, this is an industry that is integral to California and we want to try to work with it. We’ve got a number of takeaways and challenges that we’ve heard today; ways that I think that we might be able to expand revenue. Clearly the sports betting is not something that happens overnight but it’s certainly an option that I think that we pursue. The issue of regulation even more so, lessening some of those. I mean, we took some $30 million give or take, off of the back of horse racing this year. But I think that there are other things that we’ll be able to do, again, to provide that flexibility and to expand some of the rules. Again, that 20-mile radius didn’t come from us, it kind of, sort of came from the people in the industry, so maybe something, again, that we revisit to see if we’re able to expand that to provide handle. I was interested to hear from the folk from TVG in terms of their nuanced way of looking at bringing gaming to people who heretofore would not have been able to do that. So, I mean, we’ve got a number of things to work on. There are a number of challenges that we have. The idea that we might lose a Hollywood Park and some 2,000 stable spaces, and what do you do with the horses in preserving them? So from the husbandry of horses and making sure that we keep our foal count up, this has been a very productive hearing and we have a lot, yet, still to work on. So I appreciate all the witnesses and the people who showed up on this Friday. Please don’t feel like you have to go. Again, as Mr. Liebau pointed out, we’re going to have some horse racing take place right here in about another 45 minutes or an hour or so. There will be some live horse racing, so please don’t fell like you have to run off. He didn’t know this, but we’re going to celebrate. Senator Vincent just had a birthday a couple of days ago and he didn’t know that we’re going to also 61

celebrate his birthday in the next few minutes, so please don’t feel like you have to run off. And others will come and join us as we, again, just look at congratulating and honoring, certainly one of the people who’s been a champion for horse racing for far more years than I have. And so, again, thank you all for coming. Please join us as we get ready to watch some horse racing and enjoy a little bit of hospitality and celebrate Senator Vincent’s birthday. Thank you all so much. ###


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