03/24/2013 1:09PM

California's plan for exchange wagering sustains major setback

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ARCADIA, Calif.- The launch of exchange wagering in California will be delayed for months, and possibly into 2014, after the state’s Office of Administrative Law recently cited extensive faults to a set of rules approved in 2012 by the California Horse Racing Board.

In a 19-page decision of disapproval published last Thursday, George C. Shaw, the Office of Administrative Law’s senior counsel, called for revisions to eight of the 25 rules. In a statement, the racing board said that the Office of Administrative Law cited “failure to comply with the specified standards of necessity, consistency, and clarity.”

The racing board’s statement said staff members have started work on legal documents in an effort to submit revised rules for exchange wagering to racing board commissioners in the near future, possibly later in the spring. Any changes in the rules must follow a lengthy sequence of events, including a public comment period, a public hearing by the racing board, and a resubmission of the rules to the Office of Administrative Law for legal review.

If approved, exchange wagering would not begin until the racing board completes the implementation of oversight technology. In addition, a racetrack and horsemen’s group would need to reach a financial agreement with an exchange wagering provider, and receive approval from the board, before exchange wagering could start.

Exchange wagering, which is popular in Britain, allows bettors to back or lay horses to win or lose. Legislation allowing exchange wagering was approved by the state legislature in 2010, pending the development of rules by the racing board.

The board approved rules for exchange wagering last November and submitted more than 1,000 pages of documents to the Office of Administrative Law for review on Jan. 31.

In its decision, the Office of Administrative Law cited numerous concerns, including excessive license fees to be charged to an exchange wagering provider.

The Office of Administrative law cited racing board documentation as stating that “the total annual estimate” of regulating exchange wagering would be $510,000. The legal review faulted the racing board’s two-year $1.4 million fee in that “appears to exceed the reasonable costs of the program.”

In addition, the Office of Administrative Law faulted the racing board’s costs for a license fee and that it “assumes there will be only one licensee”, even though the racing board submitted other documents suggesting there will be other licensees.

The board stated in its rules that the $1.4 million fee could be reduced to an “amount to be determined by the board”, but the Office of Administrative Law said that rule “lacks clarity” as to why the fee could be adjusted. The board stated that the license would be for two years “unless otherwise determined by the board,” but failed to state what conditions would lead to a shorter term, the legal review stated.

The Office of Administrative Law also cited the racing board’s use of terms for approving exchange wagering applications by providers, rules pertaining to how exchange wagering providers would deal with customers in the event that a wager is canceled for being “inappropriately disrupted” and how to remedy an account rewarded an incorrect payoff.

The Office of Administrative Law wrote that the board failed to cite a relevant reason why an exchange wagering provider should be exempt from disclosing its operating plan to the public. Citing a government code, Shaw wrote that he could not find any legal precedent for a non-disclosure arrangement.

The Office of Administrative Law cited the racing board for failing to submit complete information regarding an economic impact analysis, and other documents, and failing to conduct a full 15-day public comment period for a rule change last year.