BILL ANALYSIS {u SB 228 u} Page 1 Date of Hearing: July 12, 1999 ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION Herb Wesson, Chair SB 228 (Perata) - As Amended: June 8, 1999 {u SENATE VOTE u} : 33-2 {u SUBJECT u} : Racing Associations: Gambling Establishments {u SUMMARY u} : Authorize a publicly traded or qualified racing association located in Alameda County to both own and operate a gambling establishment, under specified conditions. Specifically, {u this bill u} : 1)Authorizes a publicly traded or qualified racing association located in Alameda County to operate one card club, provided: a) The card club is located within 10 air miles of the association's race track. b) The racing association, or an affiliated company that is a wholly owned subsidiary of the association's parent corporation, has held an ownership interest in the real property of the card club for a period of at least three years prior to December 31, 1998. c) Controlled gambling was lawfully conducted at the card club for a period of at least three years prior to December 31, 1998. 1)Makes a legislative finding to support the enactment of a special statute due to the unique circumstances applicable only to the County of Alameda. {u EXISTING LAW u} : 1)The Gambling Control Act of 1997 (SB 8, Lockyer) establishes the California Gambling Control Commission (the Commission) and grants it jurisdiction over the operation of card clubs and of all persons having an interest in the operation of card clubs 2)Creates the Division of Gambling Control within the Department of Justice to investigate and enforce controlled gaming {u SB 228 u} Page 2 activities in the state. 3)Generally provides that only individuals are eligible for state gambling licenses; however, if the owner is a corporation, then each officer, director and shareholder must be licensed. Partnerships, trusts, or other limited types of business organizations are also permitted to own a card club but must comply with strict licensing requirements. 4)Allows publicly traded racing associations or qualified racing associations to be licensed to own or operate a card club provided, among other requirements, that each person owning 5% or more of the outstanding shares of the corporation are also licensed by the state. However, a publicly traded or qualified racing association is allowed to only {u operate u} one card club, and that facility must be located on the same premises as the entity's racetrack. ("Qualified Racing Association" is defined as any corporation licensed to conduct horse racing by the California Horse Racing Board that is a wholly owned subsidiary of a corporation whose stock is publicly traded.) 5)Prohibits the Commission from issuing a gambling license to any gambling establishment that is located within a local jurisdiction that does not have an ordinance authorizing the play of controlled games within their jurisdiction. Existing law further prohibits, until January 1, 2001, a local government from adopting an ordinance authorizing gambling or amending an existing ordinance to expand legal gaming within its boundaries. This prohibition is effective until January 1, 2003, for the counties of Alameda, Contra Costa, Los Angeles, San Mateo, and Santa Clara, due to the over-concentration of card clubs in those counties. {u FISCAL EFFECT u} : None {u COMMENTS u} : 1. {u Background u} . In the mid 1990's, considerable debate occurred regarding whether California's publicly traded racing associations should be permitted to own and operate card clubs. Prior to the enactment of the Gambling Control Act in 1997, the then-controlling Gaming Registration Act required, in effect, only the registration of individuals as card club owners or operators, thus precluding publicly traded corporations (due to {u SB 228 u} Page 3 the difficulty of registering all shareholders) from owning and operating card clubs. Corporations owning card clubs could act as landlords, provided a third party operates the card club. Racing associations complained that this business arrangement placed card clubs in which they had an ownership interest at a competitive disadvantage with card clubs that were owned by individuals or closely held non-public corporations. Repeated legislative attempts to remedy this situation on behalf of California's publicly traded racing associations became ensnared in the larger debate on a comprehensive regulatory scheme to regulate the California card club industry. In 1995, the Legislature allowed a publicly traded racing association to operate one card club at its racetrack facility, provided, among other requirements, that local approval was obtained and that shareholders with 5% or more interest in the corporation register with the Attorney General (SB 100, Maddy). This law was scheduled to sunset on January 1, 1999, unless a later enacted statute was adopted enacting a comprehensive regulatory scheme for the regulation of card clubs. Such a regulatory scheme was enacted in 1997 as the Gambling Control Act. That legislation repealed the sunset date, thus allowing publicly traded racing associations to continue to operate one card club if the club was located on the grounds of the racetrack. To date, only Hollywood Park, Inc., located in the City of Inglewood in Los Angeles County, has secured the necessary local approval and taken advantage of this authorization. 2. {u Purpose of this bill u} . The author is carrying this bill on behalf of Ladbroke/Pacific Racing Association, which presently conducts horseracing at Golden Gate Fields in Alameda County and owns Casino San Pablo located in Contra Costa County. Casino San Pablo is a $40 million, 60-table card club located in the City of San Pablo approximately 10 miles from Ladbroke's thoroughbred racetrack at Golden Gate Fields. The Casino employs approximately 500 persons and last year generated $2.7 million in license fees to the City of San Pablo. Ladbroke's wholly-owned subsidiary, Pacific Racing Association (PRA), currently owns Casino San Pablo and provides most of its non-gaming services such as food and beverage, security, facility maintenance, and parking. However, under current law, PRA is entitled to operate a club only if it is located on its {u SB 228 u} Page 4 racetrack premises; otherwise, it must contract with an independent third party to operate the gaming operation. According to the sponsor, this arrangement has resulted in club revenues declining sharply due to differences in management styles and disputes over how to improve and market the club. The sponsor believes that this bifurcated management lacks accountability, and also makes it difficult for patrons and law enforcement to determine who is responsible for club operations. The sponsor states that, if enacted, this bill would not expand gambling or authorize any new card clubs. Its only effect would be to permit PRA to operate Casino San Pablo, an existing card club that it already owns, under the same restrictions that regulate the operation of other card clubs in this state. 3. {u Opposition u} . The California Nations Indian Gaming Association opposes this legislation contending that this bill would encourage the expansion of commercial gaming. Two card clubs that are located in the area of Casino San Pablo also oppose this bill based on the contention that this bill will break a long standing policy against allowing publicly traded companies to expand their control of gambling in California. {u REGISTERED SUPPORT / OPPOSITION u} : {u Support u} Ladbroke/Pacific Racing Association Hotel Employees & Restaurant Employees International Union {u Opposition u} California Nations Indian Gaming Association California Grand Casino Coyote Valley Tribe Elk Valley Rancheria Oaks Card Club {u Analysis Prepared by u} : George Wiley / G. O. / (916) 319-2531