N.J. Admin. Code § 13:74C-3.5 - Required distributions of certain exchange revenues and net exchange wagering revenues; audit requirement

(a) The exchange wagering licensee shall distribute the exchange revenues in accordance with the following priority categories:
1. The exchange wagering licensee shall be entitled to reimbursement, for regulatory costs paid to or on behalf of the Commission, as required by 13:74C-3.4;
2. The exchange wagering licensee shall pay any person or entity it retained to conduct any audit required by (b) below;
3. Pursuant to any Commission approved written agreement, authorized by 13:74C-3.2, the exchange wagering licensee shall pay the reasonable and necessary fee due any person or entity it engages as an exchange wagering agent and/or exchange wagering services agent;
4. The exchange wagering licensee shall retain its reasonable and necessary actual expenses incurred in administering, marketing, and operating the exchange wagering system;
5. After each of the payments pursuant to (a)1 through 4 above are made from the exchange revenues, the exchange wagering licensee shall distribute 50 percent of the remaining exchange revenues as payments to overnight purses pursuant to the formula set forth in (c) below; and
6. The balance of the exchange revenues remaining after the distribution of the payments described in (a)1 through 5 above, that is, the net exchange revenues, shall be distributed pursuant to (d) or (e) below, as appropriate.
(b) One year from the date when the exchange wagering system first became operational, the exchange wagering licensee shall cause a comprehensive audit to commence regarding the exchange revenues accumulated during such time period, to be performed by an outside and independent certified public accountant acceptable to the Commission. The exchange wagering licensee shall file with the Commission, no later than eight months from the date when the exchange wagering system first became operational, a written petition identifying the proposed outside certified public accountant, as well as an alternative, for approval by the Commission. The Commission shall find the outside certified public accountant, proposed by the exchange wagering licensee, to be acceptable where the licensee establishes by clear and convincing evidence that the proposed outside certified public accountant is qualified to perform the audit, and that there are no conflicts of interest present that would preclude it from performing the audit. Such comprehensive audit shall accurately disclose the exchange revenues accumulated and distributed or available for distribution pursuant to (a)1 through 5 above during the first year of operation of the exchange wagering system, as well as the net exchange revenues available for distribution pursuant to (a)6 above. The certified public accountant shall conclude his or her work within one year and three months from the date when the exchange wagering system first became operational, and on or before such date, shall file a written report with the exchange wagering licensee with a copy to the Commission. The Commission may, in its discretion, require additional audits of any aspect of the exchange wagering system, to be performed by an outside and independent certified public accountant, and to be paid for by the exchange wagering licensee as required by (a)2 above, as part of the license conditions it imposes on the exchange wagering licensee.
(c) The portion of exchange revenues, to be distributed to overnight purses pursuant to (a)5 above, shall be distributed between the standardbred and thoroughbred overnight races as follows. Of such monies distributed to overnight purses, all moneys derived from exchange wagering on thoroughbred races shall be paid to overnight purses for thoroughbred races at each permitted racetrack in the State where such racing is conducted, and all monies derived from exchange wagering on standardbred races shall be paid to overnight purses for standardbred races at each permitted racetrack in the State where such racing is conducted, and none of these funds may be used, directly or indirectly, for purposes other than overnight purses. However, starting April 20, 2018, this formula for allocating overnight purse monies from exchange wagering may be modified by the mutual written agreement of the Standardbred Breeder's and Owner's Association of New Jersey, Inc., and the New Jersey Thoroughbred Horsemen's Association, Inc., provided that such agreement does not include provisions that allow for these funds to be used, directly or indirectly, for purposes other than overnight purses, and provided that such agreement does not exclude the use of such funds in connection with any permitted racetrack in this State.
(d) Within one year from the date when the exchange wagering system first became operational, the exchange wagering licensee shall enter into a written business agreement with all racetrack permitholders for the distribution of the net exchange revenues remaining after the distributions required by (a)1 through 5 above.
(e) In the event that the exchange wagering licensee and racetrack permitholders are unable to arrive at a fully executed business agreement within one year from the date when the exchange wagering system first became operational, as set forth in (d) above, the exchange wagering licensee shall notify the Commission in writing of such inability, within one year and 10 days from the date that the exchange wagering system first became operational. The Commission, in such event, shall assume permanent responsibility for annually distributing the net exchange wagering revenues amongst the exchange wagering licensee and the permitholders. Prior to rendering its decision, the Commission, in its discretion, may retain an outside expert, with knowledge of standardbred racing and thoroughbred racing, and the wagering incident thereto, for the purposes of conducting proceedings and/or mediating between the exchange wagering licensee and racetrack permitholders, and rendering to the Commission a non-binding written recommendation on how the net exchange revenues should be allocated amongst the exchange wagering licensee and racetrack permitholders. The services of such expert shall be paid for by the exchange wagering licensee, and such costs shall be reimbursed to it from exchange revenues, as regulatory costs pursuant to (a)1 above. After providing the exchange wagering licensee and each racetrack permitholder with a copy of the written recommendation of any retained outside expert, and the opportunity to provide comment in writing to the Commission regardless of whether the Commission retains such an expert, the Commission shall at a public meeting render a decision distributing the net exchange revenues amongst the exchange wagering licensee and the racetrack permitholders, as its deems appropriate. In arriving at its decision, the Commission shall consider the following factors:
1. That the exchange wagering licensee is entitled to a reasonable profit as a result of its offering of exchange wagering to the wagering public;
2. That, after any allocation of net exchange revenues to the exchange wagering licensee pursuant to (e)1 above, the portion of net exchange wagering revenues remaining shall be allocated for distribution between the standardbred racing industry and thoroughbred racing industry based upon the proportionate total net exchange wagering revenues wagered on each horse breed. For example, if $ 1,000 of the net exchange revenues remains available for distribution pursuant to this subsection, and $ 600.00 of that amount was derived from exchange wagering placed on thoroughbred races, and $ 400.00 was derived from exchange wagers placed on standardbred races, $ 600.00 shall be allocated to the thoroughbred racing industry and $ 400.00 shall be allocated to the standardbred industry, for further distribution as set forth in (e)3 below;
3. The amount of net exchange wagering revenues available to the thoroughbred industry and standard industry, as determined by the application of the formula set forth in (e)2 above, shall be distributed to those permitholders within each breed who offer exchange wagering to the public. In determining the amount of net exchange wagering revenues to be distributed between the eligible permitholders within each horse breed, the following factors shall be considered:
i. The number of live race dates conducted by each permitholder during the year where the net exchange revenues were accumulated;
ii. Of the total exchange wagering available for distribution within each horse breed, the percentage amount thereof placed on the race product offered by each eligible permitholder, during the year where the net exchange wagering revenues were accumulated; and
iii. The respective contribution that each eligible racetrack permitholder has made, during the year where the net exchange revenues were accumulated, considering the total operations of each eligible permitholder in this State, including its operation of Racing Commission licensed off-track wagering facilities, and the impact of such operations, to: promoting the economic future of the horse racing industry in this State, to fostering the potential for increased commerce, employment and recreational opportunities in this State, and to preserve the State's open spaces.
(f) Nothing contained in this section shall be interpreted as prohibiting the exchange wagering licensee and racetrack permitholders from presenting for the Commission's consideration at any time, a fully executed written business agreement recommending how the net exchange wagering revenues should be distributed amongst them, for any year or years. However, where such an agreement is not presented within one year from the date that the exchange wagering system first became operational, pursuant to (d) above, such agreement shall not be binding on the Commission in its determination on how to distribute the net exchange revenues.

Notes

N.J. Admin. Code § 13:74C-3.5
Adopted by 47 N.J.R. 807(b), effective 4/20/2015.

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