The Thoroughbred Idea Foundation has released its first white paper. Titled “Penny Breakage – Returning rightful winnings to horseplayers and stimulating North America's tote pools,” the paper details the scope of the perpetual rounding-down of dividends on winning tickets and why a shift to penny breakage would benefit the industry.
Breakage is the amount of money retained by bet-takers when rounding winning dividends to the nearest dime, or nickel (depending on the jurisdiction) for each dollar bet. Without breakage, Justify's win and place mutuels in the 2018 Preakness Stakes would have been $2.88 and $2.94 respectively, instead of the actual payouts which were $2.80 for both.
Total breakage in the win, place and show pools for the Preakness totaled more than $500,000. The win pools from the three Triple Crown races of 2018 registered more than $1 million in breakage.
“We estimate winnings of at least $50 million are withheld as breakage annually. If returned to the horseplayers, the additional churn, which we believe could be near $200 million, would represent the largest single year percentage increase in handle over the last 15 years,” said Patrick Cummings, TIF's executive director.
“Breakage was instituted more than eight decades ago in the hopes of keeping on-track betting lines moving, helping churn and total handle and probably keeping a bit of extra cash for the house. In our modern sport in 2018, where most money on racing is wagered off-track, and is increasingly cashless, continuing to retain breakage at current levels does the opposite, while the positive impact to the 'house' is nowhere near what it once was.”
The paper outlines the case faced by the New York Racing Association in 2017 where the organization netted just 3% of the originally retained breakage after taxes and seeding minus pools, a function of meeting mandatory minimum requirements for occasions when heavily-backed horses return the minimum payout. TIF suggests that with a shift to penny breakage, regulators could also eliminate the mandatory minimum payout requirements – often $2.10 or $2.20.
“Breakage represents an opaque practice in an era where pricing transparency is essential to the wagering customer,” added Cummings, “particularly in the face of a growing competitive marketplace with far lower takeout rates. Economists and industry consultants agree racing's declared takeout is too high, yet breakage only adds to the burden, yielding effective rates that can push nearly 21% in the win, place and show pools, far higher than what is advertised.”
“Penny Breakage” is the first in a series of reports TIF will offer to challenge some conventional norms and encourage stakeholders to examine ways in which racing's model should change.
“With foal crops and the number of races run at historic lows and a relative flat-lining of handle following earlier precipitous declines, all in the shadow of increased competition for wagering dollars, the industry should examine ways to change the business practices that have contributed to the downturn,” said Cummings. “This effort is about growing the pie for all, not just shifting parts of the pie between stakeholders.”
The full report is also available at this link to RacingThinkTank.com
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