Thoroughbred Idea Foundation Says Eliminating Breakage a Win-Win

[Wandering Eyes]

The Thoroughbred Idea Foundation (TIF), a racing think tank founded by Craig Bernick, has released a white paper in which it argues that both tracks and bettors would benefit if breakage rules were changed. Breakage is when the payoff on a horse is rounded down, in most states, to the nearest dime. For example, if the show payoff on a horse should be $2.98 the bettor will receive $2.80. The TIF wants payoffs to broken to the penny.

Since it opened its offices Aug. 1, this is the first time the TIF has made any significant announcements or recommendations. Its goal is to come up with common sense solutions to some of the problems that are creating problems for the sport, like stagnant betting handles and smaller foal crops.

Breakage goes back to the establishment of pari-mutuel gambling when racetrack mangers did not want their mutuel clerks having to deal in pennies and nickels, which would slow up lines and potentially shut out bettors. But with the vast majority of betting now being done off track that’s no longer a valid argument. But breakage has remained in existence because tracks, ADWs and state governments are making a significant amount of money every time a horseplayers is shortchanged a few extra cents due to existing regulations.

The TIF estimated that breakage costs horseplayers $50 million on an annual basis. From this year’s Triple Crown alone, horseplayers would have received an extra $1 million from the three races had the winning prices been broken to the penny instead of the dime. Pr to the nickel, which is the breakage rate in New York. That’s free money–and a lot of it–to those who benefit from the breakage rules, but the TIF argues that if the sport went to penny breakage the overall growth in handle would offset the $50 million. The TIF estimates that, when churn is factored in, an additional $200 million would be bet annually with penny breakage. That would equate to a 2% increase in overall handle.

The largest benefactors of breakage are ADWs because they do not have to share the excess money with the track sending them their signals.

“The belief from our perspective is do you want $50 million through the back door or do you want the $200 million plus handle we think this could generate along with churn?” said TIF Executive Director Pat Cummings “We think this is indicative of the way this industry has been making decisions for a long time. It’s been, ‘Lets take what’s easy and directly in front of us as opposed to a more creative way to building the pie for everybody else. We are of the belief that the long term. impact is better for the industry than the short term of them taking of the $50 million.”

The TIF also argues that breakage is a factor that actually increases takeout, which virtually all experts believe is too high and encourages gamblers to play sports where a higher percentage of the pools are returned to the winners.

“Breakage represents an opaque practice in an era where pricing transparency is essential to the wager customer, particularly in the face of a growing competitive marketplace with far lower takeouts rates,” the TIF white paper reads. “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.”

Another way racetracks can benefit if the sport went to penny breakage would be to eliminate “bridgejumping” and mins pools. Because of breakage, when a heavy favorite finishes among the top three there might be so much money bet on the horse in the show pool that the actual payoff should be $2.02 instead of $2.10. That creates minus pools, where the tracks must make up the difference, therefore losing money.

According to the paper, in 2017 two New York harness tracks paid out more in minus pool money than they received in breakage. At the NYRA tracks, there was $3.06 million in breakage revenue, but when the money NYRA had pay in taxes on the breakage take, plus the amount it had to pay out in minus pools wsa factored in, that $3.06 million was sliced all the way down to $101, 954.

Cummings is aware that the TIF is not the first organization that has tried to help the sport by coming up with productive solutions, solutions that have by and large been ignored by the industry. Will it be any different this time?

“It’s a valid question and something we’ve talked about among ourselves from the beginning,” Cummings said,. “We don’t have a mandate to accomplish many of these things. But by putting out what we think is one of the most detailed assessments of this topic that anyone has ever done should make people think a little bit longer about whether this should be done.

“If you consider where handle is, where foal crops are, the way the number of races are down, 50% over the last 30 years, we’re of the opinion that if you just keep doing things the way you always have been doing them how can you convince yourself things will ever get any better? We are hoping to inspire a tipping point, where people say, ‘Ok, it’s time to finally make a change.'”

 

View the full article