Midland: Can penny breakage reinvigorate show wagering?

Kentucky’s new penny-breakage law goes into effect with racing Friday at Ellis Park. What this means is for bettors wagering on Ellis Park, whether in Kentucky or nationwide, their payouts will now be rounded down to the nearest penny instead of the nearest dime.  

While this may seem to be a small change, it may do wonders for invigorating win, place and show wagering, especially show wagering. 

With penny breakage, a show bet that normally would have been calculated at $2.96, which was rounded down to $2.80 in the past, will now pay $2.96 on Kentucky tracks.

The effect of breakage is lessened at higher payouts but more impactful at lower payouts.   

For example, if you hit an exacta that pays $102.00, you may not care too much whether it pays $102.00, $102.07 or $102.16. If you have the exacta several times, then it may start to make a difference. 

But with a show wager, because of the low risk and high percentage of winning on show bets, it is common to make a larger denomination show bet. On a $2 show bet, the difference between a $2.40 and $2.57 payout may not be that meaningful, but on a $200 show bet, that's the difference between collecting $240 and $257.

Looking at breakage on payouts of different amounts we created the chart below. What one can quickly see is that breakage, which amounts to an additional tax on horseplayers, has a significant impact at lower payouts.

In the chart above, we calculated the average penny-breakage payout to be the mid-point between the two potential tiers of dime breakage. So with dime breakage, for example, a payout can be $2.40 or $2.60, but not in between. With penny breakage, the payout amount could be anywhere between $2.59 to $2.40.  

Going back to the average payout, this means that what was a $2.40 payout in the past will now pay $2.50 on average.  That amounts to a 25 percent increase in profit.  

Ellis Park’s takeout on win, place and show wagers is 17.50 percent. With dime breakage, a $2.40 payout represented an effective player takeout of 20.80 percent, but with penny breakage an average payout of $2.50 represents an effective takeout of 17.83 percent. This means the effective takeout is reduced by 2.97 percent – a big benefit to players. 

While the switch to penny breakage will improve payouts for all players, it has the most potential to benefit show wagering, which often can include low payouts on all three horses. It also can have the same beneficial effect with lower place payouts or lower win payouts for huge favorites. 

How dead is show wagering? 

Looking at one of the biggest races last weekend, the Belmont Derby (G1) featured 11 horses and a competitive field. Yet show wagering amounted to only 4 percent of total handle. 

How much the new penny-breakage law can grow handle on Kentucky races is anyone’s guess. It is certainly a welcome improvement for horseplayers and may garner the attention of horseplayers around the country who may not normally focus on Ellis Park. Penny breakage has has the potential to make a meaningful impact for many players, especially for show, place and win bets. I know I’ll be watching Ellis Park this weekend and making some show wagers along the way. 

Ellis Park’s eight-race card on Friday features an average of 10.1 horses per race. Go here for Ellis Park entries and results.