Kentucky may end breakage. Will the rest of the nation follow?

A long-standing policy of dime breakage could be on the ropes in Kentucky if one state representative gets his way.

Republican Rep. Adam Koenig said in January he plans to introduce a bill into the state legislature that would round payoffs down to the penny instead of the dime, putting more money in the pockets of winning bettors.

Nationwide, dime breakage could make a difference of at least $50 million per year, according to the Thoroughbred Ideas Foundation, a racing think tank. The TIF claimed breakage increased effective takeout to nearly 20 percent in some jurisdictions.

For the Kentucky tracks, which take half the breakage funds with the rest revenue, it could have meant more than $9.3 million for fiscal  2021, according to TIF. However, according to Keeneland vice president of strategic initiatives and legislative affairs Vince Gabbert, the move could help tracks in the long term.

“Most likely,” Gabbert said of whether a loss of breakage could cost tracks money. “And in some of our initial analysis, it would be. But if it results in more money back in players’ pockets, then they’re more likely to bet more, and that helps everybody.”

Dime breakage means the rounding down of payouts to the nearest 10-cent increment in favor of tracks and other bet-takers on a $1 wager. Under the current rules, if a bet should return $2.49 on a $1 mutuel, it would be rounded down to $2.40.

Koenig has said he plans to propose breakage down to the penny, which would pay the full $2.49, although bet-takers would retain any fractions of a cent.

“I know that the horseplayers absolutely want breakage to go away,” said retired National Thoroughbred Racing Association CEO Alex Waldrop. “There’s no question about that.”

Waldrop noted that he routinely fielded requests to do something about the issue while at the NTRA, but he was unable to do much because the organization dealt with national issues and breakage is largely up to individual states.

No one from Kentucky’s tracks beside Keeneland offered comment. A representative for Churchill Downs Inc. noted that the company, which owns both its namesake and Turfway Park, would wait until a bill was filed before deciding whether to take a side on the matter.

When announcing he would be pushing the bill, Koenig noted it was not intended to cost the tracks money, which he opined they would get back through more people wagering. Instead, he said, it was meant to help bettors.

“I think the tracks and the state would benefit because more of that money would be put back in (to bets),” Koenig said during a November meeting of Kentucky’s Pari-Mutuel Wagering Taxation Task Force. “For people that do this on a regular basis, make their livelihoods in part by wagering, when you can get a better return and you bet enough money, it’s worth it to take your money away from places that don’t do that.”

Koenig also said he thought it could help the tracks make money, although none had reached out to start a process of change on their own, something Waldrop attributed to a lack of desire to dry up streams of income.

Gabbert agreed with Koenig. He thought bettors would appreciate the change.

“I wouldn’t consider it a negative, because all in all it seems like it’s good for horseplayers,” Gabbert said. “I think whatever is good for horseplayers is good for tracks and operators.”

Breakage on ADW bets is kept by the bet-takers and does not go to the tracks. If bettors decided to spend more of their bankroll in Kentucky through subsequent bets with what was previously breakage, the tracks would at least see some of the funds through takeout.

ADW providers, including CDI, the Stronach Group, TVG and NYRA Bets, did not offer comment.

According to data presented by Cummings at the Kentucky task force meeting, about 96.7 percent of breakage in Kentucky was taken by non-track bet-takers. That left a little more than $310,000 for tracks.

“It gets more complicated when you look at who gets to keep the breakage,” Waldrop said. “I think those who keep the breakage are apt to be more reluctant. ... It might not matter to tracks as much (as in previous eras) other than Churchill.”

Waldrop noted that long-term support for breakage reform by tracks could be subject to their actually seeing an increase in handle. He compared any unwillingness to change with another moment in history.

“When simulcasting first started, there was a lot of reluctance,” said Waldrop, who was president and general counsel at Churchill Downs from 1992 to 2005. “People were really scared. We were scared in Kentucky that Saratoga would show up, and they would wipe little Ellis Park off the map, they would all bet Saratoga, and it would kill live racing. ... That turned out to be absolutely wrong. It just created more handle.”

Dime breakage was instituted in part to make things easier on tracks, reducing lines by not paying out to the penny. In the world of advance-deposit wagering, the logistical issues would be more limited.

According to Cummings, dime breakage made sense when the practice was first implemented.

“There was a day when breakage was highly convenient for the bet-taker,” Cummings said at the Kentucky task force meeting. “And in reality it did offer some modicum of convenience for the bettors but, of course, at some degree of cost.” 

Tracks still see significant in-person handle on big racing days. Cummings acknowledged that tracks would have to modernize how they pay out coins but noted that in Kentucky, 10-cent superfectas are paid out to the penny.

Gabbert said he did not think lines would be a major problem.

“We’ve got a great group of tellers, and they tend to handle crowds fairly well,” Gabbert said. “We wouldn’t see this as a bad thing at all.”

Gabbert likened a move to penny breakage to a drop in takeout at Kentucky tracks.

“We’re on an upward trajectory from a business standpoint with the overall racing circuit in Kentucky,” Gabbert said. “I think that’s just one more thing from a racing and wagering standpoint.”

The move would help to make Kentucky’s racing signals more attractive to bettors across the country because of the de facto lowered takeout. The state would join the New York Racing Association, which operates a sliding scale for breakage, as the jurisdictions most friendly to bettors on that issue.

Should Koenig’s bill pass, Waldrop said, he could foresee other jurisdictions following Kentucky’s lead.

“I think they would,” Waldrop said, “because these payouts are going to occur across the country. If I’m betting Churchill or Kentucky product in another state, and I’m getting the benefit of the breakage issue being resolved, there are players who may make that decision based on that.”

Koenig had yet to file a bill regarding breakage in the current legislative session, although he has until March 1. Should it get through the House, the bill would have at least one likely sponsor in the state Senate in Republican Damon Thayer, who has said he will support it.

The current legislative session is scheduled to end on April 14.