Gary West.

West: Kentucky Legislation Welcome News to Bettors at their Breaking Point

By Gary West/Special to TVG

Most of horse racing’s problems derive from a foggy indifference to its most important constituency, the bettors. Would it be unfair to say, as the most trenchant critics do, that horse racing doesn’t care about the bettors and fans except to the degree they contribute to the bottom line? It can sometimes seem that the so-called leaders of the sport, as well as the regulators and operators, aren’t even aware that anybody’s in the grandstand, or that if they’re aware, they regard bettors and fans as a necessary inconvenience. Many of the sport’s so-called leaders cocoon themselves in a cloud of cheerfully smug self-regard and make no effort to understand bettors. But bettors have an advocate. In Kentucky, anyway.

During the current session of the state legislature, Rep. Adam Koenig will introduce a bill to eliminate breakage, or actually round payoffs down to a penny. If passed and signed into law — and Koenig said he expects it to be — the legislation would over years return millions of dollars to Kentucky bettors.

“I hope Kentucky is the best place for everyone to bet,” said Koenig, whose district is divided between Boone and Kenton Counties in the northern tip of the state, near Turfway Park. With Sen. Damon Thayer, Koenig is the co-chair of the legislature’s Pari-mutuel Wagering Taxation Task Force.

Kentucky State Representative Adam Koenig. Photo courtesy of AdamKoenig.com.

The elimination of breakage might seem like a mini potato. Potentially, though, it’s enormous. In a 2018 report, Pat Cummings and the estimable Thoroughbred Idea Foundation estimated that the breakage at America’s racetracks totaled $50 million annually. That’s $50 million that should be paid to the bettors. And if it were, based on estimated betting churn, they would wager an additional $200 million.

As you probably know, breakage is the difference between the payoff bettors should receive and the payoff they actually get once it’s rounded down to a dime on the dollar. The payoff that should be $8.78 becomes $8.60 in most jurisdictions. So, in effect, the breakage raises the takeout, or cost of wagering; in the case of win-place-show bets, the breakage raises average takeout to 20 percent. New York addressed the problem years ago, reducing breakage on a sliding scale, but didn’t eliminate it. Koenig’s bill will virtually eliminate breakage in Kentucky.

To illustrate how breakage takes money out of the bettors’ pockets, consider this example from the TIF report. In the featured race at Hypothetical Downs, horseplayers and fans wager $100,000 in the win pool, where the takeout is 17.3 percent (the national average). So, after deducting the takeout, $82,700 remains and is available to be returned to bettors in the form of winning payoffs. The popular even-money favorite, who has $39,530 on him in the win pool, leads from the start and cruises under the wire several lengths ahead any rival. Bettors happy with the outcome won’t even notice they’re getting shortchanged. Their raw return is $82,7000/$39,530, or $2.0921 for every dollar bet. That’s rounded down to $2.09; so the win payoff on a $2 bet should be $4.18. But it’s not; it’s $4.00. The total breakage from the race is $3,640; so the effective takeout becomes 20.94 percent.

Now, consider that scenario, or one similar to it, unfolding several times a day at every racetrack in the country. That’s how bettors miss out on $50 million a year without even noticing. 

With the passage last year of legislation that clarified the case for historical horse racing and the gaming machines that have led to dramatic purse increases, Kentucky lawmakers, Koenig said, “took care of the breeders, the owners, the trainers, and the jockeys,” everybody, in other words, who benefits from higher purses. “The only group we didn’t take care of was the bettors.”

The proposed legislation rectifies the oversight. Rounding down to a dime on the dollar probably made sense years ago before account wagering, simulcasting, and betting vouchers. “But it doesn’t make sense anymore,” said Koenig. The legislation will also result in replacing the shifting tax rate — it currently varies depending on whether the bet originates on-track, from simulcasting, or from an account — with a consistent 1.5 percent flat tax. But Koenig said he’s most proud and excited about the provision to eliminate breakage on live racing because that returns money to bettors.

Many years ago, I proposed a new wager, a Pick Four. At least it would have been new at the time; no American racetrack offered a Pick Four. I met with a director of pari-mutuels and explained the bet, spicing it with a reduced 15-percent takeout. It will attract bettors who feel outgunned when playing the Pick Six, I explained, and with the low takeout it will return more money to the players than other bets. The payoffs will sparkle, but not dazzle. No carryover, none needed, it will emphasize handicapping skills and instantly become popular nationwide.

Well, the director of pari-mutuels admitted he was skeptical, but he said he would bring up the idea at the next committee meeting. He then went on to explain that he didn’t bet himself, except when he was on vacation, and then, he said, smiling at the memory, his favorite bet was the quinella. My proposal, I knew, had no chance. But within a year or two, several major racetracks offered a Pick Four, and it soon became one of the most popular bets at the track. 

My point is this: That director of pari-mutuels knew almost nothing about betting. Most of the people running the country’s racetracks, as well as most of regulators, know almost nothing about betting. The rule that allowed for the “scratch” of Modern Games (IRE) in the Breeders’ Cup Juvenile Turf (G1) was written by people who know almost nothing about betting, and it was written with complete disregard, if not disdain, for the bettors. After the horses and jockeys, the bettors are the most important stakeholders at the racetrack, and yet they’re typically forgotten, overlooked. They’re invisible. At any moment, you might expect Captain Louis Renault to rush in, blow his whistle, and shout indignantly, “I’m shocked, shocked, to find that gambling is going on in here.”

That’s why this Kentucky legislation is so important. It says, yes, there’s betting going on, and if the sport is going to prosper it needs to take care of the bettors. And maybe, just maybe, others will notice.

Gary West is a nationally acclaimed turf columnist, racing analyst, author and handicapper who helped pioneer pace figures.