01/09/2014 12:34PM

Steven Crist: A penny won should be a penny received


About 30 years ago, a particularly loony New York State assemblyman introduced a bill that would have required a minimum payoff of $4 on every $2 bet at New York racetracks.

The idea, which would have bankrupted racing, was roundly and rightly ridiculed, the bill expired without action, and in almost every jurisdiction, the minimum payoff remains $2.10 for $2.

The nutty proposal did raise a legitimate pari-mutuel issue that has remained largely unaddressed to this day: Why should there be any guaranteed, artificial minimum payoff in the pari-mutuel system, and why are payoffs still rounded down in 10-cent or 20-cent increments instead of being paid off accurately to the penny?

Stock markets made the change to decimal pricing years ago, and racing can no longer hide behind the outdated excuse that these payoffs would slow mutuel lines to a crawl as tellers counted out pennies. An increasing number of bets today are made  through advance-deposit wagering accounts or through vouchers at self-service machines.

Breakage, the practice of rounding down (always down) payoffs to supposedly more-convenient dime increments, is, in fact, nothing but institutionalized theft from customers, with their rightful earnings directed to a slush fund usually split between the state and the track.

Defenders of the practice, a group limited to beneficiaries of these slush funds, claim it is a matter so trifling that bettors don’t know or care about it, but breakage adds up and can, in fact, be more onerous than the highest of current takeout rates.

A horse who should pay $2.39 for $2 instead has that payout rounded down to $2.20, a breakage tax of almost 50 percent on top of the 15 percent to 20 percent house takeout that has already been applied.

Such a horse will pay $2.30 rather than $2.20 in New York, where a saner breakage scheme instituted in 1994 rounds to the nearest dime rather than 20-cent increment on payoffs under $10. (The trade-off is that Empire State payoffs break to 50 cents on $2 payoffs over $50 and to $1 on payoffs over $500, which minimizes breakage’s effect by flattening the percentage impact.)

This is an improvement, but even $2.30 instead of $2.20 on what should be a $2.39 payoff is still an unwarranted 24 percent profits surtax on the proper payoff.

Paying off the correct $2.39 quickly becomes significant: It’s a return of $23.90 instead of $22 on a $20 bet, or $239 instead of $220 on a $200 bet, and that is a whopping difference on a percentage basis, one that could even stimulate renewed interest in racing’s declining win, place, and show pools.

It amounts to a much more attractive investment opportunity and a takeout reduction that will ultimately benefit the track by putting more money back into circulation, where it will be churned repeatedly.

Going to penny payoffs would mean the end of the “bridge-jumping” era, as a minimum payoff of $2.01 instead of $2.10 would make show bets on supposedly sure things unattractive. You would have to be right 200 times out of 201, instead of the current 20 times out of 21, just to break even.

It’s an era worth ending. There is absolutely no logic to having an artificial, guaranteed minimum, which, in fact, violates the whole point of the pari-mutuel system and the neutrality of the stakeholder.

Some players may lament the absence of the occasional opportunity to play against a bridge-jumped horse, but they will do far better in the long run by getting the payoffs they deserve on every race.

The first state that switches to penny breakage will reap a huge bounty of goodwill and loyalty from its customers. Imagine betting a race tomorrow and getting across-the-board payoffs of $9.78, $4.31, and $2.79 instead of $9.60, $4.20, and $2.60.

In addition to immediately returning more money to bettors to be reinvested multiple times, it would become a widely reported news item across the general as well as racing and financial media, make the industry look like it cares about fairness to its overtaxed customers, and just might get some people thinking about whether there’s money to be made betting on horses.

Just because it makes too much sense doesn’t mean it’s not worth a try.