01/09/2014 1:34PM

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Stock markets made the change to decimal pricing years ago, and racing can no longer hide behind the outdated excuse that these payoffs would slow mutuel lines to a crawl as tellers counted out pennies.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.

Ed More than 1 year ago
Breakage is nothing. Repeal income taxes on large winnings. They pay no tax in many civilized countries on race winnings.
Just Watch More than 1 year ago
Steve, you are simply making-up fictitious crap to support your own personal wishes. There is no specific "point" to parimutuel wagering, and it is in fact the "neutrality of the stakeholder" misnomer whose "era" should have ended decades ago. That for reasons you have described above as well as others relating to carryovers and now jackpot bets. Beyond that, it is completely foolish to believe (or write) that "the first state that switches to penny breakage will reap a huge bounty of goodwill and loyalty from its customers". First of all, how do you figure these people are "customers" of the "state"? No wonder horse racing entities are collectively in economic free-fall, if the people who are walking through the gates each day are in your opinion there to do business with the state (as the persons running the venue continue to do nothing for either side). The part about foreseeing a switch to penny breakage as a "widely reported news item across the general as well as racing and financial media" is absolutely ludicrous!! You mean in the same way that the 12% across-the-board mutuel takeout at Hialeah was so "widely reported" a few years back? Your wishes aren't so bad at their core, but if these foolish statements are all you have in support of those wishes, then it's a foregone conclusion that we'll be waiting on these adjustments like we're still waiting on the Kentucky Derby Futures to have truly full fields.
jim lefferts More than 1 year ago
Not only are Crist's statements not foolish they are well-informed and especially insightful. Your convoluted attempt to apply non-applicable economic arguments to Crist's points fail to persuade. The elimination of breakage would have a huge impact on horseplayers who turnover their betting capital numerous times a day. To use an applicable financial term they'd gain financial leverage. This would indisputably be widely reported and result in an increased handle and thus increased revenues to whichever state authorizes such a measure. Serious horseplayers account for the vast majority of dollars wagered and no serious player plays Hialeah because the pools are too small. That is the reason the takeout reduction went unnoticed. It would be an entirely different matter if NYRA tracks adopted a 12% takeout.
[removed] More than 1 year ago
This comment has been deleted
Rick Harrington More than 1 year ago
Convincing the New York State Gaming Board (Racing and Wagering) to stop collecting on breakage is as easy as convincing a board that they need to take a pay cut in order to stop taxing their citizens. Easier said than done.
RayC More than 1 year ago
Steve Is so worried about the horse player but yet in these times they want more out of a horse player for theirpicks .What a joke
AZ Wildcat More than 1 year ago
"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." That is a stone cold fact, thanks for publishing that.
Easy call More than 1 year ago
Take a penny / Leave a penny at most convenience stores
Matthew Ellis More than 1 year ago
Steve, Bottom line is that's a lot of PENNIES over the last 30 years.
joseph More than 1 year ago
well i couldnt agree with you more about winners that should pay 3.58 should pay 3.58 but when it comes to the bridge jump i completely disagree.. let me illustrate with admittedly completely made up numbers: say the average show pool at a given track is 15,000 with a 14% take over ten races the track would make 21k now hypothetically you have a ten race card at that track with an unbelievable 10 bridge jumps lets say that the pool in each race ends up at 150k (instead of 15k)with 135 on the favorite i'll also guess that the favorite comes in the money between 8 and 9 times out of ten. so just to be fair lets go with 9/10 on average between the favorite and the other two in the money say you end up with 142k out of the 150 that has to be paid so 142k + 7100 is 149,100 the track still takes out 900 profit on the show pool .... now the one race that the favorite fails the house makes 14% of 150k which comes out to 21k you see where im going with this. on the whole it really adds alot of excitement to the game and also compels many of us players to follow all the tracks which in turn adds to handles nationwide Joecem
jim lefferts More than 1 year ago
The penny breakage will not affect a minus show pool - it will still pay $2.10. The track take is never 14%, it's 15-18% and favorites don't finish in the money 90% of the time it's close to 70%. The point is whatever the track loses in breakage, it will more than make up for in increased handle as bettors get more money back to churn over and over again.
joseph More than 1 year ago
Mr. Crist has been advocating for the abolishment of the 2.10 minimum. additionally the cases i am referring to are the bridgejumps and they usually involve 1-5 or 2-5 shots those generally come in at a very high rate. and you are right i thought that here in ny the straight takeout had been reduced to 14 while it is in fact 16. further i have no issue with the breakage being returned to us, the players. why would anyone?
John Stevelberg More than 1 year ago
Most of us agree - the problem is effecting change !
RIP Grammar More than 1 year ago
Except, here in Canada, we no longer have pennies... we round to the nearest nickel.