The history of breakage

[Imriledup]

I have a question about breakage in 2008.



My question is about breakage and this is what i've come to believe and that is the reason there is breakage, which was invented many years ago, was so that pari-mutuel tellers wouldn't have to hold up the lines paying people nickels and pennies. Whether that's true or not, i'm not sure as i don't really know the history of breakage.

Anyway, now that many tracks offer 10 cent supers, there is going to be times when a person's voucher that they are continually using, is going to be some odd cents at the end. We have gotten to the point where these nickels and dimes add up.

If someone bets 2 dollars to show on a horse who is destined to pay 2.39, it pays 2.20 because the track or the state doesn't want to hold up their betting line giving the player odd change. BUT. What if you have a phone account or use a voucher or bet more than 2 dollars? If you bet 200 dollars to show, they could be hacking you out of 19 bucks........and, for a teller, its just as easy to pay the person 220 dollars as it is to pay him 239. (no change involved).

Can i ask why breakage hasn't been eliminated for people with phone accounts or internet accounts?

I want my breakage. I'm not a 2 dollar bettor so every breakage hits me and that stuff adds up. If i would have all my breakage money back from my life i have no doubt i'd be able to put a down payment on a really nice house.

[rastajenk]

I don't see how they could possibly post two different payoffs and maintain any sense of security. That may not be a good answer in theory, but in practical terms it works.

Announcer: "For you lowlifes that drive to the track, pay to park and get in, and consume overpriced concessions, the winner pays 5.00, 3.00, and 2.20; For you lazy bums that sit at home, the winner pays 5.18, 3.15, and 2.39." Not good. :D

[slewis]

Can i ask why breakage hasn't been eliminated for people with phone accounts or internet accounts?

I want my breakage. I'm not a 2 dollar bettor so every breakage hits me and that stuff adds up. If i would have all my breakage money back from my life i have no doubt i'd be able to put a down payment on a really nice house.


:ThmbUp:

I've never heard an "official" explanation regarding the breakage and why the track is entitled to it, but you make a GREAT point.

This is just another example of the lifeblood of this sport not having ANY say in it whatsoever.
I've stated before that if the gamblers ever could organize, even just 50% organize, and boycott betting for 2 or 3 weeks, Racing executives would be staining their panties.

[Bruddah]

to explain breakage. First, Racing Comissions in each jurisdiction (states) have authority to determine where breakage will occur. Example: all tickets will pay to the nearest dime or .20 cents ( as in Oaklawn's case) After the tracks takeout, what is remaining is divided by the number of tickets to be paid. Say that amount is $5.14 per ticket and the track is required to round that amount to $5.10. Four cents .04 per ticket being the breakage. Most jurisdictions require the breakage to be paid out to Charities.

I may have over simplified the answer but that's basically how breakage works. In earlier days, breakage was created to simplify payouts at the teller windows. It has continued through today and it supports many worthy charities. The tracks and State Govt's usually don't receive any of this money.

If you have questions regarding breakage, your local Racing Commission at your favorite track, will gladly explain it to you and where the funds are being distributed.

Bruddah :ThmbUp:

[slewis]

to explain breakage. First, Racing Comissions in each jurisdiction (states) have authority to determine where breakage will occur. Example: all tickets will pay to the nearest dime or .20 cents ( as in Oaklawn's case) After the tracks takeout, what is remaining is divided by the number of tickets to be paid. Say that amount is $5.14 per ticket and the track is required to round that amount to $5.10. Four cents .04 per ticket being the breakage. Most jurisdictions require the breakage to be paid out to Charities.

I may have over simplified the answer but that's basically how breakage works. In earlier days, breakage was created to simplify payouts at the teller windows. It has continued through today and it supports many worthy charities. The tracks and State Govt's usually don't receive any of this money.

If you have questions regarding breakage, your local Racing Commission at your favorite track, will gladly explain it to you and where the funds are being distributed.

Bruddah :ThmbUp:

What are the chances that the breakage at NY/NYRA directly (maybe even indirectly) ends up with any charity??? I wish I could bet on this one.

[Trax21]

Regarding breakage (NY) from the Steve Christ book "Betting on Myself":

"There was no way to get rid of it entirely. Tracks were not going to start using pennies and slow down the betting lines to pay $4.57 instead of $4.40, and the state was not going to give up the $6 million a year that it skimmed from all the rounding."

Steve was part of a commission to recommend changes in 1993 for NY. Generally, breakage hits the chalk and show bettors more so than say longshot or pick 4 players. With that in mind, Steve was successful in getting a new breakage structure implemented that he considered fair to all types of bettors. The plan implemented rounding to a dime on smaller payouts coupled with a sliding scale on large hits. $2.37 may be rounded to $2.30 instead of $2.20 and $487.48 may be $487.00.

So it seems to me that getting the structure changed for your particular state may be possible, but states are not going to just eliminate it without raising something else (example: takeout%).

[Bruddah]

Regarding breakage (NY) from the Steve Christ book "Betting on Myself":

"There was no way to get rid of it entirely. Tracks were not going to start using pennies and slow down the betting lines to pay $4.57 instead of $4.40, and the state was not going to give up the $6 million a year that it skimmed from all the rounding."

Steve was part of a commission to recommend changes in 1993 for NY. Generally, breakage hits the chalk and show bettors more so than say longshot or pick 4 players. With that in mind, Steve was successful in getting a new breakage structure implemented that he considered fair to all types of bettors. The plan implemented rounding to a dime on smaller payouts coupled with a sliding scale on large hits. $2.37 may be rounded to $2.30 instead of $2.20 and $487.48 may be $487.00.

So it seems to me that getting the structure changed for your particular state may be possible, but states are not going to just eliminate it without raising something else (example: takeout%).


As I mentioned above, Oaklawn and the State of Arkansas give all breakage to Charities.

[Trax21]

I would imagine that many states do it differently but the bottom line is that someone takes the breakage and Imriledup wants the breakage in his/her pocket. I don't think it's going to happen without something else to balance it.

[DJofSD]

For all ADW accounts, breakage to the nearest penny.

If you're on track or at an OTB, you accept a voucher to get breakage to the penny. This would apply to people using the self service machines or presenting a winning ticket to a manned window. When you cash out, if you want cold hard cash, the usual breakage scheme applies. Call it a service or convenience fee.

And as far as displaying the payouts, it should follow the host tracks breakage rules. If breakage is to the penny, you show the $4.29 - $3.08 - $2.56 for the winner.

All of the U. S. stock exchanges changed to use to-the-penny quotations years ago. No more fractions of a dollar, it's all decimal now.

The fact that racing has not moved to a more equitable modality is another example of how far behind the industry is and the apparent lack of movement towards rectifying the inequity is just another demonstration of an unwillingness to change, and an inability to adapt to change -- when it serves their customers interests. There is a builtin incentive for the current practice to remain in place. At the bettors expense, literally.

I don't know why we are not demanding this. This is just another way we're getting bent over.

[DJofSD]

One incentive for tracks to move to breakage at the penny would be to reduce their exposure to losing money on extreme favorites -- the so-called negative pools. It would not eliminate having to payout more than they took in but it would cut down the amount.

So instead of Big Brown paying $2.10 to show when he wins the Belmont Stakes, you'd have a payout of $2.01.

[cj]

As I mentioned above, Oaklawn and the State of Arkansas give all breakage to Charities.

Horseplayers deserve all the charity they can get.

[SMOO]

One incentive for tracks to move to breakage at the penny would be to reduce their exposure to losing money on extreme favorites -- the so-called negative pools. It would not eliminate having to payout more than they took in but it would cut down the amount.

So instead of Big Brown paying $2.10 to show when he wins the Belmont Stakes, you'd have a payout of $2.01.

"We're going to need a bigger bridge to jump from"

[Fingal]

Tellers try to make you feel quilty if you don't leave a tip- let the breakage from all the transactions of that day be their tips.

Say you bet a .10 Superfecta that pays 16.39. That extra 9 cents is another reason if you're going to make those bets to use an ADW. A check or electronic transaction doesn't round everything down & say they don't use nickels or pennies.

It isn't being cheap. I get dinged enough fighting a 15 - 20% takeout.:bang:

[Imriledup]

I don't see how they could possibly post two different payoffs and maintain any sense of security. That may not be a good answer in theory, but in practical terms it works.

Announcer: "For you lowlifes that drive to the track, pay to park and get in, and consume overpriced concessions, the winner pays 5.00, 3.00, and 2.20; For you lazy bums that sit at home, the winner pays 5.18, 3.15, and 2.39." Not good. :D

They could say that if you use a teller to cash out, those particular teller machines are 'set up' to only pay you a rounded off price. Or, its 'understood' that you aren't going to get the full price of your ticket. If you are heading up there to cash in a 5.39 ticket, you are only going to get 5.30 (or 5.20 depending on the venue) and you know this because of all the posted signs everywhere. If you know the new policy there should be no problems.

Racing fans have no voice. Hopefully, this group that's going to approach conress about tax signers is going to work on the breakage problem at some point.

[Tom Barrister]

Breakage comes from the era and time when tickets were sold in fixed denominations and types and payouts were done by hand. To avoid the hassle of needing pennies to pay customers with winning $2 tickets, a few tracks instituted nickel breakage, which meant that payoffs per-dollar were rounded to the nearest nickel.

When World War II was in full swing, metals were in short supply, two of these being nickel and copper. Steel pennies were issued in 1943, and the "nickel" had none of its namesake during some of the war years. Both coins were in short supply, and the tracks had problems getting sufficient supplies of them. To counteract that, many of the tracks (including some which didn't have any breakage up to then) introduced "dime breakage", which only required the use of dimes and half-dollars and/or quarters, all of which were primarily made of silver then and which were a bit easier to get in large quantities, while others opted for nickel-breakage.

It didn't take long for the tracks to realize that breakage added up to quite a bit of money over a season, and almost all of them continued their breakage policy after the metal-shortage subsided. The tracks claimed that it was inconvenient to have to deal with pennies the smaller coins. The various governments agreed and allowed breakage to continue, while naturally getting their share of the added revenue. Some such jurisdictions decided to spare the track the inconveniece of keeping any of the loose pennies and nickels that they were getting, taking 100% of the breakage.

With the advent of the new totalisator systems in the mid 1970's, breakage could have come to an end, or at least gone to the nearest dime/nickel on the TOTAL payout. Of course, that would have eliminated some revenue for the state and/or tracks, and that wasn't ever going to fly, nor has it ever flown, although a few jurisdictions have gone from dime to nickel breakage.

[Spendabuck85]

Tom, thanks for the interesting read.

[Tom Barrister]

Most who read my last post would have a hard time believing that I make some of my income from writing. That post is an example of what happens when I do four other things while composing, edit as I go, and then don't bother proof-reading it before it's submitted.

The short version is that breakage is from another era, and that it's not necessary anymore. Payouts done online or by machine/voucher (i.e. "SAM") can be to the next-lowest penny. Payouts by hand (e.g. at the windows) can be done to the nearest dime/nickel on the total payout. It wouldn't take long to reporgram the system to do this, and it wouldn't be hard for the computers to keep track of it. There's no valid reason, from a convenience point of view, to truncate payoffs to the next-lowest 10 cents on every dollar.

It's mainly about the money. The government and tracks (in jurisdictions where tracks share in the breakage) don't want to give up their added revenue.

[Norm]

O.k., here's an idea that no racing official anywhere will ever agree to : Let's say a pay-off comes to $2.53. So, the $0.03 is subtracted from each ticket and is placed into a carry-over pool and the pay-off is conveniently reduced to $2.50. Then next time a pay-off comes to, say $2.57, the pennies are withdrawn from the pool and a $3.00 pay-off is made. That would be fair but, of course, it will never happen ! Can you imagine giving the breakage back to the players ? . . . blasphemy !!

[startngate]

Actually, in an era where slot play payouts are now coin-less, there is no reason why all payouts couldn't be done by voucher at the regular teller windows. It's already done that way at self-serves.

Have cashier stations like they do in casinos to cash out, or better yet, use those ATM-like devices I see all over to do the payouts.

Totally eliminates all arguments for breakage.

[Kelso]

If Wendy's Hamburger joints can have a coin dispenser tied into every register, so can the tracks. Install them at each window and the lines will move even faster.

[Burls]

If the justification for breakage is simply to facilitate quicker cash payoffs, the track should break all winnings payments into 25 cent increments.
Then, you'd get paper money plus one, two or three quarters back.
If the change is 1-12 cents, it gets rounded down to the dollar mark.
But, and here's the kicker, if the change is 13-24 cents, it gets rounded UP to 25 cents.
And so on for the next three echilions.
With the large number of payouts, it would all even out.

With the present policy of rounding down only, the result of breakage is that the track is simply collecting an extra premium of 50% of the breakage increment on every winning ticket.

[toetoe]

The carryover idea is a good one.

Another that makes so much sense that it has NO SHOT: split tender payoffs, with the breakage given on a voucher, even one that is not redeemable right then and there.

[Tom Barrister]

All good ideas, but they all fail because they will take money out of the coffer of the corresponding government. Most or all of the various jurisdictions aren't going to give up that revenue. While we'd all like breakage to end, it probably won't happen in the near future.

[rrbauer]

I may repeat what has already been stated.

There are two reasons for breakage.

One is to facilitate the computation of payoff odds for whatever bet is being considered. In this case, breakage usually involves removing "mills" from the computation (a form of rounding if you will) to get to the penny. (eg. 4.8755 is truncated to 4.87) Notice that it is never rounded (sometimes up/sometimes down) but simply truncated. Whatever that amount is "disappears" and becomes part of "breakage".

The second is to facilitate the computation of actual payoff amounts so that pennies and nickels are taken out of the payoff computation formula.

This results in all payoff prices ending in zero. (eg. 5.00 3.40 260) Because the decimal portion of the cents is truncated to zero when the payoff amount is calculated. So, if the calculation of the payoff odds would've put the win price at $5.16, breakage makes the win price $5.00 (for $2). As has been pointed out in other posts, this was done years ago because all payoff settlements were done in cash and breakage was used to facilitate the cash payoffs and not requiring nickels and pennies to settle that payoff.

Today, with computers doing the payoff odds' calculation and computers doing the payoff price calculations and bet settlements being done primarily with vouchers or thru ADW accounts, the legacy reasons that justified breakage have disappeared.

So, given that breakage exists today because it is cast in stone (read: structure and inertia) what can we do to get it removed?

Understand that someone (some outfit) other than horseplayers is enjoying the proceeds from breakage. That someone/outfit doesn't give a rat's ass as to whether or not there is current-day justification for them to get money from what rightfully belongs to horseplayers. What they care about is the money; they are currently getting it; and, horseplayers' be damned!

So, in order to get things changed (and this varies by state) the regulations/laws that permit breakage and provide how proceeds from breakage are distributed must be changed if horseplayers are to get what is rightfully theirs....and that is, full payouts from their winning plays.

[Imriledup]

I may repeat what has already been stated.

There are two reasons for breakage.

One is to facilitate the computation of payoff odds for whatever bet is being considered. In this case, breakage usually involves removing "mills" from the computation (a form of rounding if you will) to get to the penny. (eg. 4.8755 is truncated to 4.87) Notice that it is never rounded (sometimes up/sometimes down) but simply truncated. Whatever that amount is "disappears" and becomes part of "breakage".

The second is to facilitate the computation of actual payoff amounts so that pennies and nickels are taken out of the payoff computation formula.

This results in all payoff prices ending in zero. (eg. 5.00 3.40 260) Because the decimal portion of the cents is truncated to zero when the payoff amount is calculated. So, if the calculation of the payoff odds would've put the win price at $5.16, breakage makes the win price $5.00 (for $2). As has been pointed out in other posts, this was done years ago because all payoff settlements were done in cash and breakage was used to facilitate the cash payoffs and not requiring nickels and pennies to settle that payoff.

Today, with computers doing the payoff odds' calculation and computers doing the payoff price calculations and bet settlements being done primarily with vouchers or thru ADW accounts, the legacy reasons that justified breakage have disappeared.

So, given that breakage exists today because it is cast in stone (read: structure and inertia) what can we do to get it removed?

Understand that someone (some outfit) other than horseplayers is enjoying the proceeds from breakage. That someone/outfit doesn't give a rat's ass as to whether or not there is current-day justification for them to get money from what rightfully belongs to horseplayers. What they care about is the money; they are currently getting it; and, horseplayers' be damned!

So, in order to get things changed (and this varies by state) the regulations/laws that permit breakage and provide how proceeds from breakage are distributed must be changed if horseplayers are to get what is rightfully theirs....and that is, full payouts from their winning plays.

Great post.

"They" have been getting free money for years, this has to stop. Everyone who places a wager has incentive to get this turned around. There are plenty of people out there who have been screaming about takeout being slashed, but this is a situation where takeout can remain the same and more money can be generated back into the fans pockets for the 'churn' effect.

[Kelso]

I wonder if there's an "equal treatment under the law" issue here... a tax that is irrationally assessed and winds up, therefore, not being the same for all winners.

If Player A wins $4.08 ... he pays a 2% (rounded) "tax" of 8-cents. If Player B wins $4.16 ... he pays a 4% "tax." Then along comes Player C who, when he wins $15.15, sees HIS winnings "taxed" at only 1%.

[ezrabrooks]

I wonder if there's an "equal treatment under the law" issue here... a tax that is irrationally assessed and winds up, therefore, not being the same for all winners.

If Player A wins $4.08 ... he pays a 2% (rounded) "tax" of 8-cents. If Player B wins $4.16 ... he pays a 4% "tax." Then along comes Player C who, when he wins $15.15, sees HIS winnings "taxed" at only 1%.

Is that also a 'case' against rebates?

[DJofSD]

A good thought but wouldn't it have to be the same group of people that are always getting "taxed" at a higher rate? As it is now it depends on who's cashing a winning ticket and that changes from race to race.

I think if the issue is going to get any traction, it would be the whales who are not betting off-shore. The large bettor would benefit the most from a change in breakage. The minnows would benefit too but not as much as the big bettor.

[rrbauer]

I think if the issue is going to get any traction, it would be the whales who are not betting off-shore. The large bettor would benefit the most from a change in breakage. The minnows would benefit too but not as much as the big bettor.

Correct.

But, the large bettor is penalized the most today. A $100 win bet pays breakage fifty (50) times when it hits. A $2 win bet pays breakage once when it hits.

[Kelso]

Is that also a 'case' against rebates?Hardly. Rebates are a simple (and, as I understand it, judicially validated), volume-based marketing device.

Everyone pays less ... or pays more ... based on identical circumstances. Nobody pays twice the rate as others pay for the same reward (my $4 example.)