Kentucky Lawmaker: It's Time to Support Horseplayers

Saying Kentucky already has taken care of breeders, owners, and tracks, a prominent lawmaker voiced support of lowering the breakage rate for wagers on state races, a move that would increase payouts to winning horseplayers.

Rep. Adam Koenig, co-chairman of the Pari-Mutuel Wagering Taxation Task Force, expressed support for lowering breakage during a Nov. 19 meeting of the group in Frankfort. The task force was formed after legislation protecting historical horse racing games as pari-mutuel wagering was signed into law in February 2021.

Friday marked the task force's fifth and final hearing on tax and pricing issues related to HHR and pari-mutuel wagering.

"In the last few months, we've heard there's really three things we need to make horse racing go. We need the breeders and the owners, we need the tracks, and we need bettors. We've taken care of the first two groups," Koenig said of the money from HHR that has benefited Kentucky owners, breeders, and tracks. "As far as I'm concerned we're going to take care of the last group. And this is one of the possible ways—and I think—the easiest and best way to do it."

Koenig offered that support after Pat Cummings, executive director of the Thoroughbred Idea Foundation which advocates for horseplayers and horse owners, outlined how Kentucky's 10-cent breakage has become archaic in an age where many bettors wager through accounts as opposed to in-person wagering. Cummings noted that when the industry moved toward its current system of breakage, the reasoning was that pari-mutuel tellers would not want to waste time counting out pennies.

In determining winning payouts from pari-mutuel pools, tracks have rounded down the payout—a process that is mandated in Kentucky and other states. Kentucky statute currently calls for rounding down to the nearest 10-cent figure for every dollar wagered. This results in a payout that would pay, say $9.78, returning just $9.60.

The TIF supports a one-cent breakage. In short, what this would mean is that a current win bet payout that pays $9.60 could pay $9.78, which for $20 win bettors would result in an additional $1.80 and for $200 win bettors an additional $18.

Cummings argued that not only has the need for dime breakage ceased, the sport's business model also has evolved. With most wagering taking place off-track, those off-site bet takers—advance deposit wagering, off-track betting, and simulcast outlets—are the biggest beneficiaries of the dime model with ADW the fastest-growing of that group.

According to the TIF, for the most recent fiscal year Kentucky tracks retained $310,000 in breakage from wagers made on their races. But bet-takers (OTBs, ADWs, and other simulcast outlets) retained $9.3 million from all those pennies rounded down to dimes. That means that 96% of the money retained from those winning payouts being rounded down to the nearest dime are retained by off-track outlets. Keep in mind that ADWs already have lucrative deals—relative to the percentage split of pari-mutuel revenues from takeout—in place with the tracks.

Cummings said that Kentucky could expect added wagering from customers excited at the opportunity at increased winnings. He noted that low-paying wagers like place and show bets would suddenly offer more value as well. 

"Very appropriately, Kentucky can be the first to put these rounded pennies back into the hands of customers," Cummings said. "Let the customers choose what the customers want to do with it. Of course there is a strategic advantage of being first as well, giving Kentucky racing an edge as a state whose races favor its customers—the betting public. Customers who bet Kentucky racing will receive higher returns than those who don't make these changes."

After voicing his support of the idea, Koenig also called for further input on the topic from Kentucky tracks. That could be interesting as Churchill Downs Inc., besides owning Kentucky Thoroughbred tracks Churchill Downs and Turfway Park, also operates the highly profitable TwinSpires.com advance-deposit wagering site.