Racing! Penny breakage, something to think about

Hello, my name is John Cherwa and welcome back to our horse racing newsletter as we wrap up the first week of the Los Alamitos meeting.

I thought it might be good to finish the week with a bit of a think piece on one of the many issues that racing is facing. The Thoroughbred Idea Foundation did a report on what would happen if they would have penny breakage.

What that means is that payoffs would be to the penny, not, as in California, to the lower 20-cent denomination. Personally, I think the penny should be abolished as a form of currency in all things we buy. I know, you would miss gas prices, and a lot of other things having a purchase price that ends in a “9” but you would get used to it.

But that’s not relevant to this discussion. Right now, breakage in California is split evenly between the track, the state and purse money. That would all go away if there was penny breakage. However, the argument is giving the money back to the bettors will create more churn and everyone will benefit.

So, here is the executive summary. If you want to read the entire report there is a link at the bottom.

“The topic of breakage in North America’s horse racing tote pools has gone largely untouched for nearly a quarter-century, and before that, relatively unchallenged. Many casual racing bettors, and even many horse people, are unaware of its existence.

“Breakage is the difference between what horseplayers should receive on a winning bet and what they actually receive. The concept has been ever-present in racing since the pari-mutuel tote system was implemented – with bet-takers (in the early 20th century) claiming breakage was necessary to keep the flow of customers moving, helping betting churn, saving tellers from having to pay odd amounts ($2.98), instead relying on a rounded figure ($2.80).

“If this seems unfamiliar to you, or you have never noticed this before, you aren’t alone. Few realize that the calculated dividend a winning horseplayer receives is rounded down, in many cases, to the nearest dime per dollar wagered. In ordinary life, breaks to the penny are common. Think about filling your car’s gas tank, paying for produce or just about anything that required payment based on weight. In horse racing, breaks to the penny have thus far only been a dream.

“From the 2018 Triple Crown races, Justify’s three wins yielded total win pool breakage of more than $1 million. The Preakness alone generated more than $500,000 in breakage from the win, place and show pools.

“Breakage occurs in almost every pool, but the impact of rounding is much greater when payouts are smaller – the percentage withheld is large when the return to the customer is small. This impacts place and show pools more than others, making such wagers largely unattractive to big players.

“The Thoroughbred Idea Foundation (TIF) estimates annual breakage in America is worth roughly $50 million – or 0.45% of the $10.9 billion wagered in 2017. If breakage was returned to horseplayers and churned through the tote pools, even at a blended takeout rate of 20%, TIF believes this could yield an extra $200 million handle, or an approximate 2% increase in handle at current levels. That equates to the largest single year percentage increase in handle over the last 15 years.

“Breakage is retained by the bet-taker. If the bet-taker is an advanced deposit wagering outlet (ADW) online, the ADW keeps the breakage. If the bet-taker is a brick-and-mortar location, like a racetrack, breakage is withheld and distributed according to the individual jurisdiction’s regulations. For example, Florida racetracks keep all breakage. In Illinois, the state retains all of it. Most states split breakage amongst several eventual sources – often between racetracks, the state, purse funds, state-bred incentives or other programs.

“The regulations about breakage were designed prior to the internet era, and even before racetracks employed self-service machines. They have remained the same, essentially, for as long as a pari-mutuel tote system has been employed in North America. Handle continues to shift away from traditional cash channels and more to online ADWs. Breakage no longer reaches its originally intended sources to the degree it once did.

“TIF suggests the industry should take steps to shift to penny breakage. Instead of rounding down a win mutuel of $3.78 to $3.60 for a 3-5 winner, the full $3.78 would be paid. Concurrent with the shift to penny breakage, long-held requirements for mandatory minimum payouts – typically either $2.10 or $2.20 – should also be abolished in favor of penny breaks. The newest minimum payment would be $2.02 – the equivalent of a penny of breakage for each dollar bet.

“Taking this step would eliminate the need for tracks to seed ‘minus pools,’ occurrences when a horse has a supermajority of the action in a pool and the total amount of the pool, after takeout is deducted, is insufficient to pay the winners to the current mandatory minimum required. In 2017, the New York Racing Association netted just 3% of the breakage they retained after deducting taxes from the accrued breakage and their $1.8 million in payments to settle minus pools. The impact of breakage to tracks might not be as significant as speculated.

“Breakage represents an opaque practice in an era where pricing transparency is essential to the wagering customer, particularly in the face of a growing competitive marketplace with far lower takeout rates. Economists and industry consultants agree racing’s declared takeout is too high, yet breakage only adds to the burden, yielding effective rates that can push nearly 21% in the win, place and show pools, far higher than what is advertised.

“The nature of racing wagering has changed. Most bets are placed away from host tracks, often online. Many on-track wagers have shifted to the use of cash vouchers. Technological advancements and evolution have rendered antiquated the concept of retaining breakage. Racing is in great need of modernization in many facets while seeking means of increasing wagering from its customers. Industry stakeholders should advocate with their regulators for a shift to penny breakage.

“To read the full paper on breakage, visit RacingThinkTank.com.

“For questions or comments on this paper or other topics, follow us on Twitter @RacingIdeas or email: ThoroughbredIdeaFoundation@gmail.com”

Kentucky Downs rained out

So, we write all this good stuff about Kentucky Downs, and what happens? They have to cancel Sunday’s card because of rain. But, they are going to run all those races on Wednesday before closing day on Thursday.

Los Alamitos review

Diamondsandpearls, a $1.7 million purchase, lived up to her name to win the Los Alamitos feature, a $45,000 feature for fillies and mares going a mile. She had been off the track for slightly more than a year before returning to the track on Sunday.

She ran a perfect stalking position in third, about three lengths entering the massive stretch, and then rallied to win a by 1 1/2 lengths. She is trained by Bob Baffert and ridden by Joe Talamo. She paid $6.80, $4.40 and $3.20. Tyfosha was second and Late ‘n Left finished third.

Big races review

A look at graded stakes or races worth more $100,000 or more on Sunday. (Note: All Kentucky Downs races were cancelled because of weather.)

Woodbine (8): $100,000 Belle Mahone Stakes, fillies and mares 3 and up, 1 1/16 miles. Winner: Gamble’s Ghost ($3.70)

Belmont (8): $100,000 Royal Delta Stakes, NY-bred fillies and mares 3 and up, 1 1/16 miles. Winner: Come Dancing ($7.90)$6.80, $4

Final thought

Always looking to add more subscribers to this newsletter. Can’t beat the price. If you like it, tell someone. If you don’t like it, then you’re probably not reading this. Either way, send to a friend and just have them click here and sign up. Remember, it’s free, and all we need is your email, nothing more.

Any thoughts, you can reach me at johnacherwa@gmail.com. You can also feed my ego by following me on Twitter @jcherwa

Now, here is the star of the show, Sunday’s results. See you on Thursday.

AVAIL stalked between horses then outside a rival, split horses on the turn and again into the stretch, gained the lead in upper stretch, drifted in some in midstretch and won clear under a couple left handed cracks of the whip and steady handling. SUNSET MELODY had good early speed and dueled a bit off the rail, inched away leaving the turn, came three deep into the stretch, drifted in some late and held second. COCO SMOOCHES stalked between horses then inside on the turn, bid along the rail into the stretch and bested the others. MY EBONY STAR pressed the pace between foes then outside a rival, stalked leaving the turn, came four wide into the stretch and weakened. THAMES VALLEY saved ground stalking the pace, continued a bit off the rail in the stretch and also weakened. DANCINDYCLEAR broke out a bit, prompted the pace outside then stalked outside, dropped back three deep on the turn, came out into the stretch and had little left for the drive.

BAM BAMS LIL RIVER had good early speed and dueled inside a rival but a bit off the rail, inched away into the stretch and drew off under urging then a hold late. TWITTERATI saved ground stalking the pace throughout and bested the others. PARTY ALL NIGHT chased between horses then off the rail, went three deep on the turn and into the stretch and picked up the show. GEE CEE CEE had speed between foes then stalked off the rail, continued between rivals on the turn and weakened. PURE RESOLUTION four wide early, stalked outside then three deep into the turn, continued off the rail on the turn and four wide into the stretch and also weakened. ROMOLINA between horses early, dueled outside the winner, came three deep into the stretch and had little left for the drive.

LOVELY LINDA dueled three deep between foes to the stretch, fought back between rivals then outside the runner-up in the drive and gamely prevailed under urging. GYPSY'S RULE had good early speed and dueled inside, fought back to a slim advantage along the rail in late stretch and continued gamely to the end. MAJESTIC DIVA chased inside, came out leaving the turn and three deep into the stretch and finished well. SMART RACHEL stalked outside then bid four wide into and on the turn and into the stretch, battled three deep in midstretch, could not quite match the top pair in the final furlong and lost third late. DIAMOND PROOF dueled three deep between foes to the stretch, fell back some in midstretch and weakened in the final furlong. SINGLEFORTHESUMMER chased outside then alongside a rival on the turn and between foes into the stretch and lacked a rally. MILLIE JOEL stalked a bit off the rail then inside on the turn and weakened in the stretch. B K MISS chased between horses then outside a rival, dropped back leaving the turn and gave way.

WHOOPING JAY dueled between horses then a bit off the rail leaving the turn and into the stretch, inched away under urging a furlong out and drew clear. SPENDAHOLIC broke slowly, settled off the pace inside, went around a rival in midstretch and continued up the rail for the place. GIVE ME THE LUTE had good early speed and dueled three deep then outside the winner leaving the turn and into the stretch and held third. POPPY'S C NOTE stalked outside a rival, came four wide into the stretch and lacked a rally. TAKE CHARGE LUCKY tossed his head and hopped slightly in a bit of a slow start, was close up stalking the pace a bit off the rail, came out three deep into the stretch and weakened. NUTTY SIERRA sped to the early lead, dueled inside, fell back leaving the turn and into the stretch and also weakened.

ROCINANTE dueled inside, inched away leaving the turn, kicked clear under urging then had the rider lose the whip in midstretch and held under a strong hand ride. JOHNNY RAY had good early speed and dueled three deep, stalked leaving the turn and three wide into the stretch and closed some of the gap to the winner late. CAPTAIN N. BARRON chased off the rail then a bit off the fence into and on the turn and into the stretch and edged a rival for the show. GRAND MINISTER stalked off the inside, came four wide into the stretch and lost third late. GOLDEN GLADIATOR chased outside then off the rail, came three wide into the stretch and weakened. SCORPIO dueled between horses then stalked just off the rail leaving the turn, drifted inward in the stretch and gave way. CRIMSON CHARGER broke in and slowly behind the field, trailed a bit off the rail to the stretch and was outrun. MACHETE off a bit slowly, saved ground chasing the pace and had little left for the stretch.

RHETTBUTLER broke in and bumped a rival, stalked outside then three deep into the stretch, bid four wide a furlong out and gamely prevailed under urging. ZAPANA'S GAME had speed outside then dueled alongside a rival, fought back between horses in the stretch and went willingly to the end. KATZUMOTO dueled off the rail then inside on the turn, battled between horses in the stretch and was outfinished late. MICHAEL MUNDO stalked between foes then outside a rival, went around a rival in midstretch then bid inside a furlong out and weakened late. KINEMATICO hopped slightly in a bit of a slow start, saved ground off the pace, came out into the stretch and lacked the needed rally. DOWNSIDE UP saved ground stalking the pace and weakened in the stretch. DYNAMIC DUO stalked between horses then outside a rival on the turn, came three deep into the stretch and did not rally. LUCKY PEGASUS bumped an squeezed some at the break, chased outside then three wide on the turn and four wide into the stretch and lacked a further response.

CREATIVE HIT had speed between foes then inched away a bit off the rail into the turn, battled outside a rival leaving the turn and in the stretch, inched away from that foe under urging in deep stretch and held. ROYAL SEEKER stalked outside then four wide on the turn and into the stretch and continued willingly late. SERVE ME A DOUBLE had speed inside then stalked along the rail, bid inside leaving the turn and inside the winner but off the rail in the stretch and held third. OPTIMUM stalked between horses then a bit off the rail on the turn and in the stretch and was edged for the show. FRIENDLY STEVE broke out and bumped a rival, chased a bit off the rail, came out leaving the turn and four wide into the stretch and lacked the needed rally. WORKING chased between horses then off the rail, angled to the inside in the stretch and lacked a rally. HOLLYWOOD SKY bumped and forced into a rival at the break, stalked between foes then three deep between rivals, came three wide into the stretch and weakened. SEVERIN bumped at the start, chased off the rail, came four wide into the stretch and did not rally. TANDY'S BIG SKY broke a bit slowly, settled off the inside, angled to the rail on the turn and lacked a response in the stretch.

MIDNIGHT SOOT settled off the pace inside then just off the rail, advanced outside on the turn and five wide into the stretch, bid four wide to gain the lead in upper stretch, inched away a furlong out and held under some urging. TYPHOON HARRY dueled three deep then between horses in upper stretch, fought back just off the rail in the final furlong and went on willingly late. CURLY'S WATERFRONT chased outside then off the rail, came four wide into the stretch, bid between foes in upper stretch then came back between rivals late. SON OF A ROYAL dueled between horses then took a short lead off the rail in upper stretch and weakened in the final furlong. BELOVED HOLIDAY settled off the rail then outside a rival, split horses into the second turn, came out into the stretch and lacked a rally6. CANADIAN WARRIOR washy at the gate, angled in and chased inside, came out into the stretch and lacked a further response. JOHANN'S COMMAND angled in and dueled inside, dropped back into the stretch and gave way.