Better Than $1.1M Returned to Bettors Via Penny Breakage

Through the conclusion of racing at Keeneland Sunday Oct. 15, more than $1.1 million has been returned to bettors since the introduction of penny breakage–rounding pari-mutuel winnings to the penny and not the dime–less than two months ago, according to a blog post from the Thoroughbred Idea Foundation (TIF).

TIF was a vocal supporter and champion of the penny breakage provision, the first of its kind in North America as part of broader legislation designed to standardize pari-mutuel taxation.

“The total is even higher than $1.1 million, that is just in the Thoroughbred win, place and show pools” said TIF Executive Director Patrick Cummings. “The breaks from exotic pools and Kentucky's Standardbred races add even more to the total.”

According to the post, in previous times, if an unrounded $1 return for a bet was $5.0918, under the rules of dime breakage, an even $5 would be returned to gamblers. Under the new rules, a winning bettor receives $5.09.

“Based on observations across Kentucky's tracks and discussions with tellers, there has been a short acclimation period for everyone to get used to it,” Cummings added. “But now that customers receive a 'full' dividend, not only is there no going back, but we start looking elsewhere wondering why others are not as progressive as Kentucky.

“It's been seamless for ADW bettors and overall, the feedback TIF has received has been entirely positive.”

The penny breakage provision was included in Kentucky House Bill 607 and was passed by both legislative branches in March before being signed into law the following month.

“The legislative support to accomplish this cannot be understated, led by Representative Adam Koenig in the House and Majority Leader Damon Thayer in the Senate,” Cummings said. “They mustered the backing of a vast majority of their colleagues to be the first in America to right a multi-generational wrong.

“The penny breakage provision was a small part of a much bigger bill and it is paying back horseplayers that bet Kentucky races, enabling them to churn more across the sport.”

The Keeneland-hosted Breeders' Cup Nov. 4 and 5 will include the enhanced payouts for the first time, as will next year's Kentucky Derby and Kentucky Oaks.

“Other states and tracks should want the same, following Kentucky's lead. But until then, Kentucky pays you more,” said Cummings.

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Bettor-Friendly Legislation Passes Kentucky Senate

By a vote of 33-1, the Kentucky State Senate has given their stamp of approval to Kentucky House Bill 607, which modernizes the taxation of pari-mutuel wagers and, in a major victory for horseplayers, eliminates the dime breakage than has been the standard for many years in favor of penny breakage. The change in the breakage will put more money into the pockets of horseplayers and is the first such measure to be introduced in the United States. The lone dissenting vote came from Republican Senator Whitney Westerfield.

“For more than a century, horseplayers have never received a full winning dividend and today the General Assembly in Kentucky affirmed that it is beyond time to change that and respect horseplayers anywhere betting on races from Kentucky,” said Patrick Cummings, Executive Director of the Thoroughbred Idea Foundation (TIF), which has championed the cause dating back nearly four years.

“Across just the last three decades or so, approximately $1 billion has been retained from winning bets across America. The passage of HB 607 will put some of this money back in the pockets and accounts of winning bettors from future bets.'

“We are thankful for the leadership of bill's House sponsors, Representatives Adam Koenig and Al Gentry, and Senator Damon Thayer in guiding its passage.

In addition to the favorable breakage rules, HB 607 calls for taxation on pari-mutuel wagers at 1.5%, the same rate assessed on Historical Horse Racing (HHR) machines. The standardization of taxation means that bets made through and ADW by Kentucky residents will be taxed at 1.5%, up from 0.5 %.

“Horse racing must relentlessly pursue every method to make its product as competitive as possible,” said Bernick. “The market pressure on racing is stronger than ever with the rapid legalization of sports betting across the country. We hope that operators realize the importance of retaining all customers and driving their participation through the presentation of competitive racing with competitive pricing.”

HB 607 was sponsored by Representative Adam Koenig. A house committee approved the legislation Mar. 16 before referring it to the Senate for its consideration. The bill now returns to the House for concurrence, but it is expected to sail through and head to the desk of Governor Andy Beshear for his signature.

The Kentucky Equine Education Project (KEEP) released a statement Tuesday, applauding the General Assembly for the passage of HB 607.

“A tremendous amount of work went into crafting this new tax policy and KEEP is grateful to the legislators who served on the Pari-Mutuel Wagering Taxation Task Force for the time and effort they put into fully understanding the economic structure of Kentucky's horse industry,” the statement read. “We would also like to applaud Senate Majority Floor Leader Thayer and Representative Koenig for their leaderships as co-chairs of the task force. The resulting legislation was able to strike a delicate balance between increasing revenue for the state, while at the same time not arbitrarily raising tax rates in a way that would damage the economic success of the industry.

“The entire horse industry was engaged in this process and KEEP was proud to work closely with legislators to ensure that they had access to the full picture of what economic benefits the industry has on the Commonwealth.

“KEEP will continue working on behalf of Kentucky's entire horse industry and community to advocate for policies that benefit everyone within the industry's economic ecosystem. Growing the success of the industry's more than 60,000 jobs and $6.5 billion economic impact on the state benefits all Kentuckians.”

Once signed off on by Beshear, the provisions of the bill are due to take effect come August.

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Pari-Mutuel Bill Approved by Kentucky House Committee

Kentucky House Bill 607, which contains a provision to greatly benefit horseplayers by effectively eliminating breakage, was overwhelmingly approved Wednesday morning by a Kentucky House of Representatives committee. HB 607 also standardizes the tax rate on all pari-mutuel wagers placed in Kentucky and also makes claiming races eligible for Kentucky-bred purse subsidies. The bill must still be approved by the full House before being sent to the Senate.

Representative Adam Koenig, whose district in Northern Kentucky is near Turfway Park, is a primary sponsor of the bill, which also has the capacity to significantly increase revenue to the state General Fund while allowing horse racing to thrive.

“In a couple of years, we're looking at a $27-million increase, probably at a minimum,” Koenig told the committee, noting that's in addition to the $62 million projected to flow to the state from pari-mutuel taxes in 2022. “So the money is coming in from the industry. I think I found some creative ways generating additional money without hurting the product.”

The bill is the product of last year's legislative interim task force on pari-mutuel wagering that was chaired by Koenig and Kentucky Senate Majority Leader Damon Thayer, a long-time supporter of the Kentucky racing industry. Created following the passage of legislation that protected Historical Horse Racing (HHR) in the state, the task force was charged with identifying ways to increase state revenues without negatively impacting purses and without discouraging racetracks from investing in HHR operations and associated capital projects.

Penny Breakage A Positive Development…

A key element of HB 607 is the virtual elimination of so-called breakage, where tracks round down winning payoffs to the nearest dime based on a $1 wager. Under HB 607, tracks would be required to pay off to the nearest penny, resulting in greater amounts of money returned to horseplayers. Koenig cited the example of 2018 Triple Crown winner Justify paying $7.80 to win in the GI Kentucky Derby, a figure that would have been $7.92 with penny breakage.

“That is the bettors' money,” Koenig said. “I've been very interested since last year's HHR debate in making sure the bettors are taken care of. We took care of everyone else. Everyone is getting healthy on this except for the bettors, and this is how we're going to help the bettors. They're going to get paid to the penny rather than every 20 cents. In addition to taking care of the bettors, it will make Kentucky the place in North America to wager. If you're someone who wagers a lot of money, why would you bet anyplace else?” (Click here to watch Adam Koenig on a recent episode of the TDN Writers' Room podcast).

Also easily passing the “L&O” committee Wednesday were bills that would legalize betting on sports in Kentucky and provide funding for problem gambling.

Additionally, HB 607 calls for the taxation of pari-mutuel wagers at 1.5%, the same rate assessed for HHR gaming. The bill raises the current rate for bets placed through ADWs from 0.5%. The tax rate on simulcast wagers placed at a Kentucky track on an out-of-state race would drop from 3%. The majority of bets are now placed through ADWs, while simulcasting has shrunk considerably as horseplayers opt for the convenience of wagering online.

KTDF Supplements Expanded…

Currently, money from the Kentucky Thoroughbred Development Fund (KTDF) is restricted to non-claiming races, but HB 607 cancels that stipulation, a policy change that has been strongly advocated for by the Kentucky HBPA in an effort to raise purses for the lower-level races in which many horsemen compete.

Rep. Al Gentry, a member of the pari-mutuel wagering task force, called making claiming races eligible for KTDF supplements “very, very important and one of the big pieces of the bill.”

Given that HHR has helped Kentucky to be in a position to offer some of the highest purses in the world, and with HHR revenue expected to grow with the expansion of satellite facilities, HB 607 also stipulates that after KTDF money reaches $40 million and the Kentucky Standardbred Development Fund its $20 million in a year, the rate going to purses would decrease, with the difference channeled to the state's General fund.

“We believe in two or three years, when the Historical Horse Racing facilities are more mature, that we're looking at $20 million additional in the General Fund,” Koenig told the committee. “The increase in the ADW tax from one-half to 1 1/2% will immediately generate $4 million a year. That's the growth area, so that will continue to go up over time.”

 

 

 

The bill also:

 

  • Provides funding to the equine programs at the University of Kentucky and Bluegrass Community and Technical College. The University of Louisville business school's Equine Industry Program already receives funding from pari-mutuel wagering.

 

  • Eliminates the 15-cent per person admission tax racetracks currently pay even if they don't charge admission (which is every track except Churchill Downs and Keeneland).

 

  • Requires tracks to maintain a “self-exclusion” list–where individuals such as problem gamblers can say they don't want to be allowed into a track or HHR facility for a given period of time–to be shared with the racing commission and the other tracks and HHR properties.

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Penny Breakage Among Gaming Legislation Introduced in KY

Kentucky State representative Adam Koenig (R-Erlanger) introduced four new gaming-related bills Monday, including one (HB 607) dealing with pari-mutuel wagering taxation that includes a provision whereby dividends on pari-mutuel wagers would be rounded to the nearest penny, rather than the nearest $0.10.

“This is an exciting step for horseplayers, not only in Kentucky but really anyone in America or around the world who bets into the pools offered on Kentucky racing,” said Pat Cummings, Executive Director of the Thoroughbred Idea Foundation, which has been a staunch advocate for a switch to penny breakage.

“We are hopeful for its favorable passage and, in the end, provide horseplayers with the most substantive reform of breakage provisions in American history. It is a great sign that Kentucky is leading the way and offer our great thanks for the support of Chairman Koenig.”

HB 606, sponsored by Koenig and Rep. Alan Gentry (D-Louisville), aims for Kentucky to join the growing national trend of legalizing sports betting. Under the proposal, racetracks would be among the venues legally allowed to accept bets on other sports.

Click here for Koenig's appearance on the TDN Writers' Room podcast in January.

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