Winning Kentucky Derby bettors will take home more cash than ever this year because of a state law change last year.
Kentucky Derby betting will feature winning payouts calculated to the penny instead of the dime for the first time. Signed just before last year’s Derby, HB 607 reformed several aspects of pari-mutuel taxation in Kentucky last year, including “penny breakage.”
The change exists for every live race conducted in Kentucky and will affect payouts to Derby bettors nationwide. The first races featuring the payout change took place in August 2022. It has already returned millions of dollars to horseplayers who wager on Kentucky racing.
What is breakage in horse racing?
Breakage is rounding a winning payout to create a cleaner return for the horseplayer.
Rounding payouts to the dime made for a smoother customer experience, which made sense when all horse betting happened in-person and with cash. Racetracks and off-track betting (OTB) parlors did not want staff counting out pennies for long lines of customers at the ticket windows.
Kentucky Senate Majority Leader Damon Thayer, who sponsored the penny breakage bill in the Senate, told LSR he heard initial concern from racetracks about having to count out pennies on-site. He added that none of those concerns have come to fruition, and feedback on the calculation change has been positive.
How much more do 2023 Kentucky Derby bettors stand to make?
Last November’s Breeders’ Cup at Keeneland in Lexington provided a glimpse into how much more winning Kentucky Derby bettors can make this year. In the Breeders’ Cup Classic won by Flightline, winning bettors received a 16% larger return because of penny breakage.
The winning payouts for every $2 wagered with penny breakage:
Without penny breakage, Flightline would have paid:
On the surface, 8 or 10 cents does not seem like much, but those pennies become dollars as the bet size increases. A $500 win bet on Flightline returned $20 more with penny breakage.
The Breeders’ Cup Classic, a single race, returned $240,000 more to winning bettors in the win, place, and show pools. Bettors received more than $522,000 during the two-day Breeders’ Cup World Championship event.
Where does breakage go?
Outside Kentucky, breakage is still calculated to the dime. The entity taking the bet keeps the extra money on every winning wager. Horseplayers bet on-track or at an OTB, but unsurprisingly, the most popular place to bet today is through an online platform like TwinSpires or TVG.
Patrick Cummings, executive director of the Thoroughbred Idea Foundation (TIF), believes penny breakage in Kentucky has been seamless, which is a win for horseplayers.
“Put the money back in the hands of horseplayers and let them decide how to reinvest it,” Cummings told LSR. “Penny breakage should be one aspect of a grander plan to modernization pari-mutuel wagering. We estimate up to $60 million in breakage nationwide each year. In the long term, it is better to put that money back in the accounts of winning horseplayers than to keep it.”
TIF advocated for the calculation change following its 2018 white paper on the topic.
Kentucky Derby betting dominates in US
Since August, TIF estimates $3.4 million has been returned to bettors on Kentucky-based races from the win, place, and show pools. Cummings believes it is north of $4 million, factoring in other wagering pools.
That total will go higher after Churchill Downs hosts its signature events: the Kentucky Oaks on Friday, May 5, and the Kentucky Derby on Saturday, May 6.
“This (change) is one of the reasons why the handle is increasing on Kentucky racing.” Thayer said. “We saw an opportunity recently to make Kentucky the best year-round racing circuit in the country. We’ve had some good wins for track operators and horsemen, so giving a direct benefit to the bettors was important.”
Last year, $74.6 million was wagered on the 13-race Kentucky Oaks card, a record high for any Oaks card in history. The 14-race Kentucky Derby card handled a record $263.2 million the following day. The two racing days combined for the highest total handle in all of American racing in 2022.