New York’s racing and pari-mutuel law, with its labyrinthine clauses and subparagraphs that few in the state capital of Albany truly understand, would see some simplifications under a state budget proposal unveiled Jan. 21 by Gov. Kathy Hochul.
The result would be a flat tax imposed on betting handles and an end to the nearly century-old system in which horse racing bettors see their winnings rounded down instead of receiving the actual amount they should have won.
By undoing decades of tweaks that have resulted in what even state officials acknowledge is a Byzantine set of laws in which tax rates can vary by time of day when a race is conducted or the type of race or bet, the Hochul budget plans appear to target for simplification one of the least understood laws in all of New York State: the Racing, Pari-Mutuel Wagering and Breeding Law.
Generations of lawyers, lobbyists, and track and off-track betting executives have managed to squeeze in year after year any assortment of changes to the law to favor their interests or harm a competitor in the horse racing industry.
The Hochul budget plan, which now goes to state lawmakers to consider, seeks to “create a simplified pari-mutuel tax rate structure” that includes eliminating the “outdated concept” of breakage, in which bettors have seen millions of dollars over the years siphoned off from their actual winnings to provide more money to tracks and other betting venues and the state of New York.
Sign up for BloodHorse Daily
On what one provision of the current state law terms as “the breaks,” Hochul proposes to alter the “archaic” breakage system.
Breakage rules are no stranger to horse racing bettors in states beyond New York. The Hochul plan comes three years after Kentucky first moved to change its breakage rules to the penny.
How much is withheld by rounding down bettors’ winnings in New York State? Per New York law: that depends. It’s quite a range. If someone wins more than $1.05 but less than $5, the amount paid to the winning bettors is rounded down to the nearest 5 cents. At the top end of the scale, winnings of more than $250 are rounded down to the nearest 50 cents. The example the Hochul budget documents provides: a bettor who appears to have won $6.99 will actually get $6.90 in winnings.
The new system would round winnings to the nearest penny for all horse race winnings now affected by the breakage law.
How much has that all meant in “lost” winning proceeds to bettors? The state did not immediately say earlier this week, and there was no such detail listed in the pages of the Hochul budget outlining the plan.
Based on figures in Kentucky when that state changed its breakage laws in 2022, bettors on New York races have seen millions skimmed from their winnings over a time period that could not immediately be determined. (One report estimated $35 million was kept from flowing to winning bettors in a five-year period before Kentucky changed its breakage law.)
The rounding-down receipts are kept by entities taking horse bets and the state in widely differing percentages depending on various factors. Like much of New York’s racing and pari-mutuel law, there is no simple way in which those breakage dollars are distributed. The proceeds from rounding down winnings all depend on where the bet is placed, the kind of race, and, in the case of Thoroughbred racing, whether the winner placed his or her bet on a New York Racing Association track or at Finger Lakes—and whether the bet was placed on track or somewhere else.
The Hochul budget, in a memo accompanying legislation proposing the change, states that the money withheld to bettors under the “breakage” system “is taken out of circulation at the expense of the bettor with limited benefit to the racing industry.”
NYRA is more than fine with the proposed change, officials said.
“Breakage in the pari-mutuel system is an antiquated practice that does not reflect the modernization of wagering technology. It needlessly penalizes horseplayers, reduces transparency and creates an added tax on consumers. Eliminating breakage is a commonsense step, and one that NYRA strongly supports,” said NYRA vice president of communications Pat McKenna.
The breakage systems across the country are no stranger to scorn by regular horseplayers. The now-defunct Thoroughbred Idea Foundation, a think tank that advocated for horse racing bettors and owners, issued a paper that inspired Kentucky lawmakers in 2022 to change one of that state’s breakage laws. The group noted that the rounding down process was promoted over the years “in order to present a tidy payout, eliminating the need for tellers to count and return pennies to winning on-track bettors.”
The horse betting world, where most betting is done away from a track where races occur, does not operate in any fashion as it did when the Hochul administration said Tuesday that New York’s breakage system was put in place in state law more than 80 years ago, the budget plan notes.
In another budget plan, the Hochul budget seeks to eliminate the hodge-podge system for how New York’s pari-mutuel tax is imposed on live racing handle from wagers made in state—whether at tracks, off-track betting facilities or via online means, such as NYRA Bets. A revenue outlook book accompanying Hochul’s budget notes that only about $12 million is expected to be raised from the tax from all horse racing wagers in the current fiscal year, a slight decline from a year ago.
But how pari-mutuel tax revenues are collected is so muddled that even the state, which created the system over the years, wants to put an end to it. The Hochul budget says the present system is “overly complex and outdated” and has changed, often via political winds blowing at a given time, since pari-mutuel wagering began in the 1940s in New York. The tax is set differently depending on many variables, including what time of day a race is held.
While it might make it simpler for some financial departments at tracks and the state to remit and verify the tax money being sent to Albany for in-state pari-mutuel wagers, the proposal can almost be described as a wording change: the new flat tax plan does not envision any additional money coming into the state over at least the next several years. It was intentionally structured, the Hochul administration states in budget documents, so that tracks wouldn’t see an increase in tax payments because of the new flat tax system, which would be 1.1% for Thoroughbred tracks.
In promoting the breakage, flat tax, and another accounting change proposed in the budget, the Hochul administration says the plans “will have a positive effect for the industry, racing entities, the state, and bettors.”
