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Breakage is the amount of money that is rounded down on tote dividends. Tote dividends are the payouts that are calculated and distributed by the totalisator or tote, which is a system that pools all the bets of a particular type and determines the odds and payouts based on the proportion of bets placed on each outcome. Tote dividends are usually applied to parimutuel bets, which are bets that are placed on events that have multiple outcomes, such as horse racing, greyhound racing, jai alai, etc.
Breakage occurs when the tote dividends are rounded down to a certain denomination or interval, such as 10 cents, 20 cents, or 50 cents. For example, if the tote dividend for a $1 bet is $4.87, it will be rounded down to $4.80. The difference of 7 cents is the breakage. The breakage is retained by the tote operator or the betting agency as part of their commission or takeout.
Breakage works by reducing the amount of payout that the bettor receives from their winning bets. The amount of breakage depends on the size of the tote dividend and the rounding interval. The larger the tote dividend and the smaller the rounding interval, the smaller the breakage. The smaller the tote dividend and the larger the rounding interval, the larger the breakage.
For example, if the tote dividend for a $1 bet is $4.87 and the rounding interval is 10 cents, the breakage is 7 cents ($4.87 – $4.80). However, if the tote dividend for a $1 bet is $2.43 and the rounding interval is 50 cents, the breakage is 43 cents ($2.43 – $2.00).
The breakage can also vary depending on the type of bet and the number of outcomes involved. For example, an exacta bet requires picking the first and second place finishers of a race in the correct order. A trifecta bet requires picking the first, second, and third place finishers of a race in the correct order. A superfecta bet requires picking the first, second, third, and fourth place finishers of a race in the correct order.
The more outcomes involved in a bet, the more combinations there are to cover, and therefore, the higher the odds and payouts. However, this also means that there is more potential for breakage. For example, if a bettor places a $1 exacta bet with two outcomes (A and B) at odds of 10-1 and 5-1 respectively, and wins, he or she will receive $55 ($1 x 10 x 5 x 1). If there is no breakage, he or she will receive $55 exactly. However, if there is a breakage of 10 cents per dollar, he or she will receive $49.50 ($55 – $5.50).
If a bettor places a $1 trifecta bet with three outcomes (A, B, and C) at odds of 10-1, 5-1, and 3-1 respectively, and wins, he or she will receive $165 ($1 x 10 x 5 x 3 x 1). If there is no breakage, he or she will receive $165 exactly. However, if there is a breakage of 10 cents per dollar,
he or she will receive $148.50 ($165 – $16.50).
If a bettor places a $1 superfecta bet with four outcomes (A, B, C, and D) at odds of 10-1, 5-1, 3-1, and 2-1 respectively, and wins, he or she will receive $330 ($1 x 10 x 5 x 3 x 2 x 1). If there is no breakage, he or she will receive $330 exactly. However, if there is a breakage of 10 cents per dollar, he or she will receive $297 ($330 – $33).
As you can see, the higher the type of bet and the number of outcomes involved, the higher the potential for breakage.
Breakage exists because it is part of the business model and revenue stream of tote operators and betting agencies. Breakage allows them to take a percentage of the total amount wagered on a market and use it to cover their operational costs, taxes, and profits. Breakage also allows them to simplify the calculation and distribution of payouts by using standard denominations or intervals.
Breakage is usually regulated by the jurisdiction and the laws that govern gambling activities. Different jurisdictions and laws may have different rules and limits on how much breakage can be applied and how it can be used. For example, some jurisdictions may require that a portion of the breakage be returned to the bettors or donated to charitable causes. Some jurisdictions may also have different rounding intervals for different types of bets or events.
Breakage has some implications that should be considered by the bettors before placing their bets. Some of the implications are:
Breakage is the amount of money that is rounded down on tote dividends. Tote dividends are the payouts that are calculated and distributed by the totalisator or tote, which is a system that pools all the bets of a particular type and determines the odds and payouts based on the proportion of bets placed on each outcome. Breakage occurs when the tote dividends are rounded down to a certain denomination or interval, such as 10 cents, 20 cents, or 50 cents. The breakage is retained by the tote operator or the betting agency as part of their commission or takeout.
Breakage works by reducing the amount of payout that the bettor receives from their winning bets. The amount of breakage depends on the size of the tote dividend and the rounding interval. The larger the tote dividend and the smaller the rounding interval, the smaller the breakage. The smaller the tote dividend and the larger the rounding interval, the larger the breakage.
Breakage exists because it is part of the business model and revenue stream of tote operators and betting agencies. Breakage allows them to take a percentage of the total amount wagered on a market and use it to cover their operational costs, taxes, and profits. Breakage also allows them to simplify the calculation and distribution of payouts by using standard denominations or intervals.
Breakage has some implications that should be considered by the bettors before placing their bets. Breakage reduces the amount of payout and profit that the bettor receives from their winning bets, increases the effective takeout or commission rate that the bettor pays to the tote operator or the betting agency, affects the value and return of the bets by lowering the odds and payouts, and creates a discrepancy between
the advertised or estimated odds and payouts and the actual odds and payouts.