Legal Definitions - breakage

Breakage refers to two distinct concepts in legal and commercial contexts:

• 1. An allowance for damaged goods: This refers to a credit, discount, or compensation provided by a seller (such as a manufacturer or supplier) to a buyer (like a retailer or distributor) for goods that are damaged, spoiled, or rendered unusable during transit, delivery, or storage.

  • Example 1: A large supermarket chain receives a shipment of fresh produce from a wholesaler. Upon inspection, several crates of berries are found to be moldy and unfit for sale. The wholesaler provides a credit on the invoice for the value of the spoiled berries. This credit is considered breakage, compensating the supermarket for the unusable goods.

  • Example 2: An online electronics retailer orders a bulk quantity of laptops from a manufacturer. When the shipment arrives, a few laptop screens are cracked due to rough handling during shipping. The manufacturer agrees to reduce the total payment due by the cost of the damaged laptops. This reduction is an allowance for breakage.

  • Example 3: A bookstore chain purchases a new release of hardcover novels from a publisher. Before the books are even displayed, a pallet falls, damaging the covers and spines of several dozen copies. The publisher offers a partial refund or replacement for the unsellable books. This compensation addresses the breakage that occurred.

• 2. Retained insignificant amounts from bets: This refers to the practice, primarily in gambling industries like horse racing or sports betting, where very small, fractional amounts of money from winning bets are kept by the operator rather than being paid out to the bettors. This is done to simplify accounting and avoid the logistical burden of handling minuscule sums.

  • Example 1: At a horse racing track, a bettor places a winning wager that, according to the odds, should pay out $15.87. However, the track's payout rules round down to the nearest dime, so the bettor receives $15.80. The remaining $0.07 is retained by the track as breakage.

  • Example 2: An online sports betting platform calculates a payout for a successful parlay bet to be $200.53. To streamline transactions, the platform's policy is to round down all payouts to the nearest nickel, so the bettor receives $200.50. The $0.03 difference is kept by the platform as breakage.

  • Example 3: During a casino's promotional poker tournament, a side pot is created that results in a payout of $50.01 to a player. The casino, to avoid dealing with single pennies, pays out $50.00 and retains the $0.01. This small, retained amount is considered breakage.