Despite what various racetrack touts and system peddlers
say, one of the things that makes consistently beating the races so tough is
that, for the most part, pari-mutuel betting markets are efficient. This means
that all the relevant and available information affecting the outcome of a
horse race is generally known and accounted for. Hence, the final odds are an
accurate reflection of a horse’s chances of winning — minus the track take and
breakage, of course.
Sure, there are pockets of inefficiency and irrationalism.
Scholars have long documented the existence of a “favorite-longshot bias,”
whereby shorter-priced horses are slightly underbet and longer-priced horses
slightly overbet. However, such inefficiencies are but ripples on the
pari-mutuel ocean.
Still, the fact that inefficiencies can and do exist provides
hope that the races can be beaten — just like grainy, out-of-focus video footage
provides hope to some that bigfoot lives among us (often disguised as a broken
tree branch).
In this article, I will attempt to show readers how they
can spot and capitalize on inefficient markets — as well as efficient markets —
to make more moolah at the racetrack.
Follow the Money
Not to go all “Deep Throat” on everybody, but the simplest way to spot an efficient or inefficient market is to follow the money. Consider the following scenario:
Not to go all “Deep Throat” on everybody, but the simplest way to spot an efficient or inefficient market is to follow the money. Consider the following scenario:
John Doe is given $2 to bet to win on any horse running at Saratoga on Saturday.
* How does he choose what race to bet?
* How does he choose which horse to bet?
Well, assuming Mr. Doe is logical, one would expect him
to play the race and horse that (he believes) give him the best chance of
winning. However, even if Doe possessed the superior handicapping acumen of a dart-throwing
monkey or one of those omnipotent racetrack touts mentioned earlier, it is
clear that any market comprised solely of his wager would have to be inefficient. For, even if we ignored the fact that Doe’s
horse would be 1-9, we are stuck with the unfortunate detail that all the other
horses in the field — those that didn’t receive any of Doe’s dough — would be
lumped together at 99-1.
Obviously, this is not an accurate assessment of each
horse’s chances.
Thus, even though this was an extreme example, it should
be self-evident that less money and fewer wagers equal a less efficient market.
Might the opposite also be true? Does more money and more wagers lead to a more
efficient market?
I decided to find out.
To provide a baseline, I first looked at all sole betting
favorites (no favored entries) from a variety of races run across the fruited
plain from September to December of 2013:
Number – 7,996
Winners – 2,904
Win Rate – 36.3%
$2 Net – $1.67
IV – 2.80
OBIV – 0.84
Next, I analyzed favorites in races with the lowest
straight (win, place and show) handle on the card (provided the total pool was
less than $10,000). As expected, the numbers took a nosedive, giving credence
to my hypothesis that less betting/money results in a less efficient market:
Number – 185
Winners – 61
Win Rate – 33.0%
$2 Net – $1.50
IV – 2.11
OBIV – 0.75
Lastly, I looked at races with the greatest straight handle on the card (provided the total pool exceeded
$10,000). Not surprisingly (at least to me), the figures were fantastic:
Number – 830
Winners – 320
Win Rate – 38.6%
$2 Net – $1.73
IV – 3.35
OBIV – 0.89
In races featuring above-average betting action,
favorites won 38.6 percent of the time, lost just 13 cents per dollar wagered
(compared to 16 cents for favorites overall) and had an impact value (IV) of
3.35 (versus 2.80 for favorites on the whole).
The Efficient Data Hypothesis
The Efficient Data Hypothesis
Now, I know what some of you are thinking: big deal,
Derek, your “fantastic figures” still produced a loss of 13 percent. What good
does it do to identify efficient and/or inefficient pari-mutuel markets if one
still loses one’s shirt?
Keep your chin up, Daniel-san. It’s not so much what the
stats tell us about these specific instances, it’s what they imply about
handicapping in general. Let’s go back to the definition of market efficiency: all the relevant and available information
affecting the outcome of a horse race is generally known and accounted for.
To me, this suggests that “all the relevant and available
information affecting the outcome of a horse race” may be overvalued or
undervalued in races attracting more or less wagering dollars, respectively. In
other words, rather than patterning one’s handicapping around specific race
conditions — placing extra value on workouts in two-year-old races, stressing
class in turf races, etc. — a player might be better served by using the
straight wagering pools to emphasize or de-emphasize traditional factors.
Take speed figures, for example. Using the database of
races above, I compiled the following stats on horses possessing the best
last-race Brisnet speed figure over today’s general track surface (AW/dirt or
turf):
Number – 6,353
Winners – 1,835
Win Rate – 28.9%
$2 Net – $1.74
Nothing to get the pulse racing, right? Well, if you’re
standing up, grab a chair (you’ll want to be sitting) and look at what happens
when the digits above are parsed based on the size of the win, place and show
pools:
STRAIGHT MUTUEL
POOLS GREATER THAN OR EQUAL TO $25K
Number – 4,299
Winners – 1,209
Win Rate – 28.1%
$2 Net – $1.70
STRAIGHT MUTUEL POOLS LESS THAN $25K
Number – 2,054
Winners – 626
Win Rate – 30.5%
$2 Net – $1.83
In races with less than $25,000 in the win, place and
show pools, the horse(s) with the top last-race speed figure produced a loss of
just eight cents on the dollar — nearly half the loss produced in races with higher
pool totals.
Get the point? By gauging the relative efficiency of the
market one is betting into — be it the first race at Arapahoe Park or the
feature race at Del Mar — my research suggests that well-known predictive
factors like speed and class can be upgraded or downgraded accordingly.
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