Incite -- (v) 1: give an incentive; 2: provoke or stir up; "incite a riot"; 3: urge on; cause to act
Saturday, June 12, 2004

Bad Bad Bets
Written by: Speculator

Last weekend, they ran the 136th Belmont Stakes. Records were set, including the largest assembly to witness a sporting event in NY State history: 120,139 persons. The other was the extension of the Triple Crown-less drought, now the longest in history at 27 years. (Last won in 1978 by Affirmed, ten horses have since threatened, and all ten have found the extra quarter-mile at Belmont to be insurmountable.)

What amazed me about the race was not the loss by Smarty or the win by Birdstone (I'm not particularly fond of horseracing), or the fact that both Birdstone's jockey and owner apologized for their win.

No, what got me was that Smarty Jones went off a 1-5 horse. 1:5 as in 4 under even money.

The first rule of capital allocation is to make damn sure you are getting properly paid for the risk you are assuming. If you placed a bet on Smarty Jones to win the Belmont Stakes, you would be paid 20%, or 40 cents for every 2 dollars risked.

I'm still in utter shock about this. This horse was a 5-1 to LOSE! Furthermore, as I am to understand horseracing, the way odds are generated is through the net result of the aggregate field bet - the more money wagered on a horse, the lower the odds become, and the higher for the balance of the field. So, presumably, Smarty at some point was a 1-4 horse, and enough bettors found this to be attractive, so as to worsen the payout to 1-5.

Have you ever seen a horserace? Have you seen the chaos associated with the start? Have you seen how horses really have no foching idea that they are about to be involved in a race as they are loaded into their start boxes? Have you ever noticed how jockeys have about as much control of their horses as NASA had over the precise landing area for a Mercury capsule?

To put things into perspective, travel to your nearest casino and walk over to a roulette wheel. There, they will allow you to bet whether the next spin will score a black or red, and pay you even money, as in 1:1, if you happen to guess right. (The vig for the house is in the fact that there are 38 spaces on the wheel, two of which are neither red nor black, so you are actually being paid 1:1 on a bet where you have around a 53% chance of losing). Smarty, fully subject to the entropy inherent in horseracing, is gonna pay you 1:5.

I'm thinking that there is some money to be made in the shockingly inefficient world of horseracing.

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John Beck

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