Sunday, May 29, 2011

With a Different Mousetrap, Two Horse Races Can Spur Interest

As California and New Jersey continue to flirt with the possibility of developing exchange wagering systems, discussions of the pros and cons of such systems have begun to percolate. Both The Paulick Report and PTP deserve credit for having focused attention on this important issue, and for providing forums for discussion.

The two aspects of the issue which are most polarizing, and which predictably attract the lion’s share of opinions, are take-out rates, and whether or not giving bettors the opportunity to “lay” horses might lead to an increase in attempts at cheating by trainers and riders (in the form of stopping horses).

What tends to get lost in the heat of such arguments is the fact that exchange wagering platforms are intrinsically superior – and by a very wide margin – to the pari-mutual platform with which American race-goers are so familiar.

That superiority is incorrectly assumed by many to be all about low take-out rates, for while the narrow margins found on exchanges are, of course, very attractive to bettors, there are other intrinsic advantages to such platforms which are rarely mentioned in discussions in the U.S.

One such advantage is the potential to utilize hedging and arbitrage strategies, which are made possible because all of the bets struck on an exchange are of a “fixed odds” nature. In other words, if one were to back (or lay) a horse at 3/1, those odds are fixed, irrespective of how the market may change prior to the running of the race. So, for example, if one were to back a horse early in the wagering cycle at 8/1, and the odds on that runner were to drop significantly prior to the race, it would be possible to then lay the same horse at shorter odds, and either reduce exposure, or, in some cases, eliminate all risk entirely.

This may sound esoteric to most American bettors, but it wouldn’t be at all unfamiliar to those who work in finance. To give readers a feel for what such options mean in practical terms, consider the following, frankly stunning example.

There was a maiden race run over five furlongs at Brighton (UK) on Thursday. For context, note that Brighton is a lower level track, equivalent to something along the lines of Philadelphia Park. The race cut down to only two runners, and, while both had raced previously, there was a very heavy favorite. Bubbly Ballerina was long odds-on throughout the betting cycle, and was trading at around 1/10 at the off.

Now, imagine such a race taking place at a minor track in the U.S., and how little interest there would be from the betting public. I don’t follow the pools at small tracks, but the win pool would certainly be miniscule, barring any bridge jumping.

Well, at the sleepy, seaside course Brighton, there was over $1.7m wagered on that two-runner race, as this screen capture provided by a British friend of mine confirms:



That’s over one million seven hundred thousand dollars wagered on a non-competitive, two runner race!

Think about that.

For some perspective, on the Preakness day undercard the very competitive, 10 runner, James W. Murphy Stakes attracted an aggregate Win, Place and Show pool total of under $900,000.

This is just one illustration of how exchange wagering can alter the landscape of straight betting in the U.S. New players, new strategies, better odds, and even opportunities to create no-lose positions.

This is a guest post from frequent blog commenter "Tinky". We thank him for the article.

3 comments:

Anonymous said...

...but, but, but.... that is trading money, and only a small amount of it goes to purses. If we could charge 30% and get $510,000 revenue that would be fine, otherwise down with the pirates!

R
PS - there is a strong chance one of those horses was bet to lose, shudders.....

Byron Rogers said...

Good post!

Here is the question though. Did the $900,000 return more to the racetracks/horsemen who put on the show or the 1.7m? My bet would be on the former not the latter.

I am all for exchange wagering, I think that it is really innovative and can certainly stimulate certain types of handicappers to bet more frequently and in greater amounts. I am for it however as long as it is set up to recognize the costs of putting racing on and exchange wagering operators pay what racetracks/horsemen need to continue to put on the races.

It serves nobody if exchange wagering doesn't pay its way for putting on the show as eventually, if it hasn't already, the costs of ownership becomes so high versus the potential for return that the average owner will just stop racing horses and there will be little for the handicapper to wager on!

Anonymous said...

Byron,

What you post is fundamental & I expect most do not disagree with you. If you and I were selling corn, and we could increase our volumes at a new type of online corn sale we would jump at it if and only if we could sell our corn at a profit.

The problem with the thought is that we need Betfair (or new types of wagering) more than it needs us. Racing seems to want to dictate what can and can't happen with it, when in fact they hold the cards, and we are holding a dying betting product.

Ten years from now we will probably be betting the Super Bowl on an exchange that has 30 million customers. If the exchange has NO horse racing it won't matter one little bit. It's about time racing stops worrying about protecting a betting product that has shrunk by 40-70% in the US, and start worrying about expanding it.