In part 3, I’m going to concentrate on what I believe to be racing’s most important segment – the serious handicappers and professionals that make up the vast majority of wagering handle in North America. They are the segment that supports the sport outside of its biggest days, betting millions on races Sunday-Friday somewhat in the name of fun but more as an opportunity to make money by applying their intellect to the game.
This segment has significant overlap with the sports betting market generally, though that market is technically illegal outside of Nevada. Horse racing remains unique in that it can be bet without being present at the track, typically online through an Advanced Deposit Wagering service or at a simulcast outlet. Most readers of this site – mostly the horseplayer community on Twitter – are familiar with the basics of how this works. This segment truly values one thing – a positive expectation bet (or the perception therein). Handicappers call these opportunities overlays.
In order to increase interest from the serious/professional gambling segment, horse racing must increase the number of overlays, or positive expectation bets, in its races and racing cards that attract this class of bettors.
The mechanisms for creating more overlays in racing are well-known but largely boils down to increasing the size of betting pools, increasing the number of combinations that can be played, and increasing the payoffs of winning bets. Several factors can go into this, but there are three main ones with pari-mutuel betting:
- Increase play from casual gamblers / non-handicappers
- Lower the price of betting (the takeout rate)
- Increase field size
Having “less informed” money bet into the pools – from casual gamblers – was largely the subject of the first two posts, but it helps explain why bigger race days have better betting opportunities. It also explains the growth of poker to a degree – the early days of the boom, pros had a field day with casual players coming in. When casual fans “play numbers”, play “names”, “bet favorites”, “bet longshots”, “box superfectas” – those benefit the dedicated players by increasing the odds on everyone else.
Which leaves takeout and field size. The digital literature on why field size and takeout rate and their impact on payouts/overlays is voluminous, so I’ll try not to belabor the point too much. My thoughts on takeout can be found here:
To sum up, takeout decreases will naturally increase handle thru the churn mechanism but most likely will not increase track revenue because of how the takeout is shared amongst the track, bet-takers, and purse accounts. To truly drive gains, handle (price) decreases must be tied to a strong marketing plan that includes promotion on and off-track and alignment with horsemen. There is, however, a takeout rate (below 12%, I believe) where parimutuel bets on racing become competitive with sportsbooks. This price level will attract more large sports bettors (whales) to the pools and racing will see handle gains greater than that produced by churn.
Field size is equally, if not more important, to serious horseplayers in the search for overlays. Having more horses in a field allows the handicapper more data points to seriously consider (or dismiss) in search of a winner. Consider, for example, what happens when a 20-1 shot scratches from a race at the gate. If the handicapper gave the 20-1 horse (public gives 5% chance of winning), only a 1% shot (true odds of 99-1) to win the race, then losing that horse is effectively a 4% point increase in takeout for the bettor.
It works in reverse as well – full fields are a tremendous place for a handicapper to find value as, if she can identify a number horses that are overbet, the bet she makes has a positive expectation. It’s why I especially love the Kentucky Derby; the combination of a 20-horse field and, since Mine that Bird’s win, a betting public that won’t let any horse go above 50-1 again. You only need eliminate 6 horses from contention to make the Derby win pool a positive expectation bet.
The Average Field Size Metric is Misleading, Especially for Horizontal Players
Many horseplayers find their value by betting into horizontal pools like the Pick 3, 4, 5 and 6. The allure to these bets, versus straight betting and parlaying the results, is that takeout only happens once. More often than not, the horizontal return exceeds that of a similar parlay despite being, theoretically, of similar difficulty to hit.
Tracks often tout average field size (total starters / total races) as an indicator of the quality of their fields for betting purposes. And it is, but doesn’t tell the whole story. Take, for example, two theoretical racetracks that boast an average field size of 8.0. One track got that AFS score by carding two competitive 8-horse claiming races while the other paired an 11-horse turf race and a 5-horse main track clunker. One has 64 possible double combos but, for the same AFS, the second track has only 55 – 14% less. Almost all horizontal players will tell you the presence of multiple small fields in a sequence will depress payouts – this is why.
Is there a metric that can quantify the combo-killing nature of regular small fields? Yes. If we take the square root of the above scenario, we see that the two 8 horse races contribute an average of 8 combos to the double whereas the 11-5 double only contributes 7.4 on average. It’s easy to calculate this across multiple sequences as well – take these identical 8.0 AFS cards of 8 races:
Average Field Contribution to Horizontals (AFCH)
For any X number of races, multiply the field sizes together and take the Xth root [Field Size Product ^(1/X)] to come up with AFCH. For example:
So, here we have a metric that allows to not just look at the number of horses run but also look at how the cards are constructed to produce value for the horseplayer.
The important thing here is that AFCH is probably more important for serious horseplayers in the search of overlays at a track than just field size. Since spreading tickets is a popular horizontal strategy that introduces overlays in those pools, minimizing the number of “free squares” is distinctly to the track’s advantage.
Thus wraps up 4,000 words on the target segments of the horse racing market that used “Racing as Entertainment” as a starting point and veered into other discussions where that “meme” didn’t fit as well. Thanks for reading.