The Decade Double

Here’s a Daily Racing Form headline from 2024 (yes, the future):

North American Racing Handle Doubles Over the Last Decade

Do you find this headline completely unbelievable? It shouldn’t be. Let me ask this: how much would betting handle have to grow year-over-year for 10 years for that headline to be true? It’s not large – it’s only a 7.2% growth rate, compounded annually. In terms of growth above normal economic growth, it’s only a 3-4% adder to normal national growth trends.

Doubling handle would mean that contributions to track earnings and purses would also double during that period. (Neither earnings nor purses would double, since those are supported now by other sources like admission, concessions, and slots) I think most observers, seeing that handle was at an historic high, would no longer say that “horse racing is dead” but that racing was as good as it had been in 30-40 years.

Now, here’s two alternative beginnings to the article that accompany the headline. Which do you find more plausible?

1. Industry officials celebrated the 10th consecutive year of handle growth, noting that wagering on thoroughbred racing has doubled since the US marked the unofficial end of the Great Recession in 2014. Attendance and off-track wagering both doubled, track revenues increased 80%, and purse accounts increased by 60%. The purse account increase reflects that purse subsidies from other sources (racino/slots revenue, sales, supplemental fees) remained flat during this time. Tracks and horsemen used the windfall to increase races by 35% while the average purse went up 18%. Breeding finally reversed a two-decade long decline as the 2023 foal crop of 40,000 returned to levels not seen since 1991.

Most track officials credited their marketing and promotional efforts to get fans back to the track as the main source of success, but acknowledged that Jess’s Dream – the first foal of popular 2009 Horse of the Year Rachel Alexandra – winning the Triple Crown in 2015 kick-started their efforts. When “Taco” came back to race in 2016 and dueled in a cross-country campaign with the late-developing Cozmic One (Zenyatta’s first foal), the Breeders Cup Classic at Belmont Park featuring their final duel (won in a late nose by Cozmic One) set betting and ratings records for a non-Triple Crown race and energized the sport…

2. Industry officials acknowledged that the 2014 “Decade Double” initiative pioneered by The Jockey Club, NTRA, and a consortium of racetracks and other racing industry groups has met their goal of doubling betting handle on North American races in 10 years. The Decade Double initiative began with the premise that the $23 billion target for wagering on throughbreds would represent an all-time, inflation-adjusted, high indicator of interest in the sport. The leaders of the “Decade Double” campaign credit its focus on customers and getting buy-in from tracks and horsemen on how to share gains.

” We knew that the sport couldn’t grow without customer support,” said Jeff Gural, Jockey Club board member and head of the Decade Double Initiative. “Significant gains had to be realized by the customer – the bettor – and ultimately that meant lowering the price of betting on racing.”

“Working with our horsemen and tracks, we concluded – and believe me, it was a tense fight at times –  that bettors needed to see the lion’s share of gains, with tracks and horsemen splitting the rest. We settled on a 40/30/30 split, and that’s when efforts to reduce takeout by 40% began.”

This year, the average on-track takeout for a Win bet was 10%, which horseplayer’s Decade Double representative Andy Asaro noted was “much nearer betting the LA Jaguars and the points in the Super Bowl.” Exotics averaged 12-14%; in 2014, however, the typical takeout on exacta or trifecta pools was 20-25%.

The Decade Double and industry groups like NYRA and the CHRB aggressively promoted the takeout decreases, at first in hopes to keep track revenues and purse accounts level. Most groups acknowledge that the success was unexpected: track revenues have increased by 48% and total purses by 36%, despite the lower takeout. Racing days and total races have remained flat in response to a lower profile DD initiative meant to prop up field size in response to low foal crops. Even those have since recovered to a “healthy level” of 35,000, what many breeders consider sustainable at this level of betting…

It truly is amazing how growth can positively impact everyone while stagnation leads to tribalism and in-fighting and decision-making based on the fear of loss as opposed to the hope of gain. That’s unfortunately where horse racing is today.

Article 2, even if the numbers aren’t exact, shows that broad-based gains are possible if they accompany a plan and a target for growth. If we collectively bet $20B on racing, no one could rightly claim that racing was dead. It is, however, hard to envision that future if customers do not share in those gains. And again, the numbers are not daunting:

  • To double in volume, handle needs to increase by 7.2% a year.
  • To decrease takeout by 40% over 10 years, takeout needs to decrease by 5% a year.

The key, of course, is to offset the short-term revenue decrease from pricing with 2 other Ps of marketing.

  • Promote the heck out of the sport emphasizing lower prices (and other promotions)
  • Product quality needs to stay high /  improve (larger fields, showcase racing days, etc.)

The time element is the hardest part, because it’s not an overnight fix. Nothing worth doing ever is.

Racing’s Target Segments, Part 1 – Racing as Entertainment

Recently Chris Kay, the head of CEO of the New York Racing Association (NYRA), defended the planned admission increases at Saratoga and Belmont (from $3 to $5) by comparing the relative affordability of a day at the races to a Yankees game, placing the sport of racing into the same entertainment category as professional baseball. By extension, racing is therefore competing with other premium-priced sports experiences that includes the NFL, NBA, NHL, and NCAA Football and Basketball.

Other commentators (and one or two NYRA board members, thankfully) pointed out the obvious difference between horse races and those events is the ability, at the track and online, to legally wager on their outcome. Racing is a gambling game and, for better or worse, derives most of its revenue from the takeout on wagers. Higher admission will inevitably lead to lower attendance and on-track handle; therefore, whatever gains you planned from raising admission will be somewhat offset by lower revenues from wagering. Hard to say how much, but multiplying last year’s attendance at Saratoga and Belmont by the $2 increase in admission is not a sufficient forecast for revenue gains – it’s one or two levels more complicated.

Yet the contrary claim that racing is not entertainment is equally untrue. If gambling was not entertainment, Las Vegas would not exist – very few people can make a living gambling, and may only do so based upon the contributions of those who play for entertainment. Poker, sports betting, and horse racing are the games that a dedicated few can beat because the public likes to play for fun. I know for certain that I am one of those bettors. I track my ROI, and despite having learned a lot about racing over 3-4 years, my expected value is not much above the takeout. I play for fun (as my income allows) and the chance at the big score one day.

All this discussion led me to tweet this:

Racing has 3 “modes”.  1.”Day at Races”->Entertainment 2. Gambling->Entertainment 3. Gambling->Serious/Pro | Racing needs strategy for all 3

— Mike Dorr (@mikedorr77) December 5, 2013

I thought the idea worth exploring further with a longer series of posts, the first of which is below the fold: Continue reading

The Virtual Sheik: A New Fantasy Horse Racing Idea

This article appears in the latest issue of the HANA Monthly, found here. Published and republished with mutual permission.

In my last post, my critique of current fantasy horse racing games centered on their formats that mirrored the experience of handicapping and betting instead of horse ownership. Improved variants allow for picking a small stable of horses for a season, perhaps adding jockeys and trainers to a fantasy team that earn points over the course of a season. Those games work, introducing an element of scarcity and valuation that can make for a successful contest. is one such game, though there are others. If those games have a flaw, it’s that many horses, trainers, and jockeys are either running for larger purses, start more runners, and ride more entries than other picks, thus overweighting luck versus skill in a given contest.

To this point, this evolution is more like successful games like Fantasy Golf or Fantasy NASCAR – fun games with clear rules and where an understanding of relative value can help a shrewd player succeed. The most successful fantasy games (football and baseball, then basketball) more closely replicate the experience of ownership. No horse racing game truly does this, but I think they could.

With that, I introduce my idea: the Virtual Sheik, so-named for the biggest-pocketed owners in the racing world. Here’s how I envision such a game would work:

1. Players start with a fixed pool of dollars to spend, say $1M, on horses currently in training who have run at least one race (with one exception).

2. Players would earn additional dollars for their stables by the purses that their runners earn.

3. The value of a given horse is determined by multiple factors, but the heaviest weighting would be on the value of the purses for which they have most recently run.

  • For example, to get Orb or Oxbow or Palace Malice, you’d have to pony up (pun intended) $1.5M or so to bring them into your stable. It would not be easy.
  • Maiden (MSW) runners could be had for $40-75K typically. These purse levels typically hold for other allowance runners.
  • Lower graded stakes or listed stakes runners would go for $75-300K
  • Most importantly, runners in claiming races would go for their most recent claiming price.

4. As the claiming game makes up the majority of races, this is where most of the action will occur. Just like the real game, if one of your horses runs in a claiming contest, it can be claimed by a competitor within the game. Similar rules would apply to the real claiming game:

  • For all horses, the claim must be put in before the race is run. This includes first-time starters in maiden-claiming races (which is the exception noted in 1. above)
  • If your horse is claimed, you get the claiming price added to your account. Its purse winnings for the race are yours.
  • If multiple claims are put in for a horse, the new owner is determined randomly.

5. For all non-claiming races, if a horse is not owned and a player tries to buy the horse for its calculated value, there is a short window for a “Monopoly-style” auction. Details:

  • In Monopoly, one of the least well-known rules is that, if you land on a property and don’t buy it for face value, it goes to auction among all players where it goes to the highest bidder. No one plays this way, but it’s in the rules of the game. Anyway…
  • After a player makes a bid for a non-claiming horse, there would be a 1- or 2-day “auction” for the horse where it would go to the highest bidder. It could be a live updated auction or a straight “second-price” auction like that on eBay. In this last scenario, every one who wants the horse can submit their maximum bid and purchases the horse for the 2nd highest bid + $1000.
  • The auction mechanism assures that no horse go below its true value (say a dominant MSW winner in a $40K race) and also allows for proper pricing on top-level stakes horses.

6. If a player wants to sell any horse to another player, all other players will be notifies and the auction rules above will apply.

7. To replicate the experience of ownership, dollars will be deducted monthly for each horse in a stable, based on their class. For example, $1000/month for a claiming horse up to $5000/month for a stakes horse. Owners would be required to maintain a minimum value of 3 months of expenses in their account.

8. Owners will get, say, $25000 per month added to their account to make sure total funds levels are sufficient to keep the game going. To mimic the breeding game of ownership, some special rules, apply, however to horses that are retired.

  • If a colt is retired sound and intact, at some point in the future, dollars will be credited to their account in some multiple of their 1st-year published stud fee. For example, if that stud has a first-year fee of $20K, his “retirement” value in the game might be $2M (a multiple of 100)
  • If a filly or mare is retired, the player is credited with a portion of their lifetime earnings. For example, a future broodmare with lifetime earnings of $300K might get an account credit of $150K.
  • Geldings would not get additional funds upon retirement.
  • I’m not entirely sure how to handle breakdowns and the like, perhaps a 10% insurance value. Like real life, that’s tough.

What I like about the above structure is that it creates a persistent game, which is what horse racing ownership is – there are no ownership seasons, no drafts, just auctions, claims, strategy and luck. It provides a framework for structuring games on multiple levels by simply varying how much money you have to start then pursuing different strategies to success. There could exist one big game, with thousands of players virtually owning most of the horse population and accumulating purses over time. Players could try to find the next Derby horse or build up their stable with multiple claiming level horses. Transactions, interactions, would be many. Or there could be multiple smaller games, with players starting with smaller budgets trying to build a stable on a budget. The opportunities are numerous.

On the technical side, this would be a much more involved game than those out there today. It is complex, but so is the world of horse racing. To me, it sounds like a lot of fun. There are at least three (Equibase, Brisnet, DRF) groups that have all the data to manage the game. Each would need an experienced company or partnership (Yahoo / NBC Sports, perhaps the new Fox Sports partnership with The Jockey Club) to pull it off and market it properly. It would require a lot of tweaks and experimentation. But I think it would be a tremendous amount of fun, and spur engagement from a base of sports-loving fans that don’t yet know what to make of horse racing. This would be an entree into our world – let’s give the proper amount of support it deserves.

As you may be able to tell from the last 2,000 words on the subject, an improved fantasy racing game is a passion of mine. Should an industry group or other interested party be interested in expanding this idea, I would love nothing more than to help bring it to life. The best way to contact me would be through Twitter (@mikedorr77), where I will see all racing-related inquiries. Thank you.

The Reality of Fantasy Horse Racing

Fantasy sports have been an enormously successful means of increasing fan engagement for the Big 3 professional sports organizations in the US: the NFL, the NBA and MLB. Fantasy baseball started the trend with the popularity of “Rotisserie” baseball, which has been around since 1980 (with a few predecessors), and I can remember playing a modified version as early as 1992 (I was 14). Fantasy football was the game that exploded the phenomenon, as its 4-month season with a weekly cadence, book-ended by a draft and playoffs, expanded its audience, being less time-intensive than its baseball counterpart.

Several racing industry organizations (the NTRA, Churchill Downs, the Breeders Cup, WinStar Farms, among others) have all launched and promoted “fantasy racing” games with the intention of attracting a new audience to the sport. I am not going out on a limb by saying that all these efforts that have thus far mostly failed to garner significant engagement from existing fans and have utterly failed in bringing fans of other fantasy sports to fantasy racing. This post’s title buries the lede – the reality of fantasy horse racing is that it sucks.

Successful fantasy sports games put the player in place of the owner.

For the most part, fantasy racing games fail because they replicate some other element of the sport, usually the handicapping and betting aspect. The current fantasy racing game being promoted is the Breeders Cup Fantasy Challenge; if you follow the link, you’ll see that the BC challenge is basically a weeks-long handicapping contest that is free to enter. It utilizes a few successful elements of fantasy football – weeks-long competition, free to enter, form up leagues – but the basic premise remains “pick a winner”.

The Churchill Down Road to the Roses contest tries to replicate the ownership experience somewhat by picking a stable of Derby contenders then earning points for their placing in Derby preps. The contest, however, almost infamously, spectacularly failed when one entrant picked Verrazano for all 6 spots in his stable, having an easy lead going into the Derby. Orb’s win prevented any major egg on CDI’s face, but still…

Successful fantasy sports games put the player in place of the owner by recreating situations that owners face.

In my estimation, good fantasy sports games do three things well: create scarcity, create differential value, and create interactions between players. These are all constraints faced by, say, an NFL owner. Bud Adams (a Nashville resident, I’m a Titans’ fan) can only employ 53 players, pay them a total of $123M, and can’t try to offer a player under contract with another team more money to play for him. A good QB is worth more than a good kicker, and The Blind Side taught us the value of left tackles. Still, players can be released, picked up, and traded and NFL general managers are constantly on the phones with their colleagues as they assemble their team.

Successful fantasy games create scarcity

In fantasy football, a player can play for only one team. A team can only have so many roster spots. A team can only start 1 or 2 players at each position.

I’m unaware of any fantasy racing game that actually prevents someone from picking a horse if it’s already been picked. It’s not really ownership if multiple people can “own” the same horse for purposes of a game.

Successful fantasy games create differential value

In most fantasy sports, differential value is created via draft – the players that are drafted earlier have greater value than those drafted later. In a draft format, luck has a big role – if there are, say, three clear-cut top picks, whoever gets the top 3 draft slots has a huge advantage. The innovation in response to that is the auction draft, where each team has a fixed pool of funds out of which to bid on players. Draft order doesn’t matter – if you want the top pick, you’ll pay for him but at the expense of filling out the rest of your roster.

Again, most fantasy racing games make little attempt to make one horse more “expensive” to own than another, largely because there is no scarcity in the first place

Successful fantasy games create interactions between players

The absolute best parts of fantasy football are, in order: the draft, the mid-week deals, the trash talk. Trying to improve your team is the essential element of the game, trying to win by acting as your own GM. A typical deal in FF might be a top wide-receiver and back-up running back for a top running back – the success or failure of a trade depends on the difference in opinion of value.

Have you ever traded/bought/sold/claimed a horse in a fantasy league? I think not.

Fantasy racing games simply do not capture the essential elements that make other fantasy sports compelling and fun. This is because they do not attempt to replicate, in any serious manner, the experience of owning and managing a racing stable. But here’s the great thing:

They could.

The Retro-Graded Stakes Formula

A considerable amount of racing chatter recently has been about the quality of certain graded stakes races and how their winners have been little more than (well-)paid workouts for the horses and their connections. I’m inclined to agree – top class races should attract many horses of a certain caliber but the graded stakes field size is, on average, one of the smallest in the sport. (Allowance races are not far behind – claiming and lower-level turf races attract the largest fields).

What’s at issue here is “black-type”: when a horse (or his/her progeny) go to sale, having placed in a graded-stakes race can mean a considerable premium to their auction price. This makes total sense – thousands of horses of all ages are sold each year and the bold, sometimes ALL-CAPS,  font in the sales catalog allows buyers to assess the potential class of the [yearling/two-year-old/mare/stud prospect] they are buying at a glance without reviewing a lifetime of past performances. It’s an elegant solution to a problem that existed before the Internet and electronic data was a thing, and retains some value to this day.

The American Graded Stakes Committee (AGSC) is the “be-all-and-end-all” determiner of what races get the vaunted Graded Stakes designation, those that can get the BOLD CAP font in a sales catalog. The Thoroughbred Owners and Breeders Association (TOBA) controls this designation, of which their policies can be found here. To their credit, the AGSC has been quite responsive to upgrading the designation of races that have shown considerable improvement in the quality of horses running in them over the years. The best example, given my familiarity with them, is the upgrade of the Arkansas Derby for 3 year olds to Grade 1 status and its preps (the Rebel and Southwest) to G2 and G3 status, after the likes of Smarty Jones, Afleet Alex and Curlin used the Oaklawn route to prep for later classic wins.

My main criticism of the AGSC is that, while they have been responsive to upgrades, they have been much less so to downgrading races that haven’t been as good. It’s a natural response for well-meaning decision-makers: demonstrable class deserves and upgrade, suspect class deserves just one more chance. That bias has produced what I would call class “creep” whose end result is too many graded stakes with too small fields and, frankly, too many horses earning graded black-type. The AGSC uses “gut feel” more than data to determine the top quality races, which has contributed to the bias.

The main trend driving this is the declining North American foal crop, which has shrunk from a high of 40,000 in 1990 to 25,000 this past year (Source). The number of Graded Stakes has remained steadily above 450 for the last seven years despite the falling foal crop and the number of races run in North America. This means its roughly 40% easier today to earn black-type than it was just a few years ago. The AGSC has not been responsive enough to these trends; the impact is that black-type means less and less.

The fix I propose leverage the unique power of the age in which we live – use the vast information collected about races, and the past and future performance of the horses that run in them, to determine black-type. More importantly, tie the total number of graded stakes to a reasonable estimate of the foal crops eligible for those races. Lastly, tie the earning of black-type from placing in a graded stakes not to the horse’s placing, but the number of contenders the placing horse beat to earn it. What results is what I call the Retro-Graded Stakes Formula. These are the guidelines I’d suggest:

  • In 2006, roughly 100,000 thoroughbreds (3 years of foal crops) would have been eligible for graded stakes eligibility, or roughly 1 GS for every 210 born (100K/475) . Let’s be generous and say that a GS win should be available for every 200 foals.
  • Black-type is especially valuable for fillies and mares, but their graded stakes representation is outsized compared to the open races for which they are eligible. If fillies and mares are eligible for all graded stakes, but colts, geldings, and horses are eligible for all, then gender-restricted graded stakes should represent just one third (33%) of all graded stakes – currently, 41% of Graded Stakes are gender-restricted.
  • Many graded stakes are age-restricted, so tying them to the eligible foal crop makes sense. For 2- and 3-yos in a foal crop of 24,000, that means just 120 graded races to split between the 2- and 3-year-old races, and only 40 for fillies and mares. Currently, there are 184.
  • Open company races, having a larger eligible foal crop, would get a majority of the graded stakes races. This aligns with the industry desire (supposedly) for keeping horses running at a later age.
  • Field size matters in a stakes race – it is easier to place in a 5-horse field than an 8-horse field, naturally. To earn black-type, require that a horse beat at least 60% of the field they are in. For a 4-horse race, only the winner earns black type. In a 5- to 7-horse race, top 2. Only in a field of 8 or more can an ITM guarantee black-type.
  • The total number of graded stakes would shrink to the foal crop of 3-4-5 year olds/200 (roughly 360, based on 2011-2013)  but distributing those more to open company races versus any kind of restriction. If there are 120 age-restricted races, there would be 240 without.

The above proposals are conditions that the AGSC could implement today. The biggest change, however, would be to use the past and future performances of race horses to determine the true class of a race. This would take some doing. The RGSA would assign a provisional class to a race before its run based on its current historical standing, determined by prior class of the horses in it. For example:

  • A race could be graded a PG[1,2,3], meaning a Provisional Grade 1 (2 or 3) based on the level of horses who have run in it, and their subsequent performance. Minimum purse sizes would be required – the AGSC gets this right.
  • After a suitable period of time, probably 3-6 months, the race would be graded RG[1,2,3] , again based on both the past and subsequent performance of its entries. The total number of RG races will be tied to the eligible foal crop for that race.
  • One revision to a races grade would be allowed should multiple horses from the race go on to greater things.
  • Ungraded stakes could get bumped to RG status (and future PG status) if multiple performers win subsequent RG contests.
  • Allowance level races with multiple past and future RG performers could get special “Key Race” status that could be noted in a catalog page.

I am not suggesting that the AGSC adopt these changes; though that might be ideal, it would be too radical a change. I’m saying that any group with data and sufficiently publicity could use the RGSF to challenge the status quo with regard to the class of sales horses. The AGSC has no competition – it’s time they had some.

Towards a Better Handicapping Contest – Part 2

If you asked most professional poker players what World Series of Poker (WSOP) event they would be proudest about winning, I think few would say the $10K buy-in No-Limit Hold-Em (NLHE) main event so popularized by ESPN. The large crowds and the nature of NLHE means that luck plays a much larger role in a successful outcome for those seasoned veterans. (They might say any schmo can suck out a straight on the river to beat my set, in the parlance).

I think most would say they would prefer to win the 50K HORSE event. HORSE combines, in a rotating tournament, five different types of poker that test different skills and play-styles. (That’s Hold-Em, Omaha, Razz, Stud, Stud-Eights or Better). I’m a fair Hold-Em player (positive lifetime ROI) and I can honestly say I’d have a better shot at winning a 10,000 person hold-em tournament than a 100 person HORSE tourney. I simply haven’t studies the other four games – I would very much be the dead money at the table.

Given the stakes and the multi-game skill involved, the WSOP HORSE tournament winner very rightly deserves the prize earned. I think the HORSE model is one that could be implemented for a skill-determining horse racing handicapping contest. The idea would be to combine the structures of different contests while introducing novel scoring mechanisms. Below, I have some suggestions that might get racing contests closer to that outcome.

  1. Combine the two types of Win-Place contests today, live scoring and upfront picks – if 50% of your score is determined by who you really think will win 2-4 hours in advance and the other half determined by assessing conditions, picking logical longshots, or reaching for a score, you have diminished (but certainly not eliminated) the element of luck inherent in either scenario.
  2. Utilize the win parlay – A frequent argument from contest players is that they want to be rewarded for picking winners. A parlay component would aid that. Say, for example, 20% of a hypothetical contest bankroll was bet on each race. With live scoring, contestants who picked winners early would be able to wager additional dollars on their next pick. (If you have $100 to start, bet $20 on a 2-1 horse that wins, the next round (with $160 in bank, you may bet $32). First-race losers only have 20% of $80 to bet ($16).
  3. Bowl for picks – Inspiration can be found in the most unlikely of places. Bowling (that of the ten pins and an alley) has one of the very best mechanisms for rewarding streaks and consistency: a strike adds the next two rolls to your total; a spare one. Apply the same to your handicapping contest – a win gets you 50% payout of your next two races, a place your next one (or some other percentage)
  4. Devise synthetic pick-Xs –  Allow a portion of the contest bankroll to be dedicated to picking potential winners of a set of races. If in an 8-race contest, have 2 potential Pick-4s that the contestant try to hit with a hypothetical (say $200) bankroll. This would identify skill in ticket-making (very valuable in handicapping, generally) but would lead to an interesting set of choices. Should you heavily lean on favorites for more than the minimum (say $1) or spread? The payout would be determined by a simple parlay of the four winners.
  5. Show Parlays – Again, portion the bankroll for a show parlay over all races. Rewards consistency for identifying competitive horses, but not producing huge multiples.
  6. Rolling Doubles, Pick 3s – Like options 3 and 4, rewards streaks and consistency.

Without a doubt, these scoring ideas trade simplicity for rewarding skill. To implement properly, the holder of the contest must be very thoughtful about how to weight the various elements. A lot of trial and error will probably be involved. That said, I have been tossing around a handicapping contest design around for some time. This is a first iteration, but I believe it would be a fun contest to play.

  1. 40% Weighted Upfront Picks, Win-Place-Show, Uncapped – This is designed to reward handicapping in advance of the event. The show payoffs reward identifying longshots that may figure into payouts, but may not win. Uncapped winnings reward identifying horses whose morning line do not reflect its eventual payout – a handicapping skill in and of itself.
  2. 40% Weighted Live Scoring, Win-Place, Capped (20-1, 10-1) – The traditional handicapping design. Allows players to change picks to changing conditions and longshot players to get back in, but with a lower chance of catching up to those who handicapped correctly in the first place.
  3. 20% Parlay, Live Scoring – Win, Capped (20-1) – Rewards consistency of picks in order to maintain a bankroll. Picks can be changed to reflect conditions. Multi-winners should have larger bankrolls into final races. Cap evens out impact of large longshots.

Given the ubiquity of free tools, like Google Sheets, to track this information, such a contest would not be too difficult to coordinate. It may be somewhat difficult for a 10th place contestant to figure out how exactly to bet the final race to make the top 5. You know what, that’s okay – the simple designs make it too easy.

If my work and life allows, I may inaugurate a contest like the above. Do stay tuned.

Towards a Better Handicapping Contest – Part 1

The handicapping contest in horse racing is a special animal: it offers the promise of a better return on investment (ROI) for the skilled handicapper because the parimutuel takeout does not apply or is effectively lower. A $100 entry into a contest with 100 competitors may pay out $9000 in total prize, meaning the average return for all players is 90%. $10,000 of bets into parimutuel pools may pay $7500-8500 depending on what pools are bet, exotics having higher average takeout than straight pools.

 Of course, a handicapping contest doesn’t pay out unless you finish in the top 5-10% of all competitors, and often your winning is an entry into an even larger (but more lucrative) handicapping contest. This is essentially what the National Handicapping Contest (NHC) tour is about – win a qualifying event to play for a million-dollar-plus prize. Other contests, like Derby Wars, offer the more standard contest: pool the money, winners take all.

 There are more casual events that may be played among friends or, say, a large e-mail list following a prominent racing meet. Serious handicappers should devote a portion of their handle to playing in these contests for several reasons:

  1. They may improve your ROI
  2. They encourage an in-depth look at races that can improve your parimutuel wagering
  3. They can be a tremendous amount of fun

The last is important. I understand that people, generally, gamble because they may win money but the activity of gambling itself is a form of entertainment. I will not bemoan a trip to Vegas losing a few hundred dollars if that time was spent, with friends, at a blackjack or craps table. I know the risk, I know the outcome is mainly luck; if I’ve passed the time in the company of friends, it’s money well spent.

Racing is the same – betting on the ponies is meant to be fun. I think handicapping contests capture that spirit better than most. It is true, however, that the contests themselves leave something to be desired in how the winners are ultimately decided. Let me explain.

The most popular contest today is the win-place contest. Eight to ten races across a single or multiple racing cards are selected for contestants to pick horses. For each race, a contest picks a horse and, if it finishes first or second, the contestant wins the win, place, or win+place payout on that horse toward their contest score. Trouble is, sometimes a huge longshot comes in; those that had it are almost impossible to beat in the contest. So, most contests place a cap on how much can be won – typically 19-1 to win, and 9-1 to place.

Those same contests, however, usually have scoring that is updated live, such that each contestant knows where they stand. Those in the back of the pack, trying to get into contention, will only pick longshots in the hopes that a placing will vault them back up the standings. Those in front, who might have picked legitimate chances, may find themselves losing to luck instead of skill, when the contest is mainly designed to reward skill.

Thus, the skilled handicapper says, all picks should be made in advance. A different skilled handicapper may rightly say, however, that her picks are based on odds nearer to post-time, she is picking between two horses, and besides the track for this race has shown a bias that I want to play (or it’s come off the turf, or turned sloppy). An upfront contest couldn’t anticipate such an outcome and would be as much determined by luck as the live scoring option.

You might notice that both the above options sacrifice the impact of skill (vs luck) for simplicity. It’s very easy to comprehend the rules for a win-place(-show) contest, capped or uncapped, and their simplicity I have no doubt makes them popular. Common variations like the NHC introduce more races, mandatory and optional races, and best bets (2x payoff). The Breeders Cup contest is a “live money” contest where the contestants can play anything on the BC races. If I recall correctly, however, the winners of recent ones simply made a large win bet on the BC Classic winner – while recognizing their skill, ultimately the contest came down to picking the winner of one race.

For a handicapping contest to truly identify skill (consistency in picking winners) over luck, the scoring system must ultimately increase in complexity. In my next post, I will make some suggestions to improve contests that do that very thing.

Belmont Stakes 2012 Preview – Rooting vs Betting

Edit 12:05 PM EDT 6/8/12: Well, shoot…

Rooting for History and I’ll Have Another

I have to admit I’m nervous about this upcoming Belmont. I have been a racing fan for a few years now (2005) but have  really  embraced the sport (and its issues) in the last two or three years. (Amazing what an ADW account can accomplish on that front.) This year I wanted to take it up another level, deepen my study of handicapping (starting with the role of pedigree in Kentucky Derby winners), and sharing my insights with the community with this site.

I’ll Have Another was my Derby horse the moment he and Creative Cause (in step) passed Blueskiesandrainbows in the Santa Anita Derby. Win or lose, he’d have the money to go to Louisville as (I felt) a great fit for top honors at a price in the Derby. I’ll Have Another was my first Derby winner as a true fan; he’ll always symbolize to me what’s possible in this great sport.

Personally, I also think he is the horse most likely to win the Belmont on Saturday. I think he has the best classic and distance pedigree, he fits on speed and class, the pace set-up won’t be uncommon, and I think Doug O’Neil has done an excellent “old-school” job training him to this point. I will be cheering for him with every ounce of passion I can muster, but I’ll be a ball of nerves that entire day.

Betting for Profit and a Bigger Score

I may only bet the $2 souvenir ticket to win on him, however. Ed DeRosa of noted on Twitter that Smarty Jones in 2004 would have paid better to place than to win, because of all the souvenir tickets that were placed in the win pool and never cashed. IHA may get the same treatment Saturday; if I make a big straight play on him, I’ll probably bet him to place, which may result in a similar (or better) payout as the win pool. That’s value when you believe in a horse like I do with I’ll Have Another.

I want to bet a different opinion entirely. Union Rags was sent off the 2nd choice in the Derby and finished a troubled sixth. Given his popularity pre-Derby, he will likely be the 2nd or 3rd choice in the Belmont depending on how the public rates him vs Dullahan. I do not believe Union Rags has the pedigree to win the Belmont. I think a lot of excuses (post, jockey, traffic) were made for his performance in the Derby. Personally, I believe Union Rags can be a spectacular miler, which is what his pedigree points to. He may contest the Belmont to the quarter pole, but likely no further.

I think he has a fantastic chance to finish off the board and even out of the superfecta, which should improve the value in exotics pools, as I expect UR to be on many a ticket. As for who I like, I go back to my pre-Derby thinking that this a formful, consistent crop of three-year olds where recent performance and pedigree are meaningful indicators of success. Getting a price will be the most difficult challenge of the weekend, so I’ll be putting most of my money into tris and supers of my top selections.

Based on class and connections and training reports, I expect Dullahan to run a big race.  His Derby 3rd was earned tracking (nut not gaining on) IHA for most of the stretch run. His half brother Mine that Bird ran 3rd in his Belmont, and I think Dullahan is a better runner. Next to IHA, I’ll have Dullahan on the most trifectas and superfectas.

Bob Baffert’s Paynter is the horse I believe has the best chance to upset I’ll Have Another for win honors. He finished 4th behind IHA in the Santa Anita Derby and has run two good efforts since, his last posting the 2nd best speed figure in the Belmont. His sire, Awesome Again, is a BC Classic winner and has sired some of the best runners in the last decade (see: Ghostzapper). His dam is a full sister to Tiznow, the only 2-time BC Classic winner. I think Paynter is just now coming into his own and you know Baffert wants to turn the tables on I’ll Have Another. He’s also likely to be a good price as a 4th choice behind IHA, Dullahan, and Rags.

Street Life was my sleeper horse after I saw him a late-running 3rd in the Peter Pan Stakes at Belmont. His route to Belmont went through Belmont the same way that Drosselmeyer did two years ago. By Street Sense out of a Grindstone mare (Derby winners top and bottom), he also has the pedigree to run long and could definitely be a spoiler. I’ve reevaluated my initial opinion of him somewhat (having liked him more last week) but mostly because I like Dullahan and Paynter more than I did. I do love his Twitter handle, however (@DeepCloser) – more creative connections than most.

As for the other contenders, I could see either of the Oaklawn runners (Optimizer, Atigun) cracking the deep exotics if the race completely falls apart. I’m not leaving Union Rags out of all my supers because he is a really good horse but don’t see him adding a ton of value overall.

Betting Strategy for the 2012 Belmont

Big bet on I’ll Have Another to PLACE ($2 Souvenir to WIN)

Decent Bet on Paynter to WIN/PLACE at 8-1 or better. (AND SHOW at 10-1 or higher)

Decent EXACTA BOX IHA/Dullahan/Paynter

Small TRIFECTA BOX IHA/Dull/Payn/Street Life

Larger TRI KEY with  IHA over D/P/SL, Smaller with Paynter over IHA/D/SL

Various $0.10 SUPER BOXes and KEYs, leaning on IHA/D/P in top 2 slots and stretching to ALL in 4th

Good luck. Let’s go I’ll Have Another!

Takeout – The Price Isn’t Right – Part 2

In the previous installment, I argued that the takeout on bets in thoroughbred racing is too high, both for current players and for other bettors who do not now find racing to be a profitable betting opportunity. In this update, I want to examine why tracks and racing associations are so reluctant to lower takeout. In the next installment, I propose a solution that could lead the industry to finding the optimal price for its product.

Tracks (or frequently, state racing associations owning several tracks, like NYRA) do not want to lower takeout because they believe they will lose revenue doing so. Frequently, they are right. Allow me to explain.

Takeout accounts for most of the direct racing-related revenue that a track earns. The track, however, does not capture all that revenue – it is split among multiple parties, but two are the most important: track operators and bet-takers. The track operator usually must split its revenue share according to certain terms: purses get 25% of revenue, the state gets 5% in taxes, the track keeps 70%. Consider then two scenarios (for simplicity sake, assume takeout is 20% on every bet):

  1. A $1 bet is placed at the track – as the bet-taker, the track gets $0.20, dedicates $0.05 to purses, sends a penny to the state, and keeps $0.14.
  2. A $1 bet is placed at an OTB/ADW – the bet taker now gets $0.12, the track gets $0.08, purses get $0.02 of that, the state still needs its penny, and the track gets $0.05 (and these may be generous terms for simulcasting – I do not have the agreements in front of me.)

As an aside, this dichotomy is frequently explored by Fred Pope in what appear to be quarterly opinion pieces. I’ve linked to a Paulick Report index of his articles. His argument boils down to that this structure is what is hurting racing, not the overall price level. I agree that the revenue sharing is genuinely an artifact of the early days of simulcasting, when new bet-takers needed to be compensated for large capital investments that have long since been recouped. I think Pope mistakes a secondary pricing issue (structure), however, for a primary one (level), since vertically-integrated racing firms like CDI, Magna, and (to some extent) NYRA have largely obviated the structure issue by owning their own ADWs.

Arithmetic explains the rest. In the last installment, I laid out that handle necessarily goes up when takeout goes down because incremental winnings get re-bet. But how much so – in this case, my 20% handle world gets a takeout decrease to 19% – yay. Handle on all pools is $100,000/race, on-track bets only.

  1. After first race, winners collect $1000 more than they normally would have and bet all incremental winnings in race 2.
  2. Handle race 2 is $101K – winners win $101 more than usual….and so on
  3. At the end of the day, handle is up 1.01%
  4. Racing-related revenue is down 4.04%, as the 1% takeout decrease

In this world, horseplayers did not bet more into more-profitable pools nor did new money come in. This is essentially the tracks’ stance: if horseplayers do not change their behavior (i.e. bet more), then the math-driven increase in churn and handle is simply not going to cut it.

In other words, incremental handle decreases are not going to improve track revenues. (This is especially true when you take the bet-taker’s share into account; if the track has to take a $0.01/bet decrease on every dollar, that can mean a 20% decrease in operating revenue from simulcasting.) There is, however, a takeout rate at which thoroughbred handicapping becomes cost competitive with sports betting and poker. At this rate, whales – large handle bettors – should become interested in betting into racing’s pari-mutuel pools. At this takeout level, we should see a step-function increase in handle and track revenues.

What is this takeout rate? I don’t know, obviously, but I imagine it is closer to 10% (the sports betting rate) than 20% (approx. the racing rate). It’s not hard to imagine track officials are frightened to cut racing revenues by 40-60% to find out. A wrong guess can put their livelihoods in jeopardy – who wants to be that guy? Plus, it’s hard – the negotiations would be extensive with horsemen, ADWs, and state commissions, each of whom would be difficult to convince that their revenue would not go down. Instead, we get small, low-risk changes like 15% Pick 5s that won’t be taking money out of any pools, or money out of any pockets.

Price discovery is not a risk-free proposition, but it need not be as scary or difficult a proposition as the industry is making it out to be. I’ll propose a solution with my next 750 words.

Takeout – The Price Isn’t Right – Part 1

The price of betting on horse races in the United States is too high. I say that as a horseplayer, a student of economics, and a professional whose job is literally pricing. Now, there are many industry insiders who would say the opposite, that the price of betting on races is too low, that more revenue is needed to support purses, track operations, and generate a little profit for owners. The “price” of horse betting is, of course, the takeout on a bet which for most bets is between 15 and 30%.

We horseplayers say takeout is too high for many reasons, but the one I find most compelling is that the horse betting is highest compared to other forms of betting, most importantly sports betting and poker. Horse racing shares with these the fact that the player does not bet against the house, but against other players, the casino or bookie taking a percentage of every bet as their revenue. Vegas sportsbooks across the board charge a 10% fee; on a 50/50 prop bet (e.g. with point spreads), the house will take $110 to win $100. A typical poker room will take 10% of every pot – however, most tables will have a max rake per hand (say $4 at low levels) that decreases the effective take rate on really large pots. These are player-friendly business practices – clear pricing and volume discounting.

It is no wonder smart money bets sports or poker tables. Any edge a player can garner over the public is not whittled away by the house. A 55% strike rate can win in sports betting at even odds. Poker has a different strike rate, but the biggest money games have a very low takeout % – it costs house just as much to put on $1/2 No-Limit game as it does a $1000/2000 game, so the rake is adjusted accordingly.

Most horseplayers, however, bet into pools with takeout between 16-22%, requiring a much higher success rate to break even. The common argument from tracks is that most players do not respond to lower takeout nor do they change their behavior much when takeout increases. But basic math tells us that handle will decrease with higher takeout, and vice versa, holding player behavior constant. As winning bets win less, players will have less money to bet into subsequent pools, decreasing “churn” and handle in turn.

Coordinated efforts such as the HANA boycott of California tracks last year have had a one-time impact on handle, but Santa Anita (at least) has come back this year, driven primarily by the increase (by over 1 horse/race) in average starters. Lenny Moon over at Equinometry suggests a similar tactic, diverting play into pools with lower takeout rates in hopes of convincing tracks to bring rates down. I like this tactic but am afraid that the “herding cats” metaphor applies to horseplayers all too clearly – it is very difficult to drive collective action when there are so many other factors that drive players to bet.

Similarly, I find it telling that a lot of racing handle is being diverted to forms of play that have lower takeout naturally. For example:

  • Carryovers – frequently, large carryovers create positive expectation bets because the free money part of the jackpot pool is frequently a greater percentage than the takeout
  • Syndicates and Players Pools – Players will use these to go after the jackpot Pick-X races (and carryovers) which have higher total takeout but averaged across races are lower. Usually, the payouts exceed the win parlay for the X races, partially a product of the lower average takeout.
  • ADWs – ADWs have rewards programs for large bettors that frequently provide cash for higher betting volumes. This cash back policy reduces effective takeout for the player.
  • Handicapping Tournaments – entry fees are pooled and winnings split, frequently with no takeout. Even when these tourneys have a live bankroll playing into the pari-mutuel pools, the effective takeout is much lower for the winning players.

I certainly have taken advantage of all these options, even if most of my play is in p-m pools. I especially want to give the tourney structure more of a try, but Saturday afternoons are prime family time and I cannot yet play Derby Wars in my state. Regardless, I find it fascinating that betting is growing where the price is the lowest, and technology is enabling those lower prices – a trend I expect to last well into the future.

In the next installment, I’ll look at the track’s perspective and why so many are reluctant to try lower takeouts in their main pools and what I think is the best solution for finding the right price to play the ponies.