Wednesday, May 4, 2011

Betting the Races: An Overview

When you bet on football games—which is purely hypothetical unless you live in Las Vegas or Aruba because it’s illegal—you wager on a fixed line. The casino or other source of legal, legitimate gambling tells you what you will get if your bet is successful when you make that bet. You have a contract with the casino, payable if the condition happens. If the casino offers a better deal to others later on, too bad. If they offer worse offers to other people later on, then you’ve placed your wager at a good time. When you win, the casino pays out; when you lose, the casino takes the money. The casino wants you to lose, so that they can build fountains and marble statues and elaborate showgirl headdresses and sixty cent lunch buffets that would make a Babylonian Emperor blush from the decadence.

Horse racing doesn’t work that way. Generally (there are exceptions not worth getting into here), the track does not care whether you win or lose, because they win money either way. Unlike sports betting at a casino, horse tracks operate on the pari-mutuel system. At its most simple, here’s how it works: people bet on different horses to win. When the race begins, that money is pooled. The track takes its cut of the pool, and then pays out the remainder to the winner. The bettors who wagered on the winner get their money back, plus their fraction of the remaining pool. The track gets its cut regardless of who wins; all it cares about is getting as much money wagered as possible.

Take, for example, a race in which $100,000 is bet on all the horses combined to win, and $10,000 is bet on the actual winner. Imagine also that the track’s take is 10% (usually it’s higher on win bets, generally around 16–17%). That leaves $90,000 for the winners, so for every dollar wagered on the winning horse, the bettor would get $9 in return. Note that this means no one knows how much they would get from a winning bet until the pool is closed; as long as money is still being wagered, the odds can change. If you bet a horse that is currently 15-1 and at race time he is 5-1 because someone placed a huge bet on him, too bad—you’re only getting 5-1.

This makes horse racing rather like poker. The more skilled the other bettors are at picking winners, the less you will win if you also pick the winner. Fortunately, since so many people bet the Kentucky Derby, there’s lots of new (some might say dumb) money in the pools. It’s as if ten million people sat down to a poker game, and a healthy percentage of them made their wagers based on whether their cards were pretty or not, or whether they liked the name of the queen of diamonds, or whether the four of clubs has an interesting backstory.

There are several different bets you can make, and each bet has its own pool. In other words, how much the horse will pay if it wins does not affect how much it will pay to place or show (though the numbers are often correlated, since horses that are favorites to win are usually favorites to place or show, too). Here are the bets and standard units for betting on most races, including the Kentucky Derby:

Win: Horse must win the race. ($2)
Place: Horse must win the race or finish second or third. ($2)
Show: Horse must win the race, or finish second or third. ($2)
Exacta: One horse must finish first, and another horse must finish second. ($2)
Trifecta: One horse must finish first, another horse must finish second, and another must finish third. ($1)
Superfecta: Same as trifecta, but add the fourth horse as well (usually $.10, but minimums will be $1 for the Derby).
There are also bets where you pick multiple race winners in a row (daily double; pick 3, 4, 5, and 6).

For the bets in which you must name multiple horses in order, these horses must finish in the order you say; if you get the right horses but miss the order, you lose. You can box the horses, which means they can finish in any order (if you place an exacta box for the 3, 7, and 10 horses, any finish that has the 3, 7, or 10 in first and second wins), but all you are doing here is buying every combination. In other words, one of your bets in the box wins, and all the rest lose.

The more complicated bets are almost impossible to hit dead on in one shot. Take the trifecta, for example. In an ordinary race with ten horses, there are 720 different potential finishing combinations. In the Kentucky Derby, which often has twenty runners, there are 6,840 combinations. The Derby superfecta has 116,280 potential combos. Hitting these in one chance is almost impossible.

At the same time, boxing combinations quickly adds up. Boxing three horses for $1 costs $6. Boxing four costs $24. Boxing five costs $120. Instead of a box that captures every combination, many players will “wheel” their picks. Here, the idea is that there will be more chaos as to who comes in third or fourth than who finishes first. But boxing the horses treats every combination the same (a five horse, $1 box for $120 is just purchasing all 120 combinations). Many bettors will pick one or two horses on top and more options on bottom. For example, for that same $120, the bettor can pick two different horses that can finish first, six different horses to finish second, and twelve different horses to finish third for that same $120. In exchange for fewer options at the top, the bettor gets more options for later runners.

The part wheel might also be an attractive option in two other situations. Perhaps there is a horse that is obviously the best in the field, but there’s two longshots that you like to finish second. You could bet those horses to place, but if the favorite wins, that place bet won’t pay much, because most of the place pool will be extinguished when the place money bet on the favorite is returned. Instead, the bettor might lay an exacta wheel with the favorite on top and the longshots on bottom. It won’t pay all that much, but chances are it will pay quite a bit more than the place payout.

Finally (and this is rare), the part wheel can protect a bet for a horse to not win. If there’s a horse you really like to finish second, but only second, the place bet doesn’t do you any good. Instead, you could build a part wheel the other direction, with more options on top and only one horse in that second spot. I only see this situation come up a few times a year for myself, but it can still be a useful tool.

Some quick tips to betting the Kentucky Derby:

Feel free to bet on whatever basis you like: By all means; that will only make everyone else’s winning wagers pay more. This is supposed to be fun, and if betting the gray horse or the one with the cool name is fun for you, then do it. Someone out there probably bet Mine That Bird two years ago because of his Aunt Linda Bird or because Grandpa Cletus was a coal miner, and that guy won a healthy amount of money.

Don’t bet seven horses to show: yes, you’ll probably cash at least one. But you’ll be really disappointed when you only get back about how much you paid for all the bets. I’m generally skeptical of show betting, but the payouts do tend to be pretty strong here because of all the entrants. Still, you’ll eat your profits away with too many combinations.

Take a swing at the exotics: the payouts can still be healthy, even when the results are pretty ordinary. For example, in 2007, the horses that finished first, second, and third were three of the top four choices to win the race, but the trifecta still paid over $200 dollars for a $1 wager. If you had boxed the top four choices, you’d have wagered only $24 and gotten back over eight times that much.

And that trifecta payout was unusually low by Derby standards. Favorite Big Brown won in 2008 with logical second and third choices, and the trifecta still paid $1700 for $1. Three very reasonable selections hit the board last year and the trifecta paid $500 for a buck. You don’t need to go in deep, but at least take a chance; the big payoffs are unique to horse racing.

Stay within your means: Obviously. Set a budget and stay there. And have fun.