For the gambler who prefers betting on horses, the last few decades have been depressing. In many cities, tracks are in disrepair or closed. Individuals who prefer harness races have found the pools they bet into so shallow as to become almost unbettable. Marquee tracks like Miami’s Hialeah, once the winter destination of generations of horseplayers, have disappeared from the racing calendar. New York’s Belmont Park now looks like a ghost town on a Saturday afternoon. The increasing fragility of the North American thoroughbred has meant that many tracks often offer races with five or six competitors capped by an obvious 3/5 choice. Crowd favorites appear and then are gone as soon as the three year old season ends, as owners take advantage of the only place you can find big money these days, breeding.
Players search for tournaments or pool money into pick six syndicates, frantically trying to find a way to take advantage of decades of experience. At the same time racetracks and state governments steadily attempt to increase takeout rates in a losing battle against declining revenue.
If you live outside the United States, however, the advent of betting exchanges has allowed you to escape the shackles of the pari-mutuel world and compete head to head with your fellow handicappers. Marrying the format of financial markets with the world of gambling and employing the global reach of the internet; exchanges have made the game playable again.
The Cost of Doing Business
In the days when Seabiscuit and War Admiral matched strides, the takeout at American racetracks was about 10%. The popularity of thoroughbred racing in this era also allowed for a healthy amount of uninformed players whose opinions could regularly be exploited by better handicappers.
Contrast this to today, where racetracks have consistently raised takeout so that the cost of playing a race in the continental United States usually ranges from fifteen and thirty percent. Competing venues for the entertainment dollar have reduced racing’s popularity to the point that you only see large amounts of uninformed money at events like the Kentucky Derby or Breeders Cup.
At European betting exchanges a player who wants to wager on American racing pays a commission of between 2 and 5%, depending on their level of play. This creates a betting structure for market participants that compares favorably with alternative options such as sports betting.
The Advantages of Fixed Odds Wagering
For the player who takes his chances at an American racetrack, simulcast outlet, or internet wagering platform, the forces of market efficiency exert a rather large toll. Using the win pool as an example, final odds are determined only after all monies have been collected and betting has closed. While the system allows you to see the current odds at any time during the betting, you never actually know the final odds when you make a bet. At larger tracks like Belmont or Santa Anita volatility is tame enough to prevent vast discrepancies for someone who bets shortly before a race, but price drift is still an issue. Additionally, one can never take advantage of a price that is a temporary bargain as it may be corrected before betting closes.
Contrast this with a betting exchange. Here price volatility works to your advantage if you can create an accurate line on horses in a particular race. If a market maker or competing bettor offers 6 -1 on a horse that should be 3 to 1 at Golden Gate you can immediately take the more lucrative win odds. If you know an animal will be 2 to 1 when betting closes and you have the chance to lay at 4 to 1, you can create a riskless arbitrage by betting him in the pari-mutuel pool.
The addition of in-play wagering allows a player with a detailed understanding of pace scenarios, or quick reflexes to take advantage of sudden changes.
Playing the Favorite Longshot Bias
The following table, derived from the most recent five years of data at Aqueduct, Belmont, Saratoga, Hollywood Park, and Santa Anita, exhibits the favorite/longshot bias inherent in thoroughbred racing. This phenomenon has been repeatedly noted in academic literature and books for the past 50 years. Some popular examples are Burton Fabricand’s Horse Sense (1965) as well as Ziemba and Hausch’s Beat the Racetrack (1984).
As can readily be seen, the greater the odds the less return the average bettor receives. At odds of over 30 to 1 or greater players receive a little over half of their investment back in the win pool considerably less in the show pool. You can use the table to determine the minimum premium odds level you might need when backing a horse at various odds levels as well as the cushion you would have when offering a price on an animal you like to lose.
| Odds Level | Total | Wins | WPCT | WIN $2NET | SHW $2NET |
| 0: 4.99 | 52893 | 13881 | 26.24% | 1.67 | 1.75 |
| 5: 9.99 | 39332 | 4364 | 11.10% | 1.67 | 1.70 |
| 10:15.99 | 22033 | 1416 | 6.43% | 1.61 | 1.58 |
| 15:19.99 | 12095 | 567 | 4.69% | 1.66 | 1.48 |
| 20:24.99 | 8563 | 299 | 3.49% | 1.58 | 1.41 |
| 25:29.99 | 6057 | 173 | 2.86% | 1.58 | 1.36 |
| 30:30.99 | 1289 | 31 | 2.40% | 1.49 | 1.25 |
| 31: | 25932 | 307 | 1.18% | 1.06 | 0.92 |
The next table looks further into the phenomenon by examining horses at odds of .40 or less in Graded Stakes at a much wider selection of tracks over the last five years. Flat bets return a loss of less than 5 %, indicating that only slight premiums would allow for a profitable return. If you are offering odds, there seems to be little margin of safety in laying anything close to track odds.
| Total | Wins | WPCT | SPCT | WIN $2 NET | SHW $2 NET |
| 64 | 48 | 75.00% | 95.31% | 1.92 | 2.00 |
For the purpose of finding bargains in the “To Be Placed” pool on Betfair, the following table lists the average show prices for the same tracks and time period we used to create the favorite/longshot bias table. Using this table’s far right column, which translates the show price into odds you would find on Betfair, you have a guide to back or lay. Understand that as the odds go higher you need more of a cushion to offset the increasing weakness of higher odds horses in running to their odds.
| MinOdds | MaxOdds | Avg Show Price | Betfair Equiv |
| 0.10 | 0.15 | 2.10 | 1.05 |
| 0.20 | 0.25 | 2.11 | 1.05 |
| 0.30 | 0.35 | 2.12 | 1.06 |
| 0.40 | 0.45 | 2.12 | 1.06 |
| 0.50 | 0.55 | 2.13 | 1.06 |
| 0.60 | 0.65 | 2.17 | 1.09 |
| 0.70 | 0.75 | 2.23 | 1.11 |
| 0.80 | 0.85 | 2.28 | 1.14 |
| 0.90 | 0.95 | 2.31 | 1.16 |
| 1.00 | 1.05 | 2.33 | 1.17 |
| 1.10 | 1.15 | 2.37 | 1.19 |
| 1.20 | 1.25 | 2.41 | 1.20 |
| 1.30 | 1.35 | 2.46 | 1.23 |
| 1.40 | 1.45 | 2.47 | 1.24 |
| 1.50 | 1.55 | 2.53 | 1.27 |
| 1.60 | 1.65 | 2.56 | 1.28 |
| 1.70 | 1.75 | 2.62 | 1.31 |
| 1.80 | 1.85 | 2.62 | 1.31 |
| 1.90 | 1.95 | 2.67 | 1.34 |
| 2.00 | 2.05 | 2.72 | 1.36 |
| 2.10 | 2.15 | 2.76 | 1.38 |
| 2.20 | 2.25 | 2.80 | 1.40 |
| 2.30 | 2.35 | 2.82 | 1.41 |
| 2.40 | 2.45 | 2.86 | 1.43 |
| 2.50 | 2.55 | 2.91 | 1.46 |
| 2.60 | 2.65 | 2.94 | 1.47 |
| 2.70 | 2.75 | 2.98 | 1.49 |
| 2.80 | 2.85 | 2.96 | 1.48 |
| 2.90 | 2.95 | 3.00 | 1.50 |
| 3.00 | 3.05 | 3.09 | 1.55 |
| 3.10 | 3.15 | 3.07 | 1.53 |
| 3.20 | 3.25 | 3.07 | 1.53 |
| 3.30 | 3.35 | 3.16 | 1.58 |
| 3.40 | 3.45 | 3.17 | 1.59 |
| 3.50 | 3.55 | 3.24 | 1.62 |
| 3.60 | 3.65 | 3.29 | 1.64 |
| 3.70 | 3.75 | 3.30 | 1.65 |
| 3.80 | 3.85 | 3.27 | 1.64 |
| 3.90 | 3.95 | 3.39 | 1.69 |
| 4.00 | 4.95 | 3.55 | 1.77 |
| 5.00 | 5.95 | 3.84 | 1.92 |
| 6.00 | 6.95 | 4.17 | 2.08 |
| 7.00 | 7.95 | 4.40 | 2.20 |
| 8.00 | 8.95 | 4.73 | 2.36 |
| 9.00 | 9.95 | 5.02 | 2.51 |
| 10.00 | 10.95 | 5.29 | 2.65 |
| 11.00 | 11.95 | 5.52 | 2.76 |
| 12.00 | 12.95 | 5.75 | 2.87 |
| 13.00 | 13.95 | 6.00 | 3.00 |
| 14.00 | 14.95 | 6.11 | 3.06 |
| 15.00 | 15.95 | 6.51 | 3.26 |
| 16.00 | 16.95 | 6.70 | 3.35 |
| 17.00 | 17.95 | 6.66 | 3.33 |
| 18.00 | 18.95 | 6.95 | 3.48 |
| 19.00 | 19.95 | 7.12 | 3.56 |
| 20.00 | 20.95 | 7.37 | 3.68 |
| 21.00 | 21.95 | 7.61 | 3.81 |
| 22.00 | 22.95 | 7.64 | 3.82 |
| 23.00 | 23.95 | 7.97 | 3.98 |
| 24.00 | 24.95 | 8.07 | 4.04 |
Additional Approaches
Other biases to be aware of in American racing include the fact that horses racing on dirt with early speed tend to be better bets at a given odds level. BRISNet (www.brisnet.com) incorporates this running style information into its past performances and it can also be readily determined using the Daily Racing Form (www.drf.com). Thus, depending on a particular running style you would need a higher premium to make a bet.
Using exacta prices and serial bet (Pick 3, Pick 4) will pay prices from track simulcast feeds allow a player to calculate implied odds on horses in an upcoming race. This information often gives you a good idea where win prices will end up. As these pools are often larger than straight mutual pools, they can be considered efficient.
On betting exchanges entries are split into separate betting interests. Thus a player with a strong knowledge of trainers or the particular animals involved gains a strategic edge. Strict market makers using the host pools as an information source have much less to work with. As a result you may be able to find relative bargains.
By examining statistics that are readily available at outlets like DRF.com and Brisnet.com one can readily see that inside post positions tend to have a specific advantage at many distances. These advantages can often persist over long periods of time. Below you will find an example, calculated for Beulah Park at five and a half furlongs from mid-2007 through January of 2008.
| Trk | Surf | Dist | PP | Races | Starters | WPCT | IV | WIN $2NET |
| BEU | Dirt | 5.5 | 1 | 115 | 115 | 0.17 | 1.43 | 2.14 |
| BEU | Dirt | 5.5 | 2 | 115 | 115 | 0.13 | 1.13 | 2.20 |
| BEU | Dirt | 5.5 | 3 | 115 | 115 | 0.17 | 1.51 | 1.45 |
| BEU | Dirt | 5.5 | 4 | 115 | 115 | 0.17 | 1.43 | 2.34 |
| BEU | Dirt | 5.5 | 5 | 115 | 115 | 0.08 | 0.68 | 0.99 |
| BEU | Dirt | 5.5 | 6 | 115 | 114 | 0.09 | 0.76 | 1.88 |
| BEU | Dirt | 5.5 | 7 | 115 | 103 | 0.07 | 0.59 | 1.50 |
| BEU | Dirt | 5.5 | 8 | 115 | 82 | 0.10 | 0.85 | 1.10 |
| BEU | Dirt | 5.5 | 9 | 115 | 57 | 0.11 | 0.91 | 2.09 |
| BEU | Dirt | 5.5 | 10 | 115 | 36 | 0.08 | 0.72 | 0.68 |
| BEU | Dirt | 5.5 | 11 | 115 | 23 | 0.00 | 0.00 | 0.00 |
| BEU | Dirt | 5.5 | 12 | 115 | 8 | 0.00 | 0.00 | 0.00 |
These are but a few of the informational approaches you can use to generate an exploitable advantage on a fixed odds wagering platform.
Conclusion
The emergence of the betting exchange has reduced the cost of betting on horses to a level where a player with either superior information or a strong understanding of North American Racing can gain a significant edge. At Betfair, the most popular exchange, the fact that native players are excluded means that those players more familiar with the nuances of American racing can exploit mistakes of their less informed opposition. The result is an attractive market for superior bettors.