I’m going to be upfront here and tell you that I almost never bet on horseracing.  Maybe it’s fun if you know what you’re doing, but I don’t, so I don’t have much interest in on something with such a large house take.  I know that internet horse betting can be more advantageous to the player, but somehow it’s just not much fun for me.  But today is Preakness day, so I figured I’d blog about it anyway.

Here’s what I know about betting horseracing, and it’s all from a few papers I’ve read in economics journals (yes, some economists actually do interesting work).  Horseracing pools are parimutuel, meaning that the odds on bets adjust as money comes in on different horses.  One big difference between this and sports betting is that in horseracing, you don’t know the odds on your bet until the race begins.  So you may make a bet that appears to be a good value, but that becomes a bet you really don’t like by post time.  With sports betting, you can take advantage of a mispricing by locking it your bet at the current odds.  I think horseracing would be much more interesting if bets acted like stocks, in that if you made a bet on a longshot, then he became more favored before the race started, you could sell your ticket back for some profit.  Maybe I’ll start a betting exchange like that one day.

So here’s what the papers I’ve read have shown:

1.  Horse bettors are very risk-seeking, as opposed to standard economic theory where agents are assumed to be risk-averse.  The result is that people love longshots and hate favorites.  Really, who wants to go to the track and make bets that pay out at 3:5 all day?  So, as people bet for excitement, favorites become undervalued and long shots become overvalued.  This is especially true with regard to the “place” and “show” markets.  Nobody has any fun betting the favorite to show, because it pays almost nothing, so these end up being the best bets you can make.  But if you did only this, you could turn a small profit in the long run, according to the datasets and analyses in the papers I read.

2.  The late money is in fact the smart money, like the saying says.  Horses that become more favored close to post time are more likely to win than those whose odds remain relatively constant or go up.  So bet those late movers.  Again, this is borne out by the data.

Nothing too exciting, but perhaps one could make these bets interesting while taking advantage of the favorable odds.  Like betting a trifecta or exacta with the big favorite as the winner, and some last-minute movers in the next slot or two.

An idea that came to me while reading these papers is that perhaps horses with appealing names are overvalued, especially on a day when lots of casual bettors are in the market, like any of the Triple Crown races.  So many times at the track I’ve heard women (sorry ladies) picking horses based on the names.  I have no idea how whether such an idea is supported by the data, and it might be difficult to test due to the subjective nature of what constitutes a lucky-sounding name.  But this is a project I’d like to work on in the future.  Maybe I’ll try an exacta today with Rachel Alexandra first and the worst name I can find second.