Finding Value in Horse Racing: “The YoYo”

Perhaps it shouldn’t, dear reader, but it came as something of a surprise to me to discover that in winning the St Leger with Mastery on Saturday, Godolphin were taking their first British Classic since the same race five years ago. The value of their stock has seemingly been falling, and it’s generally recognised that the St Leger – though still a worthy contest – is the poor relation of the quintet of races that comprise the Classics.

Against this and in stark contrast, has been the almost total dominance of the Coolmore breeding operation. Up until this season at least. This season, Ghanaati (1000 Guineas), Sariska (Oaks), Sea The Stars (2000 Guineas and Derby), and now Mastery in the Leger, has seen the stock of Coolmore diminish somewhat.

Or has it?

The problem with both of these assumptions is that they are made in the microcosmic ‘goldfish bowl’ of British racing. Horse racing is a more global sport than its ever been, and this is reflected as much in breeding as in racing.

Consider this for example: despite Godolphin’s apparent Classic famine, they’ve actually registered five Group 1 wins in the last SIX weeks! The other four were all in the States and all, incidentally, at Saratoga.

Over the last five years, Godolphin has registered 34 Group 1 wins, only eight of which have been on ‘home soil’. Their wins have come as far afield as Sha Tin in Hong Kong, Caulfield in Australia, and both Belmont Park and Hollywood Park on the East and West coasts of the US respectively.

Demise? What demise?!

For Coolmore, theirs is also increasingly a global breeding game, with the likes of Giant’s Causeway and Henrythenavigator (not to mention Fusaichi Pegasus) standing in the States; and, Choisir, Dylan Thomas and Haradasun all standing in Australia. This, of course, complements Galileo, High Chapparal, Montjeu, Peintre Celebre et al who stand at the original Coolmore Stud in Ireland.

There’s big bucks in breeding, and most of them are not confined within these shores, a fact that is not lost on the bloodstock moneymen.

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Let’s go a step further with our value debate now, and consider how we might apply it to betting. It is a commonly known fact that favourites win roughly one in three races. (In fact, over the years 2004-2008, they won on average 29.65%, or just under three in ten races). The average odds of these winning favourites is around the 2/1 mark, resulting in a loss of just over 6% of stakes.

So, in theory, if we could find a group of favourites who won with the same frequency at average odds of 9/4 or more, we’d be able to know we were getting ‘value’ on the horse.

We have then two considerations: odds and likely winning chance. The closer to the top of the betting market we are, the more closely aligned these two variables are.

For instance, with favourites starting at odds of 1/2 or less, they win roughly 73% of the time, and return a loss of just 2.32% to level stakes. At evens to 11/8, these figures become 42.7% strike rate and a loss of 6.19%. Favourites starting at bigger odds have won less often still, and recorded a higher loss to level stakes.

So even finding a sub-group of favourites by price alone will not enable us to profit. But what about a particular race type. Novice chases, for example, have a notoriously high winning favourite rate.

Indeed, novice chase favourites have won just about 40% of all their races over the last five seasons. But… they still returned a loss of 4.54% on stakes. Despite the apparent discomfort of backing favourites in novice chases (who hasn’t heard the saying, “Never take a short price about a favourite in a novice chase”?!), the evidence is contrary to this.

Let’s go a step further. Backing novice chase favourites at odds of 1/2 or shorter, saw a win strike rate of 75.86% and almost negligible loss of just 0.81%. Still not quite profitable, but it certainly ‘outs’ the old adage as absolute bunk.

My point in this is that those who are afraid to take short prices, and who talk about value, omit to incorporate the fact that short prices can offer tremendous value!

For example, on the face of it £30,000 is a lot of money for a car. But if the car was a Ferrari many people would strive to pull the funds together, because of the value.

Another example: if you’re anything like me, you’ll get this. I’ve lost count of the number of times I’ve bought something from the supermarket that I didn’t really want or need simply because there was a two for one offer on. I know its sad, but I’m a value hunter to the core!

Our old friend, the ‘older horse favourite in sellers’ system (see http://www.geegeez.co.uk/892/even-bad-races-have-a-winner-a-new-system/), showed a subset of favourites – in turf sellers, and aged 4 or older – who won at a very gratifying 38.95% and returned a PROFIT of a whopping 40.34% on stakes.

It seems that these horses are underbet because they’re considered to be precarious punting propositions (easy for me to say!). And yet, the evidence is contrary.

Of course, as this realisation dawns on the market, so the prices will truncate and – whilst the horses will likely still win at the same rate – their profitability will reduce and then turn into a loss.

This is the ‘value yoyo’.

Racing systems have a finite shelf life. Any system that claims to have been fifty years old and successful throughout is either lying, or it is lying…! Quite simply, the market factors such evidence into it’s calculations, and a system edge is transient.

That’s one of the reasons that Trainer Track Stats is re-released every year: it reflects the changes in training personnel and performance, and as a result retains its currency (i.e. recency) and – therefore – it’s ability to generate currency (i.e. folding)!

So, the next time you’re looking at a short priced favourite (especially in a turf selling race), don’t be afraid to consider the fact that it may very well offer the best value in the entire race – maybe even on the whole card.

Best,

Matt

p.s. what are your thoughts on value? Add a comment and add to the debate. 🙂