Value on Zenyatta?

The subject of value in horse racing has been a hot topic on Twitter recently. Kevin and I in particular have helped drive the debate with some help from Chris, who discusses value in straight wagering at the Hello Race Fans site (Kevin discusses multi-race wagering at the same site).

It's easy to identify (what you perceive as) value on the longshot end of the spectrum. If you think a horse has a 10% chance of winning (fair odds 9-to-1) and said horse is 15-to-1 then that's an obvious opportunity since if your handicapping is correct then over the course of 100 of those situations you'll bet $200, win $32 10 times, and lose $2 90 times for a $120 (60%) profit. Easy game.

Much more often than not, though--and Dave Litfin addresses this in his book Expert Handicapping--the prime wagering opportunities most typically occur in the sub $10 horse range. And because of bankroll considerations vis a vis concepts related to the risk of ruin, most players are better off playing the overlays that are more likely to win than those that are fewer and far between despite a higher ROI.

Tweaking our example from above, let's say we've identified a horse we suspect will win a third of the time (fair odds 2-to-1) going off at 3-to-1. Over the course of 100 plays we'll have bet $200, have won $8 33 times, and have lost $2 67 times for a $64 (32%) profit. Still a VERY HEALTHY total but nearly half what we make when we zero in on 15-to-1 horses who should be 9-to-1.

However, we win something more even if that something is less than in our first example.

If our handicapping is correct then that should-be-9-to-1 horse will lose three consecutive races 73% of the time, and it will take 22 consecutive races before it's more likely that it will have won once than lost every time. That should-be-2-to-1 horse will lose three consecutive races only 30%, which means he'll win more often than he loses three times in a row. That kind of statistic makes it harder to zap your bankroll dry over the long run since the game has a built in 15%+ takeout.

But how low is too low? There's no such thing as a sure thing in racing, so obviously even undefeated two-time champion Zenyatta in the Apple Blossom Stakes can't be viewed as 100% to win the race, but she's at least 90%, no? Even at 72% (fair odds 2-to-5) she'd be value at her morning line price of 3-to-5, but that estimation is so ridiculously off base it's not even worth considering.

The question is, will she be 1-to-20 ($2.10), 1-to-10 ($2.20), or 1-to-5 ($2.40)? If she's 1-to-5 then a win bet isn't the worst investment in the world if you give her a 90% chance of winning. Over the course of 100 plays, you'll bet $200, win $2.40 90 times and lose $2 10 times for a $16 (8%) profit. If you go as high as 95% chance of winning then the profit balloons to 14%, but 90% is as high as I'm willing to go and since I think we'll see 1-to-10 instead of 1-to-5 she's a no bet in the win pool.

Oaklawn does a good job of keeping secondary pari-mutuel outlets out of its wagering pools, but it's hard to envision the whales not getting active in this race and driving Zenyatta's price down to 1-to-10. Consider someone who receives a 5% rebate on his win wagers. A $10,000 win bet on Zenyatta at 1-to-10 would return $11,000, meaning the profit on the bet itself is $1,000 but the rebate actually makes it a $1,500 profit. Never underestimate the power of rebates in the pools you swim in.