Friday, 4 January 2019

An Acceptable Reward

There's nothing like a healthy debate to get the hit count climbing. The topic is the impact to the general public of the presence in UK horse racing markets of insiders, specifically can the advantage of insider information be overcome long-term?

Others, far more knowledgeable than myself about betting markets, and who also maintain a healthy attitude of scepticism, have reached the conclusion that 
"long term profitability in racing requires some form of insider knowledge" 
and I am with Joseph Buchdahl on this. With one caveat.

There seems to be no dispute that insider gambling exists. A 2010 paper from the University of Sussex stated that:
It has been suggested that insider gambling is an acceptable reward for those involved in owning and training horses (see the discussion in Crafts, 1985). However, in most countries of the world, the use of insider business information is illegal and it is difficult to argue that horse racing has any features that would make insider gambling acceptable. Thus, there is a strong economic argument for regulation of insider gambling. However, the detection of insider gambling raises many practical problems.
The question thus revolves around just how big a hurdle the advantage held by insiders is. Readers of this blog will know that one of the books that has had the most impact on my sports investing is Leighton Vaughan Williams' Information Efficiency in Financial and Betting Markets.

On this topic, he writes (p140) that:
On the basis of this evidence, Crafts concluded that British horse-racing betting markets do offer insiders the opportunity for profitable exploitation of information not publicly available.  
However, Williams also notes (p139) that some races are more likely to be influenced by insiders than others, an argument which makes perfect sense and which applies to other sports as well.
He [Crafts] reasoned that a shortening (lengthening) of the odds available about a horse during the course of the market may indicate evidence of insiders who knew the true probabilities of that horse winning were greater (less) than those implied in the odds offered early in the market. 
Williams' wrote a lot more in his ~390 pages, and if you are serious about making money from betting, you really should read every page, and probably more than once. It's not cheap, but you get what you pay for, and the book should pay for itself many times over. 

Insider information is logically much less of a concern in the Derby than a Maiden race at Cartmel, and while there is only one English Derby a year, there are certainly several high profile races a year where a disciplined expert bettor would be playing on a fairer playing field.

Again, the idea that anyone outside of the racing industry can be profitable long-term seems unlikely, but with a selective approach, I'm happy to concede that it is theoretically possible.

I was expecting someone to give this selectivity as a reason why my intentionally broad statement might be wrong, but that no one did, is interesting. 

I suspect that in practice, with account restrictions and premium charges, not many are able to make a good living even with such a selective approach. Perhaps the thrill is more in the mathematical challenge of it all rather than for the money. I can identify with that feeling. It would seem likely that the amount of time spent to gain an edge in racing would be significant, and of course, the higher profile the race, the more competition you are up against in the hunt for value, again something that applies to other sports too. The chances of having a genuine edge in the Superbowl would seem to be far lower than in say a season opening Arkansas Razorbacks v Missouri Tigers game.  

Hugh Taylor's name came up during the debate, and regardless of the extent of his relationship with the racing industry, consensus appears to be that his edge comes from poring over the numbers. A lot of hard work, and it does seems strange that he wouldn't quietly go about his business and milk the golden goose, (mixed metaphors intended), rather than give the value away to others. Possibly an At The Races salary exceeds what can be made from backing these selections? 

I'll continue to mostly leave horse racing alone. There are plenty of sports markets with inefficiencies that are easier to exploit. It was suggested that I...
... seem to have an axe to grind against horse betting, I suspect you tried and failed and its comforting to label everyone else the same. It appears you can make wild claims with no evidence and feel vindicated
It would be odd to have an axe to grind against an activity, but regardless, since tracking my results from 2006, my Horse Racing returns are surprisingly positive, (meagre, but nonetheless positive), so I wouldn't say that I have either tried or failed. I'm just not sure the rewards would justify the effort. 

No comments: