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## How to win at the races

I’ve rambled about this before, but with the Melbourne Cup – “the race that stops a nation” – a few days away and Tom Waterhouse’s annoying face on TV too often, it’s worth repeating.

Don’t bet on the horse you think will win!

More precisely, don’t necessarily bet on the horse you think will win. Here is the only betting system that works:

1. For each horse in the race, and before you look at the price offered by the bookmaker, write what you think the probability (as a percentage) is that the horse will win. I.e. if the race was run 100 times, how many times would this horse win? You’ll have to do your homework on the field.
2. For each horse, take your probability and multiply it by the bookmakers price. Call that the magic number.
3. If any of the horses have a magic number greater than 100, bet on the horse with the highest magic number.
4. If none of the horses have a magic number greater than 100, don’t bet. Go home.

The magic number is how much (on average) you would make if you bet \$1 on the horse 100 times, so it better be more than 100. The way that the bookmaker guarantees that they will make a profit in the long run is to ensure that no magic numbers are greater than 100. Because of the bookmakers slice (the overround), the odds are stacked against the average punter. You will only end up with a magic number greater than 100 if either you have made a mistake on step 1, or the bookmaker has made a mistake on his price. This leads to the following advice.

You should only bet on a horse if

a) You know more than the bookmaker, and

b) The bookmaker has significantly underestimated one of the horses.

Thus, the better the bookmaker, the more reason not to bet. And so, we come to Tom Waterhouse’s online betting business:

“I’ve got four generations of betting knowledge in my blood. … Bet with me, and that knowledge can be yours.”

This is exactly the information you need to conclude that you should never bet with Tom Waterhouse. The ad might as well say “bet with me;  I know how to take your money”. You don’t want a bookmaker who knows horse racing inside-and-out, from horse racing stock, armed will all the facts, knowing all the right people. You don’t want a professional in a sharp suit surrounded by a analysts at computer screens. You want an idiot. You want someone who doesn’t know which end of the horse is the front, armed with a broken abacus and basing his prices on a combination of tea-leaf-reading, a lucky 8-ball and “the vibe“. You want a bookmaker that is going out of business.

The more successful the bookmaker, the further you should stay away. The TAB was established in 1964, has over a million customers, 2,500 retail outlets, and made a profit of \$534.8 million in 2011, up 14%. Translation: never bet with the TAB. Betfair’s profits were \$600 million, SportingBet made \$2 billion in 2009.  With those resources, they’ll always know more than you. If you’ve heard of them, don’t bet with them. Go home.

Hopefully you’re getting my point. Don’t bet on sports. If you go to the races, put on a nice outfit, drink a few beers and give the money to charity. If you must bet, have a random sweepstakes with your friends. You’ll get much better odds that way.