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November-25-2006,
Winning on Horses at the Betting Exchanges...By Hartley Henderson

In 2000, Betfair launched its betting exchange to British customers. The concept revolutionized how many people wager. Instead of playing against a bookmaker, as most people are familiar with, Betfair created an environment where bettors wager against each other and the company takes a commission on the winnings. While World Sports Exchange started its own in-running betting markets prior to that, the bettor was still playing against the bookmaker who assumes the risk. As well, World Sports Exchange trades only on specific games, most often on football, basketball, baseball and on the rare occasion, hockey. Betfair trades pretty much every sport, although its most popular sports have always been soccer and horse racing. Without a doubt, World Sports Exchange presents a remarkable betting opportunity for North American bettors to be discussed in a future article, but for this article we will concentrate on Betfair.

The concept of exchange betting is simple. There are 2 lines, the back and the lay. Bettors can either back a contestant and get the odds listed or they can lay the contestant and get the corresponding odds that someone else is willing to back. Say, for example, that the New York Knicks are 5 ½ point favourites over the Atlanta Hawks. While most books will have a line of -110 on both sides, at Betfair you would likely see a line of say New York Knicks -5 ½ points Back 1.98 Lay 2.0 and Atlanta Hawks +5 ½ points Back 1.98 lay 2.0 - so essentially the line is even money on either team. This eliminates the vigorish and costs the bettor the commission on winnings, which is usually 5 percent. The percentage on the commission is reduced if the bettor meets certain criteria. There are other betting exchanges out there, but none comes close to Betfair. Unfortunately, because Betfair doesn't allow American bettors, the odds on U.S. based games usually have quite small handles, and the true value at Betfair is really in British sports where there is often upwards of $5 million traded on a single game. In 2005, Betfair had revenues in excess of £150 million or roughly U.S. $300 million.

Now that everyone has a basic concept of how exchange betting works, let's get into the main purpose of this article. Sure, there are advantages and disadvantages to betting on the exchanges for any sports (traders tend to be sharper and often time bookmakers will offer better odds), but one sport that separates Betfair from any other sportsbook or exchange on the planet is in the area of horseracing, and in particular British horse racing. Betfair allows people to start trading horses the night before the race is scheduled to go off. For all bets the horses must run. If they don't run, bets on that horse are cancelled and the odds on other horses are adjusted based on the percentage of bets the scratched horse had up until the scratch time. And for UK, South African and other special races, they allow trading while the race is actually going on. All unmatched bets are cancelled once the race starts and the bet is "turned in play". At that point all bets are treated as new. A few sports exchanges allow betting up until the race starts if they offer horse racing at all, but only Betfair allows you to bet on a horse race while it is being run. This situation creates an incredibly unique opportunity to win money. I will discuss two proven ways to make money playing horses at Befair and one way which I have found quite profitable without even looking at the race video or reading a past performance.

The first proven method to winning is, essentially, day trading. People who bet on the Betfair exchange tend to overreact to early tote action whether it is a horse whose odds are very low or a horse that should be a low price but is getting little action. For some reason, people playing at Betfair too often think all movement is inside action and they try to profit from it. But most of the time, the "unusual" action is just a bookmaker laying off. Consequently, the odds move very quickly on horses - a horse can easily be 4/1 an hour before the race and close at 10/1. Similarly, it is not uncommon to see a horse who is 15/1 the night before a race go off as a 5/1 favourite by the time it leaves the gate. Naturally, if the trader can figure which horses are big overlays or underlays at the current odds they can make money by backing a horse now at big odds and laying it later at lower odds, or conversely laying now at low odds and backing it later at higher odds. Since the back/lay at Betfair is almost always a very small difference, a big fluctuation in odds can mean a profit opportunity. The difference in odds between the tote closing price and Betfair's odds is generally about 20%. So if you, as a handicapper, project a horse will go off at 4/1 on the tote you can expect him to close at 5/1 at Betfair. This occurs because there is no takeout percentage built into the prices at Betfair.

To see how this works, consider an example: Say a horse is currently being offered at decimal odds of 13 (12/1) with $500 available on him. If you project his true odds at 5/1, then take that action. When the tote odds start dropping, you can then sell it when it reaches the level you suspect it will close at. The beauty of Betfair is that you don't have to wait for that price to pop up to offer it. If you want to lay that same horse for say $1000 at 7.0 (6/1), then your bet sits in a queue. And when the price drops to that level, a bettor (or more often several bettors) will start taking that action once the odds you asked for are the best being offered. So, in this scenario you bought $500 of the horse at an average price of 12/1, sold $1000 on the horse at odds of 6/1. So you've just made a guaranteed profit of $500 less the commission. These prices may seem ridiculous, but they aren't. Fluctuations such as these happen all the time - not all that often on favourites but very often on longshots and middle price horses. Horses will often go from 20/1 the morning of a race to 180/1 sometime before post time. Obviously, if you layed $500 at 20/1 and later bought $200 of the horse at 180/1 you're guaranteed a $300 profit if the horse loses and $6,000 profit if the horse somehow wins. And if you have this action and the horse is doing well during the race, you can lay off some of that action if he has a good start. For example if you have that $6,000 potential win, he's up by 3 lengths in the backstretch, and someone only wants 6/1 on him at that point, you can give that bettor $1000 and make you're guaranteed profit now $1,300 before commission. The above described occurence is not uncommon, and is a proven method of winning. Of course, the key is to know when a horse's odds are too low or too high and this comes with good handicapping, good knowledge of the tracks and also beating other traders to the punch.

The second proven method for winning at Betfair requires a keen eye. While objections (or as they call them on the other side of the Atlantic, "protests") don't happen as often as in North America, they do happen. Usually the results are upheld, but sometimes the results are overturned. Regardless, if you see something that you figure will initiate an inquiry against the winner, as soon as the first horse is about to cross the finish line lay him immediately at the 1.01 odds (i.e. taking 100/1 odds he won't win) that will be asked for by traders who essentially feel they have the sure winner. Consequently, the bettor can back the 2nd place horse who usually will be 999/1 - the highest price Befair offers. Whether the results are upheld or not is irrelevant. When there is an objection, Betfair turns the race back in play and allows you to continue betting the race. Most often you will see it turned back on with say a back/lay of 1.1/1.12 on the winner. That's fine, the bettor is now being offered 1/10 odds on the horse who crossed the line first. Ka-Ching! If, as the bettor, you just bought $200 of the second place horse at 999/1, you can now lay off that $200,000 potential profit by taking the 1/10 on the horse that crossed the line first. Technically, at 1/10 odds you can buy $200,000 (if that much ever gets offered over the life of the objection) and guarantee yourself a $20,000 profit. Alternatively, you can lay off $10,000 over the time span of the objection (a more reasonable expectation) and guarantee an $800 profit if the result is upheld or make $190,000 if it is overturned. Just imagine the adrenaline rush! Again, this method takes a keen eye but many Brits have made money doing just that. There are certain giveaways that there will be a protest - perhaps the jockey standing in a certain way in the reigns, perhaps some jockeys will wave their hands to get a trainer's attention, etc. In any case, if you can spot that sure protest, there is huge money to be had. On the flip side, if the objection never occurs, you lose.

The last way to turn a profit is a method I have discovered. It's pretty hard to get British racing coverage in Canada. Usually the races are on cable channels in Britain and on a web site called attheraces.com. The company isn't supposed to offer the feed to North Americans, but like anything there are ways around it if you want to sign up with them (for example, should you have family in Britain). As well, The Racing Post (similar to our Daily Racing Form) can be hard to read for North Americans, and trying to handicap estimated odds is tough. There are a lot of subtleties in British past performances which are a big deal overseas, but would mean little here in N.A. Thus, what would make a horse a favourite in North America may be irrelevant in Britain. So, I tried to find something that would allow me to win on betting horses in play without having to actually do any work.

The answer seemed to come to me 2 months ago when a British newspaper had a story of a punter who lost $150,000 by offering $150 at 999/1 on a big favourite who won. Obviously the "protest" method described above is one avenue to these offers, but these types of stories seem to happen often. When one bettor loses a lot at the 999/1 odds it makes the headlines, but when a bunch of bettors offer $5-10 at those odds and lose, it isn't such big news - and it happens quite a bit. So for one month, I decided to try a theory to see how it worked. Clearly, the month in question could have just been an anomaly, but I don't think so. While Betfair horse bettors tend to be overzealous with their odds prior to a race going off, they are 10 times as overzealous when the race is turned in play. Thus, if a horse gets a bad jump out of the gate - poof - his odds skyrocket. If a horse is boxed in - poof - the odds skyrocket, etc. In observing the results, one thing I did notice is that big favourites usually win in Britain. That's not surprising. By definition, if a horse is 1/1 then he theoretically should have a 50% chance of winning. And because Betfair has no take out built into the odds, the true win percentage should be exactly what the odds are. Hence, if a horse is less than even money they should win more often than they lose. I decided to look at 3 tracks a day for an entire month, and only concentrated on those races where a horse was even money or less. I was curious to see how high the horse's odds would get to at any point during the race. During that time the first 3 weeks, there were 190 races with horses even money or less. 101 of those horses won, and on average the highest odds the horses reached was 8/5. However, in 40 of those races horses reached 9.0 or 8/1 before they came back down, and in 8 of those races the horse reached 50/1. While in 3 of the races the horses reached that coveted 999/1 mark. So, for the last week, I decided to do the following: For each race where a horse was even money or less, I put a $5 order in to back the horse at 8/1 odds as soon as the race was put in play. I didn't watch the race, handicap the race or even follow the action in progress. I simply went to totesport.com to check the result about 10 minutes after the bet was placed. During that time there were 23 races that fit that bill. The 8/1 was backed in 8 of those races, and the horse won in 4 of them. So my $40 in matched bets netted a profit $140, or 250%. Again, the sample is very small, but from the month observing results it seems this is quite common and could be an invaluable tool to winning at Betfair. If the British bettors want to overreact to something in the race, take advantage. Betfair does offer U.S. horse racing for some tracks, but does not allow betting in play for those races. Betfair offers the bigger tracks like Aqueduct, Hollywood, Churchill, etc., but they also like to offer some of the B tracks like Finger Lakes, Zia Park and Charlestown.

At this point, no doubt, many reading this article are thinking "that's interesting but Betfair doesn't take American bettors, I have no way of watching the races and I have no desire to bet on something I have no way of handicapping". That reaction is fair, and clearly the article is geared more towards non-Americans. Having said that, there are 2 betting exchanges that cater to Americans and advertise on Majorwager; Tradesports.com and Matchbook.com. Tradesports only offers occasional horse racing and Matchbook offers none. But just because these places don't offer the sport doesn't mean they can't offer it. If enough customers asked for a horse betting exchange, clearly these places can meet that demand. Without doubt, those exchanges have the facility for it. There is one place, however, that does cater to the U.S. market and is solely a horse trading site - EhorseX at www.ehorsex.com . The Horizon20 Company opened the exchange last week and apparently has received decent action. They offer pretty much every U.S. racetrack (something not even Betfair can claim), and the odds are pretty similar to Betfair's. The commission rates are similar, but the races close as soon as the gate opens. There is no in play betting at EHorseX. Still, the fact that the races are available clearly offers a great day trading opportunity as discussed in the first proven method of winning. On the day this article was written, Ad Me In won the 2nd race at Aqueduct at 3/2 odds. He went off at EHorseX at 2/1 odds and closed on the lay at 3.2 or 1 to 2.2. From asking others who played there, I found out his odds were as high as 7/2 on the back. So, like Betfair, there is great opportunity to make money. Unfortunately, EHorseX doesn't have the volume that Betfair does, or the clientele. However, it is just in its infancy. If enough North American bettors start signing up and ask the exchanges to post horse racing markets, there is money to be made. As well, if America ever comes to its senses regarding internet wagering, and Betfair ever does open up to Americans - Ka Ching!

11/25/06
Hartley Henderson
MajorWager.com



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