Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

2007 Kentucky Derby Analysis


Imagine that once a year this thing called the NYSE has a big promotion called the "Most Exciting Six-and-a-Half Hours in Stocks."


An Allegory

Almost two months ago to the day, just minutes after the running of the Fountain of Youth Stakes at Gulfstream Park, a three-year-old prep race that, at least in my mind, unofficially kicks off the Run for the Roses, I was standing on the corner here in New York City waiting for the light to change when a taxi cab hit a pothole and splashed street water directly into my mouth. Not a little bit of street water, like a half-sip of cheap whiskey; a lot of street water, like a mason jar filled with bourbon whiskey. It was very salty. Now, with the benefit of hindsight, liquor and mouthwash, I can see that it was nothing short of a grim warning; be prepared for the bitter taste of salty streetwater if you stand around slack-jawed with your mouth hanging open.

That is worth heeding on just about any given day, but especially on Kentucky Derby day, and especially considering that hundreds of thousands of people, many of whom don't know a thoroughbred horse from a riding lawnmower, will bet millions of dollars as if they were the owner/breeder of the Byerley Turk himself, then later find themselves standing around slack-jawed.

Imagine an alternate reality where your job is to bet money on horses. You make a living doing it, some years more successfully than others. Imagine that once a year this thing called the NYSE has a big promotion called the "Most Exciting Six-and-a-Half Hours in Stocks." Now, suppose you know what a stock is, but beyond that, well... they shoot stocks, don't they? Still, because it's exciting, you ignore your ignorance and take a day off from your job of betting on horses to "play the stocks." How do you think you'd do? Feeling a bit slack-jawed with your mouth hanging open? Prepare for the salty taste of dirty streetwater.

So, how does one who wants to have some fun tomorrow and maybe bet a little bit of folding money on the Kentucky Derby avoid getting fleeced? That's what we're going to talk about.

Betting the Kentucky Derby

I'm a "value" handicapper. In other words, I look for horses that are under-appreciated by the betting public, and therefore going off at odds higher than I estimate their true chance of winning suggests.

The only way to make money at the racetrack over time is to bet on horses whose odds are higher than their true chances. Whoa, Kevin. Don't you mean the only way to win at the races is to cash tickets? No. Of course one has to cash tickets to win at the races, but because of something called the track "takeout" and "breakage" cashing tickets is not enough. One has to cash tickets that compensate for the takeout and breakage.

The takeout is what allows a racetrack to operate. At Churchill Downs the takeout for win bets is 14%. That means that if th public bets $100,000 on a race, the track "takes out" 14% before paying a dime. After the race, the pool will be $86,000. So as soon as you bet on the race, before it has even run, you have already lost 14% on your wager, period. Over time, this means that for every $1 you should win, you are only getting back $0.86. If your edge in betting is not better than 14%, then it will be impossible to win money over time.

Breakage is even more insidious. Breakage is the downward rounding of the odds on the tote board, and consequently the amount paid on winning bets. A horse who may be 5.8-1 will be rounded down to 5-1, a significant reduction. There is no way to tell ahead of time how breakage will affect your bet, but it is more pronounced for favorites than longshots and over time will take another percent or so from your winning bets.

The bottom line is not only must you correctly select a winner, but you gotta select a winner that is compensating you for the amount the track's takeout and breakage is skimming off the top. In other words, you have to only bet on horses who are going off at odds higher than their real chance of winning the race.

What I have done this year is make an odds line for the Kentucky Derby based on the following factors: Most heavily weighted are Len Ragozin's The Sheets speed figures and the horse's pattern on The Sheets, followed by minor weightings based on pedigree for the classic distance, pace, running style, trainer and jockey.

The Sheets, are refined speed figures that theoretically allow someone to identify patterns based on those numbers. It's like technical analysis, except for horses. The idea is to look for patterns that suggest whether a horse is going to run a poor effort (also called a bounce), a medium effort, or a top effort. Sometimes fast horses lose to slower horses simply because the slower horse was ready to run a "good" race while the faster horse "bounced." In my experience the Ragozin Sheets afford handicappers the best possibility of identifying a longshot that other handicappers disregard, perhaps because the horse looks "slow" on paper according to, say, Beyer speed figures, which are widely used and therefore of questionable value in a parimutuel system, or because of some other conventional wisdom.

Now, on to the analysis. Here is my line for the race, in post position order:

There are a number of horses that I think, based on their pedigree, may not run their best at the mile-and-a-quarter classic distance. Those are Cowton Cat, Curlin, Nobiz Like Shobiz, Sam P., Scat Daddy, Stormello, Storm in May, Bwana Bull, Imawildandcrazyguy and Dominican.

The horses that seem most suited for the distance are, in no particular order, Street Sense, Hard Spun, Any Given Saturday, Great Hunter and Circular Quay.

I expect Any Given Saturday to be of some value in the race and therefore potentially usable as a key horse. Street Sense should run well but it's questionable whether he'll go off at odds above 7-2. Meanwhile, a number of horses that I believe are only marginally competitive with those two from a performance figure standpoint, but which have positive form cycle patterns, are: Great Hunter (hurt by the post, however), Hard Spun (probably hurt by that blistering workout on Monday morning just five days before the race, however), Cowtown Cat (hurt by pedigree limitations) and Zanjero, a legitimate live longshot.

Good luck and remember to demand value in your wagers.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos