Value Betting in Horse Racing: How Fair Odds Can Save Your Bankroll

Over the years, I’ve gotten a lot of questions about fair odds — what are they, how do you produce them, and what are they good for?

Let’s start with the latter. In a pari-mutuel market, it is simply too difficult to know — or even predict — the final price. We’ve all seen the horse that went into the gate at 4-1, hit the turn at 2-1, and crossed the wire at 4-5.

Fair odds are simply a tool to keep you from betting too many underlays. As the legendary punter George E. Smith (“Pittsburg Phil”) once said: “You cannot be a successful horse player if you are going to get the worst of the price all the time.” And Phil played in the days of bookmakers, when the odds were set at the time of the bet.

Having even a vague sense of what constitutes a reasonable price is worth learning how to make a fair odds line.

But, alas, that's not as easy as it sounds.

The Ph.D. and Me

Many moons ago, on an internet radio show I co-hosted, we interviewed a guy who wrote a book on value betting. He held a Ph.D. and was a professor of economics at a college I no longer remember.

In other words, he didn’t fall off the turnip truck — but his thoughts on fair odds made me think a hard tumble from some other type of vehicle was entirely possible.

He insisted his fair odds were accurate because they won at the rate they were expected to. In other words, his 3-1 contenders won about 25 percent of the time, the horses he thought should be 4-1, won approximately 20 percent of the time, etc.

However, he steadfastly refused to answer whether they won at the same rate when they were overlays (less than the odds on the tote). Without that knowledge, it's like a meteorologist predicting rain but not telling you when — rather pointless.

In truth, a fair odds line will never be infallible or have a static win rate. When a horse you think is a steal at 2-1 goes off at 12-1, you're as overly optimistic (I'm practicing kindness this week) as my doctor friend if you believe it will still win a third of the time (as the fair odds predict).

Frankly, you’ve done a great job if it wins one time in 10.

Building a Fair Odds Line

So, how do you build a fair odds line that’s useful? Here’s what I suggest:

1. Assign odds to every horse in the race — what you think their true chance of winning is. Remember: No horse is a lock. Secretariat was one of the greatest horses of all time (some would say the greatest), and he lost nearly a quarter of his starts (once, thanks to the stewards).

2. Convert those odds into percentages using a simple chart or spreadsheet.

3. Add them all up. If they total around 100%, you’ve got a “true” line. That’s ideal because it automatically builds in an overlay component. If you want to mimic the real world (takeout, breakage, and all that jazz), you can go up to 125%. Just don’t go crazy.

Now, this is where the going gets tough and the tough take up day drinking: fine-tune your line. Maybe that 2-1 shot you like should be 5-2. Maybe your 15-1 stab is more like 30-1. Keep adjusting until the numbers make sense — and the total is right.

Once your line is done, it’s simple: bet the overlays, pass the underlays.

If your line says a horse should be 4-1, and it’s on the board at 8-1, maybe you’ve found something. If it’s odds-on? Pass, there will be other opportunities. No matter how much you love the horse, the trainer, or the jockey, consider betting underlays like tipping the IRS.

“Thanks for the audit, boys, here’s a little something for your trouble,” said — no one.

Don’t Fall in Love With Your Line

Just because your fair odds say something doesn’t make it so. Your line might be garbage.

If horses you think should be 5-2 are typically 15-1, stop and ask why. Did you miss something? Is there a red flag that the public saw and you didn’t?

It’s fair to assume that financial markets aren’t always efficient — successful speculators depend on it. But a thoroughly inefficient market is another story — a fairy tale that usually ends with somebody getting eaten. Don’t let that somebody be you.

Be sure to test your fair odds over time. Your 3-1 shots should win about 25% of the time overall — but what about when they go off at double or triple that price? If the win rate drops off a cliff when your low-odds horses are overlays, that’s a red flag.

The 80/20 Rule

Dick Mitchell, one of the sharpest betting minds to ever pick up a Daily Racing Form, had an “aha” moment watching a business show. The commentators were discussing the 80/20 rule, and Mitchell immediately saw how it could be applied to making an odds line.

The 80/20 rule, or Pareto Principle, is the belief that 80 percent of all consequences stem from just 20 percent of all causes. Twenty percent of the world’s population controls 80 percent of its resources, 20 percent of the people on Earth possess 80 percent of the talent (not necessarily the same 20 percent, mind you), and so on.

From a betting standpoint, Mitchell realized that a fair odds line should reflect that same fundamental truth. As a result, he began assigning 80 percent of his ratings to his top contenders and the remaining 20 percent to the rest of the field — with great success.

I bring this up because many newbie line makers will find that their fair odds are too similar — dominated by a lot of middling prices like 3-1, 4-1, and 5-1 — and not very reflective of real-life betting tendencies (which should always be one of the goals). By putting more emphasis on your top choices, this can be avoided.

Bottom Line on Betting Lines

A good fair odds line won’t make you a winning bettor overnight. But it can keep you from bleeding money on underlays. It can help you find opportunities by giving you structure — reason to play and a reason to pass races.

Don’t confuse a fair odds line with a magic 8-ball (which is indispensable when making major life decisions). It's just a tool — one of many. Use it wisely and test it often.

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