Odd Lots - These Stories Of Horse Racing Gamblers Will Get You Psyched For The Kentucky Derby

Episode Date: April 30, 2018

The Kentucky Derby is coming up in early May, and it's time to get excited. On this week's Odd Lots podcast, we talk to Bloomberg editor David Papadopoulos, who in addition to his day job has been betting on horses for a long time. In our discussion, he talked about great gambling scores, where brilliant bettors and cheaters took down gigantic purses by finding ways to beat the odds. He also gave us his take on the challenges of betting on the Derby and other races.See omnystudio.com/listener for privacy information.

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And we don't wait an hour to publish breaking news. When news breaks, we'll have an episode up in your podcast feed within minutes. So you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. Hello and welcome to a special Kentucky Derby themed horse betting version of the Odd Lots podcast. I'm Joe Wisenthall. My co-host Tracy Alloway is off today because she is so tired of all the episodes we've done about gambling. Just kidding, it didn't work with the schedule, but honestly, she might be happy to have missed this one.

I, for one, am very excited about it because I love every time we talk about gambling or poker or betting or anything like that, which is probably too frequently. Nonetheless, with this marquee horse race coming up, we had to talk about it. And we have the perfect guest today. He's actually a repeat guest on the Oddlott podcast. He was one of the very early guests that we had when we talked about a different aspect of the horse racing industry. I'm going to bring him right in. It is David Papadopoulos. He is an editor here at Blue. Bloomberg, a long time, well, David, thank you for joining us. Very welcome, John.

Is there a word for people who bet on horses? Is there a name for them? Well, in my case, two words, degenerate gambler. He's a long-time degenerate gambler here at Bloomberg, so his bona fides are impeccable. I was, my pedigree as a gambler, depending how you like to see it, is either, you know, I'm perfectly well-bred or horrifically well-bred. But I've been doing it, yeah, for a long. time. Tell us more about that. You've been doing it your whole life and your father also bets on horse, like what's your background? How'd you get into it? Yeah, my father was, was hit with the bug, the gambling bug, the horse racing bug at a very young age. And actually when he was born and raised just outside of Providence, Rhode Island. And when he was ostensibly going to Brown University, he managed to somehow fight his way into Brown. He actually was studying across the street at Lincoln Down.

racetrack and he spent many an afternoon there. And of years later, of the five kids, we were five Papadopoulos, this is Popatopoul I, I was the only one who struck with the horse racing bug. And as a result of the fact that of the five it was only passed on to me, I think I got a very powerful strand of it. And I love it. I think it's the greatest game. Many call it the greatest game.

I'm a believer of that. It certainly, you know, you have to be prepared to have. many days where total loss of capital is the end result, but it's a, it's a great game. The last time you were on the show, we talked about pin hooking, which is the art of buying a horse for profit. So not betting on a horse per se, but going to an auction and buying a young horse and hoping it is worth more. Today we're actually going to be talking about betting on horses, and you've brought with you some great stories of gamblers. Yeah. So, I mean, the game, of the reasons why the game is what it is and as great as it is, in my eyes, is all the,

the history of it and the terrific characters, the Damon Runyon sort of characters that exist and the stories that surround them. And as we lead up to the derby here, I mean, you know, feels like it's a good opportunity to sort of go over some of those great old stories, but really with a particular eye on gambling and gambling coups. And maybe. some lessons, some gambling lessons, some investing lessons that actually come out of them. I'm glad you said investing lessons. So at least we pretend to make it relevant to the Bloomberg audience or the odd lots listeners. Well, I would even say that there are a lot of principles that are very, very similar. I mean, it's not for nothing that Warren Buffett started way back when

gambling on horses is one of the first things he did. And there are a great number, you know, value you investing shares a lot in common with gambling, with value betting. I mean, any self-respecting horse racing gambler is a value better. If you're not, you're a fool. I mean, if you're not, you've got absolutely no chance. So there are some similarities, Joe. In the show Billions, the hedge fund manager, Bobby Axelrod says he got his start at the tracks. And there's a part where he's describing his history.

And he's like, oh, and I realized that the stock market was the same thing. It is. And what I've learned, and listen, I haven't made a fortune at the track, but my ROI is consistently approved over the years is you have to be mercilessly disciplined, unbelievably disciplined, and only bet when you truly feel like you have an axe or an edge. If not, you're just sort of showing up and throwing up and betting with the rest of the crowd and trying to figure out a race on the fly, it's a road. I learned the hard way. It's a road to nowhere. and I learned that by marking to market every single bet I ever made and just sort of looking at returns and sort of realizing that

unless you pick your spots and are incredibly disciplined, you got no shot. Before we get to the great coups of vying on horses, the fact that you keep track of all this and have that discipline, why didn't you become like a trader or something in it? No, seriously, because it sounds like what a lot of investors and traders say. Did you ever think about going down that road? Well, not too seriously just because when I got into journalism in a young age, I just sort of fell in love with journalism. That gave my primary passion.

But for me, I'm a very competitive sort where the Papadopoulos is a competitive group. And it's a way of keeping track, keeping score. I don't want to have just a vague sense of how I'm doing. I want to know exactly how I'm doing. I know what the average gambler does, what his or her average return is. And it means a lot to me. It's a little bit like your handicapped in golf. I want to make sure, I want to do my darnness to try to beat that.

So did I ever consider going to trading? Not really. I guess this is where I get my trading fix. All right. I like that a lot. So let's talk about some great moments in the game, the greatest game ever. Let's start with something, a lesson, a story that you say is a good lesson in game theory. Yeah, it's a great story that goes back about five or six years.

And it takes place in Miami, Florida. The racetrack there, Gulfstream Park, which is controlled by the Strontic group, sort of Frank Stronick, a big magnet. And he's got, Frank Stronick has got a lot of creative ideas on how to bring more gamblers in. And one thing he did is he created what's called the Rainbow Six. The Rainbow Six is a riff on the Pick Six. Pick Six has existed forever. You have to pick the winner in six straight races.

Very hard. But you can put as many different horses in, you can place bets on as many different horses as you want in any given race. You can bet five horses in the first and three in the second and two in the third and three in the four. Obviously, the more horses you add, the more expensive it gets. Right. You could alternatively go one horse, one horse, one horse, and it's very cheap. And if you get all six right, you get a very big payout. You may be the only person who gets the whole pay or you may share it with a handful people. If no one gets six of six, then those who get five of six get a consolation and there is a carryover in the normal pick six to the next day and the pot grows.

The Rainbow Six is kind of was kind of a brilliant marketing tool. What he said is the only way the picks, the Rainbow Six pays out is if there's only one single person who nails all six. If Joe and David and Tofer, we all hit it and, you know, there are 25 of us who hit the pick six, the pool rolls over. It carries over and it continues to grow. We get some consolation prize, a few thousand bucks, or it could be, you know, a decent little prize, but it essentially grows and grows. It grows. It's a great way of building drama and excitement.

Invariably, what it leads to is on the last day of the racing meet, the thing is carried over and grown and grown and grown. Now, I'm not talking like lotto, you know, whatever, crazy numbers, but real money, right? Real money, you know, it'll grow and grow. And the last day of the meet, they mandatory have to pay out to everybody who hits it because there's no. more racing after the season's over. So what invariably happens is it'll grow, say, it's six million, it's grown to six million on the eve of the final day. And everybody, Joe puts together a syndicate with 100 people.

And David puts together a syndicate with 100 people. We put together real money. And we're going to bet on all sorts of crazy combinations to ensure that we get a piece of this big pool. Now, let's say there was $6 million of dead money that carried over. People will come in to throw an additional 15, 16 million at it for a shot at that, that dead money. So what this clever fellow did by the name of Dan Borrislaw, who's also an investor, he was the founder of Magic Jack. Oh, yeah, yeah.

And Borislau, who's since passed away, was a big, he owns some horses and he loved to gamble. And he came up with this great idea, which was rather than waiting for the last day of the meat, where everyone's going to pile in, what if I try to hit the Rainbow Six the day before? His thinking being the following. Everybody is focused and geared up and there's all this buzz and everyone's putting their time, effort, energy, and money into the last day of the meet because mandatory payout. So what if maybe it's possible that the pool is going to be really thin the day before? And what if I just throw myself at this pool and throw a big number at it?

And it turns out he invested on his tickets, 15,000. and dollars so not an insignificant amount of money and maybe if if the if the sequence gets a little funky and it's in other words not like the favorite the favorite the favorite favorite wins you get a couple long shots here and there and I'm the only fool who's got him maybe I take this whole thing down and lo and behold that's exactly what happened he took down on the eve of the last day of the meet he took down $6.7 million on $15,000 on a $15,000 bet and again what I'm I love about it is there's a great contrarian thought to it. Now, of course, it's distinctly possible he still wasn't going to hit it or he was going to hit something that was very favored heavy and

he would have shared it with a lot of people. Of course, didn't have to work out. But, you know, it did and it highlights, you know, him exploiting essentially a bit of a weakness in the market there where everybody was geared up on that last day. Well, it sounds like exactly, you said all good betters are value investors and he saw value in the penultuous. And he saw value in the penultimate day. When everybody said, had their eyes on the prize of the last day, he realized essentially that that day was underpriced

or under bet. And he, essentially, and he snuck one over on everybody. Now, the funny thing about... How upset were the people who had these big syndicates played for the next day? I don't know, but I'll say this, because as I was brushing up on the, I was remembering the episode and I was going through some old clips, the Gulfstream Park released a statement

after he hit it. It sounded like somebody died to the family. Their statement was, we're all disheartened. Something like we were all heartbroken that this guy stole our pool and we didn't get the huge crazy last day of the meat. The funniest part about it, though, is I heard him interview. This is back five years ago and it happened after he hit it. And somebody said to him, so well, how you doing now is a gambler for life? You do well? And he said, maybe I'm about even. And so, man, so he must have been down an awful lot of money before he hit that. I love that one. All right. What is

past posting? So past posting is anytime you you manage to get off a bet illegally after the race has been run. There, of course, the movie The Sting, right, was largely based on this. And then there are many different past posting schemes, most of which have been squelched over time by the authorities. Some probably do or could perhaps exist here and there. But I think for the most part, as technology is advanced, they've gone away. But here's a case back in the Breeders' Cup in 2002. Now, the Breeders' Cup isn't quite the Kentucky Derby.

It's run in the fall. It's not quite as high profile, but it is the biggest racing event in the second half of the year. And it's sort of a championship day of racing. And there was this elaborate past posting scheme that became a big scandal. And these guys didn't get away with it. They initially walked away with $3 million, but they got nailed. and here was the past posting scheme. They had an insider at Autotote,

which is the firm that handles all the betting. It was also involved a PICS, it was the PICS six. And it was on Breeders' Cup Day. And what they managed to do with this insider was, after the first four legs of the PICS six were run, their insider was able to go back in and tweak their bets.

And so he... That makes it, it sounds like it would make it pretty easy, to win. So yeah, it would. But here's the thing. They could only do it after the first four. You couldn't, the way the system was, the software was set up, you couldn't go in after six of six. You were able to go in after four of six. So he goes in and he tweaks race one to get it right. Tweaks race two, tweaks race three, tweaks, race four. And they've got one horse now selected in each of those four races. And then when they couldn't touch the last two, what do they do in the last two races? They bet on every

horse and every horse. So the ticket obviously looks a little suspicious. So in the first they have a single, and the second they go single, third they go single, fourth they go single, and the last two they go all and all. It looks a little fishy. Their cover was totally blown when in the last race, the sixth race, a 43 to one shot. Volponi wins. And it turns out, lo and behold, that they are the only fool.

or geniuses, cheating geniuses, who have up the pick six ticket. So now... Which race was this? So the sixth... Oh, the final one. The final one. So what it did was,

there's like, hey, Joe Wisenthal is the lone winner of the Breeders Cup pick six. He just won $3 million. And then that... In other words, if Joe Wisenthal had been, he'd been part of the crowd, he'd been one of 75 people. People wouldn't have really cared.

People wouldn't have gone back and looked at the ticket. And so when, it turns out Joe was the low, So they sort of got screwed by virtue of the fact that that was so unusual for there to be a sole winner. Because in the traditional pick six, unlike the rainbow six, multiple people could have won. Absolutely. But the fact that $3 million check to one winner is like, let's at least look at what they did.

And the uniqueness or the fact that they were a lone winner led the ticket to be examined. And then the ticket, again, and I refer to this as a $3 million heist with that left fingerprint everywhere because it's a little, it's a little aesthetically odd to go single, single, single, all, all. Like no one ever would do that, right? It's pretty weird. You know, I like the contrast between the first example, which is this is a really clever value bet.

And this one is just, let's just go back and change the bet, which is about the opposite of clever and very crude. So they all did jail time. Justice was served. the people who had five of six winners got their money. So it all sort of ended happily enough. I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world.

Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets. From corporate law to constitutional law, and from corporate law. state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars, and policy experts to break down what the rulings really mean. We do this every weekday, then bring you the best conversations in our daily podcast. Search for Bloomberg Law on YouTube, Apple, Spotify, or anywhere else you listen. On the East Coast, listen as you start your day. And on the West Coast, catch up in the

evening. That's the Bloomberg Law podcast with me, June Grosso. Subscribe today wherever you get your podcast. All right. What's another past posting story? Well, there's another past posting story from my father's youth. And this may be slightly apocryphal, but this is one of sort of like a classic past posting scheme that used to exist, you know, before the technology got up to speed. And it was one that, you know, took place in Lincoln Downs race track, my father's home track, as he understood it. It's just outside of Providence. Okay, yeah. It no longer exists.

It was a horse track. And then it was a dog track and now I don't even know what it is. I think it's nothing now. And it was a tiny little track where they used to run a lot of sprint races, short races. So in a short race, the initial break out of the gate is very important. It's got to be everything. It's, you know, it's the break is always important in every race. but in a sprint race where, you know, the race is going to be over in a minute,

it's a lot more important than a race that's two minutes long where, you know, if you get off a little bit slow, you know, you can you can make it up. So this past posting scheme took advantage of the fact that the track had a glitch where they allowed some bets to go in for a second or two after the gates were open. And the way that, you know, this group ran it was they had a guy right at the, I'm sure, they had two guys right at the starting gate and two guys up at a betting window. and if when the gates open, if one of the horses broke clearly ahead of the rest of the field,

one guy would shout the number to his buddy right next to him who would flash with hand signals up to the guys up at the betting window. One guy at the betting window had a pair of binoculars who could see the numbers being flashed by hand. The other guy was at the window and telling the teller, he already had a series of $50 bets lined up. I think $50 was the maximum bet at the time. And he would just tell the teller to punch that $50.

$50 ticket the two horse and just punch it as many times as he could, would it automatically... That sounds tough. It seems like there's very little time for the teller to punch it in. Right. So, you know, and I'm saying it was a second or two, I don't know the exact amount of time. But again, in the break, you can discern from that absolute first jump out, you can typically get a very good sense. Some horses will catch a flyer. Some horses will rear up. Some horses will walk out of there. So you can get a pretty good sense.

Maybe it was more than a second or two. I mean, it could have been a bit more. But they, as the story goes, were managed to ride this for as long as they could until the authorities managed to snuff it out. At this point, you cannot bet after the gates open anymore. The market will settle nowadays after the gates open. But once that buzzer sounds and the gate opens, the betting, the betting, winners are closed. You use the word settle there in your last answer, which of course calls to mind markets and of course in prices in horse racing, the odds are fluctuating to the last second.

Is there any sort of opportunity for like high frequency trading shenanigans, stuff like that? Yeah, well, what happens, what has happened of late is as you've gotten more and more quant-driven gamblers, professional quant-driven gamblers with big payrolls in the game, who come in and try to seize on what they did. determined to be market distortions or marketing inefficiencies late in the betting with a minute or so before the race starts, you will get, and I've seen this of late in the last few years, massive swings and prices in the last minute or so, which can be as a small-time gambler like me, which would be incredibly frustrating. I may bet on a horse with two minutes to go, and I

myself always try to wait until the last few minutes to bet, but I may bet on a horse with two minutes to go at five to one. And then one of these quons comes in and puts down a five, 10, 15, 20, $30,000 bat, which in our pools would be a lot of money typically. And that five to one, by the time the gates open is now maybe three to one, maybe two to one, huge swings in the last couple minutes that make it, to quote Brad Katsuyama and Flash Boys a little bit, makes it hard to sort of trust what you're seeing on the screen. It's very frustrating. It's a growing, absolutely a growing phenomena in the game. All right. Final moments here on the episode.

Kentucky Derby coming up. Give me your sort of 60-second read on the race. Well, there's one real freak that everybody is super high on a horse name, Justify, that's trained by the horse freak whisperer, Bob Bafford, who trained American Pharaoh to the Triple Crown a few years ago. He's going to be heavily bet, heavily hyped. He is absolutely the real deal and legit. I'm not knocking him.

I'm just going to take a real stand against him. I think he's very green and inexperienced. And I suspect that unless he comes storming out of the gate perfectly, he's going to get himself in trouble and be in a situation he doesn't want to be in. And I have my eye on a handful of horses in the 10 to 15 to 20 to 1 range, and I think are good candidates to upset him. So you're spreading your value bets around rather than betting on the favor? That's correct.

I believe this is a vulnerable favorite. And anytime you think you have a vulnerable favorite, you want to take a stand against. Is the Kentucky Derby for an experience better like yourself a higher expected value race or lower with all the people who don't normally bet coming into it? Right. The fact that there's all the dumb money in there is helpful. The problem is because it's a 20 horse field, there's a random skew to it that makes it not very formful. and as a result, it's sometimes it's hard to accept the results.

As a gamble, like someone who likes to try to always control as many variables as possible, it's really hard to control the variables. A 20-horse field is a stampede of horses. A typical field would have eight horses. Well, and unfortunately, even if you're really smart and do lots of good value,

bet you can't eat positive, expected value if you don't win. This is true. David Papadopoulos, I want to just talk with you for the next few hours, but we have to wrap it up there. We'll do another horse episode. next year for next year's Kentucky Derby. Thank you for joining the Odd Lots podcast. This has been

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