The Simple
Approach to
Pari-Mutuel Investing
Bris Prime Power Figure And The Overlay Fallacy        

Bris is a leading handicapping and research company who sells what they call their
most “powerful number” yet. It is referred to as the Prime Power (PR), and within
this number many handicapping considerations are taken into account (i.e. speed,
distance, class, etc…). Thus, they combine all these various factors, assigning a
point total to each horse, resulting in a point based ranking of the horses.  The
number 1 pick will have the highest point total, for example 102; the second place
will have the next highest, for example 101 (and so forth). So far so good, right?  
Sure, it makes it incredibly simple and they do all the handicapping for you, all you
have to do is pay for their data files in whatever fashion you find most suitable, and
you will then get access to these tested picks.
Now, I am not attempting to say that Bris is lying about the results of their testing,
but that they present its results with a flawed view of how the number can be used.  
What do I mean?  Well, let’s look at some of their claims. They claim to have tested
this prime power for 10’s of thousands of races and found these results:
Overall: The #1 pick wins at a rate of 31%.

1.  When the #1 pick has a 3 pt.+ advantage over the rest of the field they win at
better than 39%.
2.  When the #1 pick has a 6 pt.+ advantage over the rest of the field they win at
better than 46%.
3.  Finally, when the #1 pick has a 10 pt.+ advantage over the rest of the field they
win at better than 55% of the time.  


(Stats taken from:
http://www.brisnet.com/cgi-bin/static.cgi?page=primepower)

Now, what is one to do with these numbers? Herein the common overlay fallacy is
born. I have tested these claims myself over years and tens of thousands of races
since 2003 to the present (2006), on just about every daytime thoroughbred track
available, and they are not misleading in the results. For example, here are some
of my personal database results for these claims:

For dirt races in 2005, totaling 19,541 races:

·        #1 Pick, overall, wins at: 31.83%
·        #1 Pick, 3 pt.+, wins at: 38.77%
·        #1 Pick, 6 pt.+, wins at: 44.23%
·        #1 Pick, 10 pt.+, wins at: 49.20%

So what’s the problem? The problem, or fallacy of this number, is in how Bris would
like you to interpret these results. I will let them speak for themselves:

“In the 2000 Kentucky Derby, Fusaichi Pegasus was 11 full points better on Prime
Power than the next horse in the 19-horse field. Here was a situation proven to hit
at least 55% of the time, and Fusaichi Pegasus was better than 2-1. Wow!!!

Then, on May 5, 2001, Prime Power did it again, selecting $23.00 winner
Monarchos!”

Interesting, makes sense doesn’t it? They have just struck the heart of what
betting on overlays means. Namely, find a horse that over the long run will win at a
certain rate, and then bet on them when their actual odds will turn a profit for their
win percent.  They then give an example from the Kentucky derby. They claim that
since the 11 pt. advantage winner had a “proven” 55% chance of winning he was a
great overlay bet at 2/1!  Here’s the simple math, lets use a 50% winner: the horse
will win 1 out of 2, thus he must pay more than 1/1 if you are to make a profit;
nonetheless, if he pays 1/1 you will at least break even. Now, if you take a 55%
winner, who will win slightly more than 1 out of 2 times, anything that pays over 1/1
is an overlay; and thus 2/1 is a large overlay in this situation. Simply put, for every
2 races you bet with a 55% winner, at 2/1, you will make approximately 65% return
on investment (ROI).  
Considering a two dollar ticket on 100 bets, winning at 55%, you will win 55 races
returning $330.00 (at 2/1 odds).  You will have invested 200 dollars (100 bets * 2 =
200); thus:

  •       Investment: 100 bets = $200.00
  •       Return: 55 wins (@ 2/1) = $330.00
  •       Profit: $330.00 - $200.00 = +130.00
  •        ROI: $130/$200 = 65%

Find a day trader who can consistently, with proven statistical research, find a
stock or investment returning 65% on his money!

Of course, the bad news must come; which, of course, is the bitter sweet news for
you and your wallet. It is bitter because this concept that Bris and many other
“system makers” propose, sounding very simple and logical, is not going to work (I
wish it did); and it is sweet, because you are now removing or becoming aware of
this overlay fallacy and can focus on the truer ways to overlays.

Why is Bris wrong (or most so called “overlays”)?  It is because of the limited data
they are proposing.  I will stick with the 10 pt. Advantage horses for my first
example. Using my same set of results for the 19,541 races in 2005, I will prove
why it will not work.  My results show a win % close to 50%, compared with Bris’s
55%; nonetheless, the 10 pt. advantage PR horses does win aprrox 50%+ or more
(it probably varied based on specific tracks played, my search may have included
tracks they left out).  Now, can these horses be played as mathematical overlays
as Bris suggests?  Answer: Absolutely Not!  Why?
The Odds

Let’s run a scenario over the 19,541 races and propose that we only bet the
overlays and see what happens. I will use the 2/1 overlay example they gave. In all
the races I test I will only look at the horses that have a 10 pt. advantage (or more)
and are also going off at 2/1 (to be a good overlay).  The results according to
odds are:

  •       2/1 = 20% winners
  •       2.5/1 = 22% winners
  •       3/1 = 15% winners

Very interesting, what does this mean? Well, every time you bet on a 10 pt.
advantage PR horse, going off at 2/1, he will only win at around 25% opposed to
their claim of 55%, which just threw your overlay out the window. At 20% you are
going to win 1 out of 5, thus you need the horse to pay 10 dollars to break even
(on a $2 ticket); which means over the long run you are going to lose 4 dollars on
every 4 bets (at 2/1, which amounts to a negative 40% on your money on a
supposed 65% positive return overlay!).   

Where does the 55% number come from then? The number comes from the PR
horses averaged together regardless of odds. For example, in this sample, all the
10 pt.+ advantaged horses that were also going off at .5/1 (1/2) won at the rate of
79%, thus when you take all the lower odds horses averaged with the higher odds
horses Bris comes up with 55%. The fallacy, of course, has now been revealed. It
is not in the data itself (that is factual), but in what that information means.

Further, the news doesn’t get any better.  When you move back to 2004 the
results even get worse. Over the 12,345 Dirt races analyzed in this year, the 10 pt.
+ advantaged horses going off at 2/1 won at the rate of only 23% (opposed to the
25% in 2005).    

What does this mean to you, the horse investor? The Prime Power number
CANNOT make money on its own. There is no proposition in which it makes
money! If you say, well, I will then wait for them to be longer in odds, it doesn’t get
better. Let’s say you choose to bet them at 5/1. In 2004 the #1 PR horse, going off
at exactly 5/1 won at a whopping 14.4%, which means you lose about 11% on your
dollar every time you make that bet. Further, if you say 8/1 exactly, you will win at
11%; or, if you say anything equal or greater than 9/1 you will win roughly 4% of
your races…

…AND these are all the #1 picks!      


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