Bloomberg News

Triple Crown Bid Calling Black-Swan Traders: David Papadopoulos

June 04, 2012

I'll Have Another

I'll Have Another, shown here at a morning workout at Belmont Park on June 2, has been retired from racing a day before his chance at the Triple Crown due to tendinitis. Photographer: Al Bello/Getty Images

The Belmont Stakes will be a black- swan trader’s dream.

The race, set for June 9 at Belmont Park in Elmont, New York, combines elements of chaos with a speculative bubble to provide contrarian bettors the opportunity to make the score of the year.

The bubble part is easy enough to grasp.

Horseracing aficionados, itching to see I’ll Have Another become the first Triple Crown winner in 34 years, are overtaken by emotion and wager millions of dollars on the horse as if that financial backing will help him hit the finish line first. The colt, who won the Kentucky Derby and Preakness Stakes last month, will enter the starting gate at odds that I estimate of about 3-5 (meaning bettors put up $5 for a chance to win $3). That’s one-fifth the fair value odds of 3-1 that I’d assign him.

Explaining the Belmont’s chaotic outcomes -- which can be seen in the defeat of 14 of the past 16 favorites -- is a more involved matter. At the crux is the distance, a 1 1/2-mile (2.4 kilometers) odyssey that makes the Belmont an oddball event in modern horseracing. It is a quarter mile farther than any of the participants has tried before and likely will ever try again.

Stamina-testing events were common when the term Triple Crown was coined to describe Gallant Fox’s sweep of the Derby, Preakness and Belmont in 1930. Four of the six races the colt competed in following his Belmont romp were at 1 1/2 miles or longer. He won them all. The past 20 Belmont champions don’t have a single such victory among them.

233-1 Payout

As longer races lost popularity, breeders stopped focusing on stamina and concentrated on producing speedballs that excel at races half the length of the Belmont. Judging which horses will handle the 1 1/2-mile distance is as much guesswork as handicapping science. Colts that are mediocre at today’s more conventional distances can shine in the Belmont.

Look at the last 10 winners. They raced 43 times after their Belmont victories and won just five of those races, or 12 percent. Four horses in that group went a combined 0-for-28. By comparison, the past 10 Preakness champions won 29 of their 74 subsequent races, or 39 percent.

Gamblers who anticipated the Belmont chaos were well rewarded. The winner paid 21-1 on average over the past decade. The exacta ticket -- where a bettor predicts the first two finishers of the race -- returned an average of $233 for each $1 bet.

30-1 Longshots

This year’s race figures to offer plenty of options for those seeking to generate similar returns. There were 11 horses in the preliminary field listed yesterday by the New York Racing Association (the final group will be set on June 6). At least five of them will likely offer odds of more than 30-1: Atigun, Five Sixteen, Guyana Star Dweej, Optimizer and Ravelo’s Boy.

I’ll leave these horses to you black-swan traders out there who specialize in capitalizing on random events. While I understand the principles of chaos laid out above, I just can’t get myself to wager on bad horses. All five look overmatched to me (though note I said the same thing about the winners of the race in 2011, 2009, 2008 and 2004).

My bid to exploit the Triple Crown bubble will focus on the middle part of the betting curve -- those in the 5-1 to 15-1 range. Here’s my $50 model portfolio, offering a mix of win and exacta bets:

Exacta Box

-- $24 win on Union Rags (estimated 5-1 odds); the betting public is losing faith in this horse after back-to-back flops in the Florida Derby and Kentucky Derby; I’m less discouraged than my peers and like the value he offers here.

-- $6 exacta box on Union Rags and Paynter (8-1), a late- developing, talented colt; the “box” means that a first-second finish by those two in either order produces a winning ticket. Total cost: $12.

-- $2 exacta box adding Street Life (15-1) to Union Rags and Paynter. Total cost: $12.

That leaves a deuce.

Put it on I’ll Have Another. And if he wins, keep the ticket, frame it and give it to your grandchildren in 2046, when the next Triple Crown champion comes around.

(David Papadopoulos, the team leader for Latin America markets coverage at Bloomberg News, has been following thoroughbred racing for more than two decades and was runner-up in 2008 Eclipse Award voting for feature writing on the sport.)

To contact the reporter on this story: David Papadopoulos in New York at papadopoulos@bloomberg.net

To contact the editor responsible for this story: Jay Beberman at jbeberman@bloomberg.net


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