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Overlays
by
Charles Carroll
There are two extremes in “overlays” and “underlays” that you need to be aware of, while you’re busy avoiding more typical underlays and “fair” odds, as discussed last week. One is the true low odds overlay—the other is the high-odds underlay. The way to understand when you are facing either one (as well as the more conventional mid-range overlay) is to first, of course, understand your own handicapping, and second, understand how the crowd handicaps.
All of us love the $42 horse. We may have long-since forgotten individual $50 exactas, but we’ll remember the time we saw the hidden potential of a horse that the crowd placed at 20 to 1—and we were right; they were wrong. For probably the majority of handicappers, when they truly handicap a $42 horse (as opposed to taking a long-shot flyer) the money is nice—but secondary. It is validation of everything we do. The crowd saw this horse as a 20 to 1 shot, which means they gave it only a 4.76 percent chance of winning. Conversely, a 95.24% probability of losing. We saw beyond that, understood the race better, and gave it, say, a 3 to 1 (25%) chance of winning—and took the bet.
So does this mean if you “like a horse” and it’s on the board at 20 to 1, you take the roll out of your sock? Only if you want to be selling popcorn in the fall. The only way to evaluate what the crowd is offering for odds is to make an odds line yourself. “Liking” a horse has no value in “value betting” unless you know exactly how much you like it. That involves both your own handicapping and skill, and making an odds line from it (see Part 1 of this series). But just as importantly, it involves understanding what is shaping the crowd’s odds on this race.
The smaller the difference between your odds and the crowd’s odds, the less there is to understand. If you are handicapping a routine race that fits your methods, and you make the Win contenders 3 to 1, 4 to 1, and 5 to 1, while the crowd reverses those odds, there can be a myriad of reasons—but they are probably ones you can readily see: A Beyer Figure that they buy and you don’t; a layoff that you see as positive and they see as negative. You size up the race differently and you can bet your 3 to 1 horse at their 5 to 1 offer, or work a strategy on an exotic with routine confidence.
Suppose, however, that this is the $42 horse. The crowd makes it 20 to 1 with all the above statistics. If this is a nine-horse race and you make this horse 15 to 1 and the crowd is offering 20 to 1, is that an overlay? No. You are giving this horse a less than random chance of winning, and it is not an overlay at any price (see Part 1 of this series). Now, suppose this horse is your third choice in the race and you make it the 5 to 1 horse among the three contenders above. Is it an overlay for a major Win bet? Some advocates of value betting would say, “Yes.” I have seen it argued on a purely statistical basis that if your 5 to 1 horses win their fair share of races (16.67%), and if your first two choices are standing at fair odds or underlays indicating no “value” available from them, then pound your third choice for the percentage angle.
There’s only one little problem here. If I give a horse a 16.67% chance of winning a race and it is my top pick as I understand this race, then chances are it will win something around that percentage of the time. However, if I give a horse that same percentage chance to win but give two other horses better chances—which the crowd agrees with and is heartily betting them into underlay range—then that third choice of mine is probably not going to win its projected 16.67% share. It might not be a “Win” Contender at all, but a “Money Contender.” (Next week I’ll expand on the three types of contenders.)
A third-choice, percentage-angle “overlay,” for a good handicapper, is usually a rotten Win bet. As with random odds, you are betting against your own skill. Just because the public odds on a horse are higher than your odds, does not necessarily make it an overlay—and just because you make a horse an in-the-money contender does not mean it would actually win this race in this lifetime.
So how do you spot an overlay and how do you avoid some of the pitfalls of false overlays that are even touted in the literature? Again, the first element is to understand and trust your own handicapping. Your own handicapping forms the baseline for comparison with the public odds.
If you have followed this column, by now you have probably noticed I have hardly written a word about “handicapping,” per se. That is because I believe that virtually anyone (with a few exceptions) can learn to handicap. Handicapping is fun. It’s work, but it’s fun. The only individuals whom I have seen fail to become good handicappers are those who refuse to believe that it requires work. Whether you use speed, pace, trips, class, or all of the above, you can learn to be a good handicapper. Where good handicappers fail to become successful bettors is in the conversion of the results of handicapping into betting strategies and, as mentioned in some earlier column, this is NOT money management.
The vast majority of players do not play from a bankroll—they play, as Eric Langjahr says, "percent-of-pocket," so pontificating about “units,” etc. is meaningless. For good handicappers, whether they are large or small bettors, the trick is to turn the results of their handicapping skills into well-designed bets. These days, there is a nice array of potential bets at most tracks that let you shape bets based on your results. (If you want to date yourself as a geezer, recall “naked races,” when track officials seemed to think that “exotic” somehow implied “immoral,” and tried to protect us from ourselves.) “Contrarian” handicapping takes all this into a new realm which I really enjoy, but for now we’ll only worry about conventional handicapping.
Handicappers who think only in terms of Win Contenders are not only limiting themselves to just one area of potential profit (Win overlays), but are also exposing themselves to a wider array of pitfalls than if they understand and play the full variety of overlays available. Once you have handicapped a race and believe you understand it, in terms of Win Contenders, Money Contenders, and Non-Contenders—then overlays become possible in all pools. Some are harder than others to identify, and we’ll talk about some, including my favorite, the Place Overlay, in the future. In all cases, in addition to the conventional overlay (you say 3 to 1, they say 7 to 1—and you know why), it’s good to be on the lookout for the two oddities described at the beginning: the low-price overlay and the high-odds underlay. One makes money; the other loses it (remember the little “edge” equation in the very first article in this series).
Without getting too personal here, it’s no secret that I had some pretty good alternative speed figures before the Beyer Figures were published. I also had the advantage of working at tracks that had one of the most—shall we say “naive”—publics in the nation. As a result, I became spoiled rotten by the odds I was given. If I didn’t get 12 to 1 on a dead-nuts, sure-thing, third-place finisher who had my figures in the “960s” in ten consecutive races and was going to crush a field of winners who had never broken 900, I would pout and pass the race. I’m not kidding. So when the Beyer Figures became the single most important factor in setting the public odds and I started getting 4 to 1 on horses I made 3 to 1, I entered a sort of personal “dark ages.” I would go to the track or OTB and—even though I am his biggest fan—I would pass races and pout and cuss Andy, or worse—make dumb bets, trying to wring some odds out of exotics—all because the public now had access to some pretty decent speed figures.
What finally broke this pattern was accepting the existence of low-priced overlays. In my own work, I now use what I call “aggressive odds” and print out for myself on paper what 50% and even 25% overlays should be. Now, if I go to the track and my favorite Win Contender is down to 3 to 1 at post time, I don’t necessarily tear my computer printout into confetti and toss it in the air. With an aggressive odds line that more closely tracks the “piling on” factor of the crowd, I may very well have that horse at 9 to 5, and can just shrug and say, “OK, fine, 3 to 1 overlay,” and pound it with a total lack of guilt. And guess what? In total accord with every theory, statistic, and mathematical formulae, horses in these low-odd ranges do tend to come in more than horses set at higher odds. I always knew that; I just never capitalized on it because of old-fashioned handicapping ego. I doubt that anyone else could be that dumb, but if any of this sounds familiar, start paying attention to low-priced overlays.
The flip-side are high-priced underlays. These are not the $42 horses that we all dearly love to handicap and ID. These are the $42 phonies. How do you tell the brilliant score from the phoney? Well, for one thing, because of the percentage range we’re working in here, you are not going to be able to do it as often as you will with lower priced horses. That’s a truism that we all sort of know, but hate to really accept. If you are a “Contrarian” handicapper, you are probably playing in this zone a lot and you, no doubt, have your own theories. In this range of odds—say above 8 to 1—the increments between steps get much smaller. Take a look at an odds table (one is posted in the article library of iCapper).
Note that the probability of winning of an 8 to 1 horse is 11.11%. A 10 to 1 horse is 9.09%. A significant difference, but not huge, given that the odds step is only two. Now look down the list. 15 to1 is 6.25%, 20 to 1 is 4.76%, and 25 to 1 is 3.85%. The odds begin to skyrocket with very small increments of change in the win probability.
They can also come down in very big chunks based on very little action, especially at small tracks. I once dropped the odds on a dog from 99 to 1 to 17 to 1 with a $2 Win bet at the Juarez Greyhound track. So, a drop from 30 to 1, to 15 to 1 does not necessarily mean the “smart money” has arrived.
As noted last week, NOBODY knows what the true odds are until the race is finished. There is interplay between the odds of all the horses entered and, once the odds leave the primary contenders of the race, there are many factors causing bets to be made other than a burning conviction that these low-interest horses are going to win. The higher the odds, the less exact both the odds and the reasons become.
You can make up complicated scenarios and rules, or you can depend upon one simple test. If you are making a horse 3 to 1 and the crowd is making it 20 to 1, and you know the reason why, you may very well have a true $42 horse. However, if you run across a horse that you are making a contender at relatively low odds and it is standing at 20 to 1—and you don’t know why—then, whether it is a true overlay or not is purely academic. It may be somebody’s overlay—but not yours. Next race.
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