The Answer to the Horse Betting Quiz

Among many ingenious ideas/scenarios/scams proposed by blog readers in response to my horse betting quiz, the answer I was looking for finally appeared. Jim Vanasek is the reader who nailed it. Here is what he wrote:

The scenario: You are alive in going in to the final leg of the pick six. There is going to be a payout of $100,000 to the winning tickets. There is a very strong favorite in the race with 97 percent of the money bet on him. Your horse has 2 percent of the money bet on him. The last horse has 1 percent of the money bet on him. You KNOW Horse A cannot win. These numbers are consistent in the pick six pool as well as the win pool.

Assume there are 100 live tickets. 97 on the favorite, 2 on Horse B (we have one of the tickets), and 1 on Horse A.

There is one minute to post. There is $970 bet on the favorite, $20 bet on Horse B, $10 bet on Horse A.

Suddenly, the favorite is scratched at the gate. He flips in the gate, the track vet scratches him, whatever. This is what happens:

All win money on the favorite is refunded. The win pool is now $30. There is still $20 on Horse B (now the favorite – this is important) and $10 on Horse A.

The pick six rules are different. The rules state that in the event of a late scratch, all tickets with the scratched horse go to the favorite. That is Horse B. The pick six pool is now 99 tickets on Horse B, still only one ticket on Horse A (the horse that cannot win). When Horse B wins, you will win the pick six with 98 other people and receive $1010.10.

But wait, you have time! You must now go bet on the horse you KNOW cannot win, Horse A. Bet $11 on him. This makes the pool $41. Twenty dollars on Horse B, $21 on Horse A, our sure loser.

The pick six pool changes suddenly! Since Horse A is now favored, the 97 tickets on the scratched horse go to Horse A. Now there are 98 tickets on Horse A, only two on Horse B. Now, when Horse B wins the race, each winning ticket is valued at $50,000. Investing $11 on a sure loser (Horse A) increased your returns from $1010.10 to $50,000 (admittedly it will be $11 less since you bet on A, so really you’re getting $49,989.

THAT is how you can bet to win on a horse to lose and get more money returned.

This is exactly the scenario I had in mind.

Supposedly, it actually happened once. A big horse-betting syndicate had placed a huge pick six ticket, faced this situation, bet enough to ensure that the horse they wanted in the pick six was not the favorite, and ended up winning the pick six. The investment in betting on a horse they thought (and hoped) would lose paid off. As one might expect from people smart enough to recognize and solve this problem in real time, they went on to bigger and better things, graduating from horse race betting to running one of the world’s most successful hedge funds.