Sorry for the long copy and paste, but I thought I'd put the entire article up in case Wired should oneday decide to take it off their website.



"Wired.com

The High Tech Trifecta

They've got multimillion-dollar bankrolls, lightning-fast networks, and a probability-crunching system that leaves the odds in the dust. Meet the pari-mutuel fund managers who are redefining horse racing.

By Michael Kaplan

Crisscrossing telephone wires snake along the carpeting of Rod Dufficy's cluttered home office near Hong Kong's Happy Valley racetrack. Dressed down in baggy black velour sweatpants and a matching gym shirt, Dufficy, 32, sits at a large L-shaped desk, rocking back in his chair and eyeing three computer screens crowded with numbers. He is cramming for a race that begins in 22 minutes, calling up information from an online database and sifting it through a betting-analysis program built into his system. The Australian is one of Hong Kong's elite breed of super-successful professional gamblers, computer-assisted horse bettors who work in teams and net millions at the races each year. Tonight, however, is not one of Dufficy's big-money sessions; he is down US$300,000 heading into this race. "I'm going to have a lot of outlay on this next one," he says. "Maybe $550,000."

Three slender Hong Kong sisters face Dufficy, waiting for a printer to spit out a list of a couple hundred bets with potentially big payoffs. One sister grabs the sheets and snips them into strips, which she distributes to the other women. They punch the information into their handheld wagering machines, which transmit it to the track via telephone lines, filling the room with the chirping of outgoing data.

Four minutes and three-quarters of a mile later, Dufficy looks up at a large-screen TV and watches thoroughbreds lunging past the finish line. He scrutinizes a fistful of papers, then scans the race results scrolling across his desktop monitor. "We've got wins - quinellas and a tierce," he says calmly, referring to wagers that required selecting the first two and three finishers. He made $330,000 on this single race. "It'll put me ahead by $30,000 tonight," he says. By week's end, his earnings will add up to a profit of about $130,000 for essentially two days of work - a typical cycle for Dufficy, who, in fact, wagers and wins less than some other computer-assisted bettors in town.

But there's plenty of dough to go around. As Dufficy and members of the half-dozen or so computer teams in Hong Kong will tell you, this city stands as the land of opportunity for tech-inclined handicappers. The allure centers on Hong Kong's massive handle - the total amount of money wagered on each race - which is the highest in the world. It allows the teams to lay hundreds of thousands of dollars on a single race without upsetting the odds. But Hong Kong racing has other attractions as well: Run by the not-for-profit Hong Kong Jockey Club, it is scrupulously honest (fixing would hurt computer bettors' calculations), and there is a pool of only 1,200 horses per season (a manageable number for the teams to track performances). Then there are the extravagantly exotic bets and parlays, comprising a rich smorgasbord of financial opportunities that seems custom-made for the computer teams. One, the Triple Trio, requires picking the top three finishers in three races and routinely pays six-figure dividends.

"Racing is becoming more and more like a stock market model," says one insider. Horses should be thought of as Dell or Microsoft - their past performances are the equivalent of economic charts.

Unlike other sports, in which bookmakers subjectively set the betting odds or point spreads, horse racing is built around a pari-mutuel system. Payouts are based entirely on the public's opinions, expressed by the horses they bet on. Horses that receive the most bets have the shortest odds and pay the smallest dividends; the least popular horses pay best because fewer people need to divvy up the pool of money. In a pari-mutuel system, the house has no edge and no interest in who wins. (At the end of a race, the track earns only the fee charged for handling each bet; in Hong Kong it's 19 percent of the wagers, which total about $10 billion each year.) Therefore, someone with the right research capabilities can easily find the public's miscalculations and exploit them for great financial gain.

Computer teams pick their winners by culling data from past performances. They use custom-tailored software programs to determine their own odds, search for overlays (situations in which their odds - the calculated, objective odds - are more advantageous than the public's typically subjective odds), and place bets that can deliver big dividends for reduced risk. Team leaders provide the multimillion-dollar bankrolls, supplemented with investments from the 30 to 40 other members. Their jobs range from accounting to code writing to placing the bets. Annual salaries start at $50,000 for those who enter the wagers by phone and rise to more than $1 million for chief technology officers.

The teams are usually headed up by Westerners or Australians; insiders speculate that Chinese gamblers are inclined to emphasize fate and numerology and therefore find computers and horses incompatible. These team leaders walk off with what's left after salaries and operating costs. William Ziemba, alumni professor of financial modeling at the University of British Columbia and a longtime observer of the scene, estimates that a top-notch outfit can pull in as much as $100 million in a good season, netting the boss a cool $50 million or more.

"Computer teams are at a terrific advantage," explains Richard W. Munchkin, author of the forthcoming Gambling Wizards. "Imagine if Fidelity were the only professional investing company, and all the other investors were amateurs who chose stocks at random, on the weekends, for entertainment. Fidelity would be making a lot of money at the expense of those less serious investors."


While computer-generated horse picking is not particularly new, it has reached an apex of sophistication in Hong Kong and is spreading beyond China. Teams have recently made inroads in the United States and Japan. You can easily spot tech bettors at the track in Tokyo because they're the ones wheeling suitcases filled with yen. In the US, seven-figure windfalls are unlikely because of small racetrack handles, but pick sixes (choosing the winning horse in six races) paying over $100,000 are possible.

In Hong Kong, computer-assisted teams are not illegal, but the Jockey Club frowns on the practice, and some bettors claim the HKJC has shut down their accounts after it discovered they were connected to teams. "I'm running out of trustworthy people to hold accounts for me," half-gripes, half-brags one Australian bettor. While complaining that his wife's account was canceled, he is well aware of the professional gambler's credo: If they're not throwing you out, you're doing something wrong.



Competition among Hong Kong's computer teams is fierce. Technological secrets are closely guarded, nobody's keen to publicize their betting strategies, and the cagiest players aim to hide their wagers from other teams - all of which monitor the flow of racing money via an independent online service called Telequote, based in Hong Kong. Nobody's more skilled at masking bets than Bill Benter, regarded by many of his peers as the most successful sports bettor in the world: "Normally, you'd see the odds go from 141-1 to 116-1 and know it's got to be a big professional bet," says Dufficy. "But Bill has his betting model set to disguise his action with little $5,000 dribbles. He ultimately puts the right amount on a horse, but he does it over a sequence of time. He leaves no footprints, and that drives other bettors crazy."

The prevailing paranoia is summed up by a rebuffing email from another big player, who refused an on-the-record interview, chiding: "To highlight what I do only INVITES competition, so a high tech magazine is the least desirable place to have an article about me appear. Plus, any publicity is also [very bad] in terms of impact on the Jockey Club. They do not like computer teams, so advertising how much we make [will only hurt us]." Nonetheless, several team leaders agreed to talk about their operations, though not for attribution.

Working from mathematical models that are calculated to deliver a 24 percent return on investments, Hong Kong's most sophisticated computer-assisted bettors operate with long-term certainty of what their profits should be. "Racing is becoming more and more like a stock market model," says Ziemba, who specializes in statistical analysis and edited The Efficiency of Racetrack Betting Markets, a collection of scholarly papers on the mathematics of horse wagering that includes a chapter by Benter outlining the system used in Hong Kong. Horses should be thought of as Microsoft or Dell, Ziemba says, and their past performances are the equivalent of economic charts that provide fodder for the Street's quantitative analysts. "Racing is a financial market catching up with the rest of the world. One big difference, though, between the stock market and a horse race is that you can choose when you want to take your profits from a stock. With horses you must do it at the end of each race. So there is a lot more action."

The bedrock of a predictive betting system resides in a massive collection of data on each horse - including details about the tracks and jockeys. "You massage all of that information into a mathematical equation that can be used for predicting probabilities," he explains. "If you wanted to get started in this, you would spend a year building the probabilities system, and it could cost $1 million to put together." And that data bank needs constant updating.

Benter, for example, has employees whose sole job it is to review race tapes after every meet. They judge each horse on 130 characteristics - attributes like speed during the first third of the race, whether it got bumped coming out of a turn, the quality of its recovery from the bump, and, of course, how it finished - and assign numerical grades. This information goes into the database, where it can be cross-referenced and called up to help predict the outcome of any impending race that particular horse runs in.

The computer essentially simulates the race before it happens, based on what has transpired in the past and any anticipated conditions in the future. The software then determines each horse's likelihood of winning a race. When a horse's computer-generated odds are better than the public's odds, the team slams in its wagers. "You create a model that can analyze each type of bet, judge the conditions [in terms of money in the pool and the associated odds], and tell you when it will be most favorable to bet," explains Ziemba. "You do not necessarily want to bet a ton every time - you only do it when you can find advantages."

One top bettor explains it like this: "Our computer program churns through the history of the horses and adjusts all the probability in a very sophisticated way. Having established the probability of the horses, we feed that into our betting program, which looks at all the odds for the various outcomes. It looks at your true chances of winning with the latest payoff odds and calculates what the best potential bets are, based on the chances of winning and the odds. Then it runs through all the probabilities.

"The mathematical aspect involves [following] a basic formulation that all successful gamblers use - whether they know it or not," the bettor says. "It's having what mathematicians call a positive expectation on the bet. You multiply the probability of winning times the payoff odds of one bet. Let's say the horse is 20-1. If it has a .05 probability of winning, you multiply that by 20-1. You get 1.0 - or 1-1 - and that is a fair payoff bet.

The teams excel at complex bets. The biggest Triple Trio ever, paying $18 million, was snagged by a pair of computer-assisted players who covered 900,000 possibilities with wagers totaling $1.2 million.

"But if that same horse is paying 25-1, then it has a positive expectation. Now it is 1.25 [or 1.25-1]. It gives you a 25 percent edge. Given that you know the true probability of winning, the amount to bet is a closed-form problem based on how much you can lay down without hurting your odds."

Designing the software to do all this is a delicate operation with seemingly endless pitfalls that can disastrously skew the results. "You have to understand," says Ziemba, "that building this system, maintaining it every week, and updating the model once a year is a lot of work." And doing the work does not necessarily guarantee success. Benter went broke at least once before his system was efficient enough to turn a steady profit. "Every year, more and more people come here and leave with their tail between their legs," says Dufficy.

Whoever writes the team's software needs to decide early on which aspects of a horse's performance to take most seriously. For instance, if a debuting horse's odds of winning are 50-1 and it wins its first race, the software will note that - and might be inclined to view untried horses with long odds as good bets. So the system must be tweaked to give little weight to those outcomes.

Other, more ambiguous factors - turf firmness, recent time trials, second-place finishes, and the jockeys' racing styles, to name a few - must also be taken into account. "Memory is another thing," suggests Kelly Busche, an economist who has taught at Hong Kong University and consulted for one of the major teams in town. "How quickly do you discount information? And to what degree? What happened two seasons ago should carry less weight than what happened last season. You need a model and a database that are both agile and robust enough to handle a variety of ever-changing situations."

To build a good horse racing model, teams rely on workers with the skills of hedge fund technicians. Rumor has it that one of the teams has wooed programmers from Fortune 500 companies. "You need a hardcore nerd who is good with numbers and has a mathematical and engineering background," says one team leader. "What we do with computers here is similar to what you see with Deep Blue. It's about attacking problems by fussing around and fine-tuning rather than using intuitive knowledge."

Bettors believe the Jockey Club created big, complex bets like the Triple Trio as a hedge against the computer teams' skill-based advantages. The idea was that such wagers would be impossible to handicap, thus enhancing the luck factor and leveling the field. But things have not worked out that way. The biggest Triple Trio ever, paying a dividend of $18 million, was snagged by a pair of computer-assisted players who covered 900,000 possibilities with bets totaling $1.2 million. The top teams routinely make their fortunes through complicated parlays, quinellas, and exactas.

Never mind that most teams risk huge sums for their reward and shell out an estimated $95 million in commissions. The HKJC remains - at least publicly - unimpressed. "We are worried that if you have the computer people, then your average customer sees himself as having no chance," says Winfried Engelbrecht-Bresges, the HKJC's executive director of racing. "But they're the bettors who bring us 95 percent of our revenue."



The story of computer-assisted betting in Hong Kong begins with Bill Benter, the US-educated, impeccably dressed technician who developed the first successful program put to use at Happy Valley. The importance of his pioneering work is confirmed by rivals and experts alike. Benter got his start in the mid-1970s, when he discovered Beat the Dealer, a bible for blackjack card counters. He memorized the best-selling book's strategies and hit the casino circuit, where he met his future partner Alan Woods, a former actuary turned counter. It was in Las Vegas that Benter stumbled upon a slender handicapping guide - and turned from casinos to horse racing.

Equipped with a $150,000 bankroll provided mostly by Woods, the two card counters planned to apply the theories of winning at blackjack to winning at the races. Beat the Dealer, after all, had been written with the aid of a computer that analyzed every possible situation at a blackjack table and assigned numerical values based on which cards remained in the deck. The idea, when you follow that best-selling guide, is to rigorously stick to its formula and bet high even when you have only a tiny advantage. In the long run, despite frequent fluctuations and potentially long periods of losing, you will win a prescribed percentage of money. By the time Benter refined his program to the point where it worked consistently, he and Woods had bitterly fallen out over money disputes. But in the end, each wound up with an odds- and probability-crunching machine - both built by Benter.

More than a decade later, Benter seems to have more in mind than just being a racing guru. He's lectured at Hong Kong universities, consulted with internationally known mathematicians, and branched out into other technological endeavors (one is a digitized transcribing system for doctors). He's also served as president of a Hong Kong Rotary Club and made substantial donations to respected charities.

Woods is still on the scene, but his working style is described as being completely different from Benter's. He uses off-the-rack Pentium computers, still runs DOS, and employs an out-of-print program called Revelation for his database. At its core, it remains the original system created by his former partner, customized so that Woods can override it with his personal input. Benter now works with Sun Microsystems processors and uses the far more stable Unix operating system. His setup is said to be much more finely tuned than Woods', allowing him to reach conclusions with limited human interface, thus permitting fewer opportunities for subjective opinions to foul up the beautiful mathematics. When Benter's winners cross the finish line, you don't hear so much as a whoop from his crew. As any fan can tell you, the real miracle of this technology is that winning fails to come as much of a surprise.




The Hong Kong model seems to be catching on. Consider that as the horses bolted from the starting gate at Gulfstream Park in Hallandale Beach, Florida, one day in February last year, the odds for the winning horse suddenly went from 10-1 to 8-1. A gambler reported the shift to Gulfstream's vice president of finance, Bob Zambreny Jr., who did a bit of investigating. He discovered that in a three-second span, 167 exacta wagers were placed from an outfit in Fargo, North Dakota, called Racing Services - a discreet betting parlor that attracts sky-high wagers with low commissions and liberal rules. Further snooping uncovered a computer team operating in the United States using handicapping software similar to the systems used by Hong Kong teams.

Zambreny and Racing Services decline to identify the team leader. But whoever it was had a special interface that allowed him to batch his bets - to place dozens of wagers per second - into the Racing Services system. This allowed the team to lay down a skein of complex exacta wagers after nearly all wagers were in, the odds were practically set, and it was relatively clear as to how much could be staked before upsetting the odds beyond a tolerable degree. The bets, automatically placed by the computer, ultimately paid out $246,020 on a total bet of $25,569. Even more impressive, over a 50-day period, the team had reportedly netted $3.3 million in profits on $12.9 million in bets.

Gulfstream quickly barred the team from using a computer to place bets, asserting that all bettors must have an even chance. But Susan Bala, president of Racing Services, plays down the unique access granted to the team and says she would let any customer place his wagers via computer from her shop. "We haven't had Joe Blow come in off the street and ask us to let him use his computer in here. But if he did, we would talk to him. We're a service company." Computerized betting is giving horse racing a much-needed dose of pizzazz, Bala argues. She hopes that computer-assisted betting will attract the same people to racing who once devoted afternoons to daytrading. "Technology is driving horse racing to new places," she says.

Other racing professionals are beginning to come around. After the Gulfstream incident, US racing executives discussed the possibility of introducing computerized betting. "I can see a future where patrons would be able to plug their laptops into docking stations," acknowledges Zambreny. "They would deliver their bets through computers and the batching of bets would be possible." Barry Schwartz, chair of the New York Racing Association, welcomes high tech action: "Computers are simply another tool for handicapping. There's no guarantee of winning just because you're using one. These bettors are willing to risk money just like everyone else."

No guarantees, but the evidence from Hong Kong suggests it's the closest thing to a sure bet. There, the models have been taken as far as they can go, and it will be up to a new generation of Benters to tweak them for use in other locales. As handicapping systems seep into the mainstream, the innovators anticipate a future involving artificial intelligence - a Kubrickian computer that blends the human sensitivity of the best old-fashioned gamblers with the brute force of a supercomputer. If that day ever comes, traditional horse bettors may really have something to worry about."

http://www.wired.com/wired/archive/10.03/betting.html

fantastic! computers, advanced algorithms, computational excellence, savvy bettors.

Keiron Fallon.

OOOOOPS.

(the entire edifice is rendered somewhat skewed by race-fixing by bunging the right jockey a couple of thousand.)

EDIT: sorry! slow day for me at the moment.

Also a good read:



"NEW YORK TIMES


The Wizard of Odds

By WILLIAM GRIME

Like many people, Ernie Dahlman shows up at the office around 8:45, switches on his computer and spends the rest of the day making telephone calls. His office is nondescript, and so is he: blandly handsome, of average height, with an open, friendly expression and rimless glasses that give him a mildly intellectual look. He could be a travel agent, or a stockbroker, or perhaps a real-estate agent.
Actually he is one of the biggest horseplayers in the United States. Just how big is anyone's guess. In a busy year, Dahlman might bet as much as $18 million. Mostly he's concerned with races at tracks in New York and California, and he doesn't shy away from the big races. (He took a bath at the Kentucky Derby when Point Given failed, but he figures the horse, which rebounded to win the Preakness, looks good for the Belmont.) Dahlman bets so much money, in fact, that he has to avoid smaller tracks and certain kinds of bets because, in essence, he would be betting against himself.


The Suncoast Hotel and Casino, on the outskirts of Las Vegas, provides Dahlman with an office, and at this moment that's where he is, bearing down hard on the fifth race at Aqueduct. A bank of four television monitors show the action from both coasts, and his desktop computer flashes the probable payoffs on exacta bets, Dahlman's bread and butter. To cash, he must pick the first- and second-place horses in the race, in the exact order (hence the name). It's a high-risk, high-reward bet compared with win-place-or-show wagering. It pays for Dahlman's silver Corvette and his big house with a swimming pool in a gated community near the casino.

"I'm going to put a big box on the five, and do a little bit on the four, because it's a claim by Scott Lake," he says, quickly adding a column of figures with a pencil. The five is Top Bunk, a horse in sharp form that is stepping up in class from slightly softer competition and is the main threat to the horse Dahlman is keen on, Borntoberegal, which, as it happens, he owns a piece of.


A box is a kind of hedge. It's two bets in one (and twice as expensive as a straight exacta), and it lets Dahlman have things both ways. If his horse gets beat by Top Bunk, he still wins, although his net profit will be much less, of course, than if he took the risk of putting all his money on Borntoberegal in the win spot.

And Dahlman is not through. Scott Lake, a very successful trainer from Maryland, has been running horses in New York, at this point without much success. Hemisphere Dancer, which he recently "claimed," or bought out of a claiming race, in which all the horses are for sale, does not look like much. But horses in Lake's hands have been known to experience a religious conversion, and Dahlman does not want to get burned when Lake's horses start firing. (Sure enough, Lake's horses have been winning at a phenomenal rate in recent months.) After placing a $2,400 exacta, Borntoberegal on top of Top Bunk, and a $2,000 exacta the other way around, he constructs a series of defensive bets: a $600 exacta, Borntoberegal over the four horse, Hemisphere Dancer; a $600 exacta, Top Bunk over Hemisphere Dancer; and two $200 exactas, Hemisphere Dancer over those two.

Then he watches the race. Borntoberegal breaks alertly from the gate, sets reasonable fractions and pours it on in the stretch. Top Bunk chases in second. Hemisphere Dancer flattens out in the stretch and finishes sixth. The exacta pays $12, and Dahlman collects $14,000 on a $6,000 bet. It nets him roughly $8,000.

If Dahlman does not look like a gambler, he does not bet like a gambler either. At least not like any gambler I've seen in action, most of them, admittedly, losers. In the two days I watched him bet, he never put serious money on a horse with long odds. Not once did I get the vicarious thrill of seeing him hit a 20-to-1 shot or collect on a $500, $200 or even $50 exacta. He is a plodder. And he talks like one too.

"Winter is is my favorite time of year," he said cheerfully. "It's more predictable. The horses tend to be older, and you know what they're going to do. And out in Northern California it rains, and you get a lot of grass races switched to the main track, resulting in complete mismatches."

Most horseplayers love a contentious 12-horse race with the promise of three-figure exactas and monster trifectas. Not Dahlman. "Anyone who knows anything about gambling will tell you I'm not a great gambler," he says. "What I'm good at is arithmetic. I can add and subtract."

That's the truth, although not the whole truth. Dalhman is in the business of spotting opportunities and minimizing risk. He resembles nothing so much as an arbitrager or commodities trader, only his market is the racetrack and his commodity is Thoroughbreds. His workday is a series of 20-minute market analyses punctuated by 90-second races that yield, when the penciled calculations and racing luck harmonize, a steady profit.

At this point in his career -- he's 58 and has been betting seriously since his teens -- he has amassed the kind of bankroll that allows him to bet very conservatively and still live very well. He compares himself to the early and late Muhammad Ali. In his younger days, Dahlman spent 20 hours a day studying and playing the races, shooting for the moon and hitting phenomenal payoffs. Now, he says, he favors the rope-a-dope approach.

very horseplayer can tell tales of woe. Some of them make you laugh. Read the comment lines in The Daily Racing Form next to the running line for a horse's past races, and you'll get an idea of the strange things that can happen when animals with a brain the size of a prune run at 40 miles per hour around an oval track. My favorites include "stomped duffel bag near line," "savaged foe" and "scattered geese on backstretch." I've seen horses round the far turn and head straight for a parking lot. I held a ticket on a 60-to-1 horse at Belmont that was ahead by seven lengths in midstretch when suddenly, for no reason, it ran right into the rail and sent its jockey sailing into the infield.

The point is, there's no such thing as a sure thing. Favorites win only a third of the time, an immutable racing statistic. Even successful bettors tear up more tickets than they cash. The trick is to cash enough tickets, at the right odds, to offset the losses and turn a profit. That's where addition and subtraction come in.


Of course, the addition and subtraction mean nothing without good information and a refined ability to size up a race and assign probabilities to various outcomes -- the arcane exercise known as handicapping. Dahlman thrives on information. He excels at analyzing a race based on that information, enriched by a lifetime of watching races. It's an art with just enough science to it to make it possible for a very tiny percentage of bettors to take money away from the herd of less intelligent, or less disciplined, bettors.

"I call him the logic doctor," says Chip Taylor, a buddy of Dahlman's and a songwriter whose credits include "Wild Thing" and "Angel of the Morning." Taylor dropped out of the music scene for years to bet on the horses, often with Dahlman. "I was good at analyzing pace and bias" -- the tendency of a racetrack to develop fast or slow areas -- but Ernie picked up on all sorts of things, like when a horse changed from one trainer to another, whether that was a plus or minus, and the answer was not always what you might think."

Dahlman puts it a little differently. "I'm a MOTO player," he says. "Master of the Obvious. It's just that more things are obvious to me than to most people."

Like many other professional horseplayers, Dahlman relies in part on the work of others. The Daily Racing Form gives him a compressed description of the last dozen races run by each horse entered in a race. That merits a quick glance. The more serious numbers come from "the sheets."

Published by a professional horseplayer and Marxist named Len Ragozin, they go a long way toward solving an age-old handicapping problem. By analyzing and quantifying a variety of factors, ranging from track resiliency to wind direction to the distance actually traveled by each horse, they assign a speed rating to a horse's performance.

The Ragozin sheets are shipped to Dahlman every day, overnight, and one of his rare visits to the casino floor is his daily walk past the sports-betting operation on the main floor to a little office that holds his packet of sheets. The raw speed numbers Dahlman accepts as highly accurate. Other assumptions in the sheets he rejects, like Ragozin's opinions about which horses are likely to regress, or bounce, after turning in a stellar performance.

Dahlman also pays close attention to pace, or the time for each quarter mile of a race, which he jots down in one of two fat, spiral-bound notebooks. The other is devoted to his overriding preoccupation, horseshoes. Years ago, Dahlman began noticing something funny about horses equipped with mud calks, cleats that some trainers use for extra traction when rain turns dirt into mud. Dahlman noted that even when rain failed to materialize, a lot of horses seemed to improve several lengths when wearing mud calks for the first time.

He began keeping detailed records, and he now considers it his biggest edge. It's the reason he loves Golden Gate Fields, near San Francisco. It rains a lot there, so plenty of mediocre-seeming horses are switching to mud calks for the first time and then sneaking into exactas at good prices. A second reason for loving Golden Gate is that the track posts very detailed shoe information before each race. Not all mud shoes are created equal, in Dahlman's view. Mud nails, which turn shoes into a kind of hobnailed boot, make no difference, in his opinion. But jar calks, which have a kind of high heel, do. The New York tracks do not provide detailed shoe information, so 10 minutes before every race, the phone in Dahlman's office rings. It's a man named Gene (Dahlman professes not to know his last name), a sharp-eyed informant in New York who stands by the paddock with a pair of binoculars and relays shoe information to Dahlman.

"No one," says Chip Taylor, "has made as much money off shoes as Ernie has."

So why doesn't everyone do the same thing? Because in the handicapping game, not everyone believes the same things. Len Ragozin swears by the bounce. Many handicappers look feverishly for signs of a developing bias. Steven Crist, the editor and publisher of The Daily Racing Form and a big bettor, says that biases are greatly overrated. And so on and so on. Every successful horseplayer has his idiosyncrasies. Dahlman's is horseshoes. And if he's beating the game, who's going to tell him he's wrong?

ahlman grew up in Patchogue, Long Island, where his father, Ernest Sr., owned a delicatessen and spent his free nights betting the trotters at Roosevelt Raceway. Ernest Jr. tagged along. In time he became fascinated by the challenge of finding patterns in the seemingly random circulation of horses around the track. Poring over old programs in his basement, he set about cracking the code.

By the end of high school, Dahlman was hooked. He made a halfhearted attempt at college, enrolling in Alfred University with the object of becoming a ceramics engineer. "It wasn't until I was 40 that I finally found out what a ceramics engineer actually is," he says. He shambled along, then transferred to Wagner College on Staten Island. He dropped out of the economics program when he realized he would eventually have to write a term paper.

His education at the harness tracks was going great, however. In 1964, the summer after he dropped out of Wagner, Dahlman created a stir when he hit a complicated bet at Yonkers Raceway called the twin double -- two linked daily doubles, or four races -- and earned a record payout for the track of $171,084.60. The local press went wild over the whiz kid with the glasses.

Dahlman went right back to the racetrack and hit the twin double the next night. "Twin Double Winner Does It Again!" shrieked the headline in The Daily News. This time, the national press jumped on the story. Time magazine featured Dahlman in its college-life section, headlining the story "Success on the Oval Campus." The New York Post hired him as its harness handicapper for $50 a week. The world lost a ceramics engineer.

"I didn't want to be a horseplayer," Dahlman says. "I know my mother was upset. But I kept making money at it. It's a ridiculous choice of occupation that's worked -- so far."

In the early 1980's, with harness racing in steep decline, Dahlman shifted his action to the Thoroughbred tracks, where he had to learn a brand-new game, one with many more variables. "It's the difference between checkers and chess," he says. Sometimes he won, sometimes he lost. But mostly he won. Even more surprisingly, in a profession populated by misfits, losers and borderline sociopaths, he managed to live a normal suburban life. He married twice and reared six children, none of them gamblers.


He also diversified his portfolio, so to speak. Dahlman and Eugene Hauman, a childhood friend, started buying and running trotters in the 1960's and 1970's. In the early 1990's, they turned to Thoroughbreds, and in 1993 the two men became the leading owners on the New York Racing Association circuit, winning 55 races. Today, the two men own dozens of horses in partnership with Barry K. Schwartz, the chairman and chief executive officer of Calvin Klein Inc. Dahlman's daughter Jennifer Gurney manages Schwartz's 800-acre horse farm in Westchester. He pays taxes like any self-employed businessman, declaring income (winning bets) and writing off losses (losing bets). He bets somewhere between $10 million and $18 million a year. His actual income depends on racing luck. He has had losing years. But on average, he says, he earns 3 or 4 percent on his investment. In a good year, that would give him a pretax income of about $700,000. That does not include income from the horses he owns.

Dahlman lived on Long Island until the mid-90's, when New York State racing authorities dealt him (and other big horseplayers) a stunning blow. They raised the takeout on exacta bets from 17 percent to 20 percent. Takeout is the amount that a track skims off the top of a betting pool to finance its operations. It's the hurdle that bettors must clear before they can earn a profit. The 3 percent increase represented at least $300,000 a year to Dahlman, who did his betting at a teletheater in Happauge. Dahlman did a little adding and subtracting, then took his money and moved to Las Vegas, where the casinos were famous for striking agreeable deals with big bettors.

Dahlman settled in at the Sands. After the Sands was demolished, he switched to the Suncoast, a casino that caters to locals. His arrival was, to put it mildly, unheralded. One day, when the casino was offering free pastries to customers who signed up for a handicapping contest, Dahlman drifted over and asked if he might have a doughnut, even though he wasn't interested in the contest. No dice. Ernie Dahlman, as high a roller as walks into the casino, could not score a 50-cent freebie.

s it happens, Dahlman was mired in a slump during the two days I spent with him at the Suncoast. Consequently, he was betting light, about $40,000 a day. He lost about $7,000 the first day I watched him, and the second was no better.

There were some tough beats. Rocking Ruby, in the ninth at Aqueduct the second day, got stuck behind tiring horses, had to switch paths and by less than a length missed cracking the exacta at odds of 5 to 1. Another of Dahlman's picks was disqualified from a winning exacta after bumping a rival just steps from the finish line.

Most bettors would be chewing the carpet or throwing heavy objects at the television screen. Dahlman reacts to victory and defeat with Spock-like equanimity. Occasionally he will worry out loud. "I'd like to see the five horse closer up," he might say. Or, "Uh-oh, I'm gonna get beat." After the disqualification, he clenched a fist, glared at the screen and said softly, "Gosh DARN it." Then it was on to the next race.

"If I keep my losses at $7,000, I can sleep easily," Dahlman says. "I can get that back in one race."

The playing field is constantly changing, though. An unidentified man betting through an off-track location in North Dakota uses a computer program that searches betting pools for anomalies, then places hundreds of bets on as many as seven horses in a race in a matter of seconds. The "professor," as Dahlman calls him, places huge bets -- including $215,000 on Monarchos to win the Florida Derby -- and as far as anyone can tell, makes money (as he did on that race with Monarchos). "This guy is good," Dahlman says. "Fortunately he does not seem to bet at the same tracks I do."

A few days after leaving Las Vegas, I called Dahlman to see if he was faring any better. "I'm on fire," he said. He sounded almost apologetic about hitting the Pick Six at Aqueduct, a bet in which players must call the winners of six consecutive races. Dahlman put together a $1,000 ticket and, because the pot had swollen after no one hit the jackpot two days in a row, earned $26,000. More important, his day-in, day-out exactas were coming in. Life was back to normal.

His life, anyway. After watching Dahlman in action, I decided to apply his methods. Like many small-time bettors, I sneer at short prices, scoff at exactas paying less than $50 and never bet on a favorite. But I've been having doubts. Why not try to do it the Ernie way?

I plunked down $35 at the one Manhattan newsstand that sells the Ragozin sheets and set about deciphering the numbers for Aqueduct. The next day, I showed up at the Winner's Circle, a teletheater in Manhattan's garment district, carrying the astronomical sum of $1,000 provided by my naive employers, five times the maximum I would bet with my own money. Just carrying the cash made me nervous.

What followed was a date that will live in infamy. To test the waters,

I organized a bet in the second race focusing on a horse, Supernal, that had scored a good sheets number in its last race, when it had raced very wide and rallied mildly for third place. I bet a $50 box using Supernal and Romantic Novel, a horse that had finished second in its last three races. As a defensive measure, I bet a $20 exacta of Miss Mickey, a horse recently transferred to the trainer James Jerkens -- and, I failed to note, wearing mud calks for the first time -- over Supernal. I also did a $10 box, Miss Mickey and Romantic Novel. Miss Mickey, the favorite at 6 to 5, broke quickly and never looked back. Supernal, at odds of about 5 to 1, closed with painful slowness to get the place spot, and Romantic Novel, as the chart for the race put it, "posed no threat." The exacta paid $18. My $20 saver gave me $180, a $30 profit on a bet of $150. I could live with that.

It was downhill from there. Near misses, wild long shots and strange tactical decisions by a few jockeys played havoc with my conservative betting strategy. Wicklow Warrior, which looked as if it could crush the competition in the fifth race, was rushed to the front and contested a hot pace, for no reason that I could see. It tired and finished next to last, taking my $220 with it. I picked a nice-priced winner in the next race, Worthy Crane, but failed to match it up with the right horse in the No. 2 slot. The exacta paid $89 for a $2 bet. I collected zilch on $250 in bets.

I discovered several things very quickly. First, adding and subtracting two minutes before a race is no small skill. I could not do it fast enough to construct a logical hedge. Second, big bets rattle me. When several hundred dollars go down the drain, I start flailing and stabbing, desperate to pull even. By the ninth and final race, I was down to about $10. The money had disappeared faster than butter hitting a hot frying pan. Third, the Dahlman method is not a method, like counting cards at blackjack. It's a lifetime of racing knowledge. And I'm too old to learn.

There was some consolation. I called Dahlman to describe the debacle. He cheerfully told me that he had lost $30,000 the same day. He could afford to laugh. He's well ahead for the year. "The first two races today," he said, "I lost $12,500, and I thought: What am I doing? Nothing is going right; why am I here?"

Then he hit a $213 exacta at Keeneland in Kentucky that erased the deficit in the blink of an eye. "The winner was 18 to 1," he said. "When that happened, I said to myself: 'Yeah, I'm in the right place. I belong here."' "

http://www.nytimes.com/2001/06/03/ma...c3b635&ei=5070

an interesting article BSD. Thanks for posting. But Trendie is right IMO. Contrary to the article's assertion I was under the impression that the HK racing circuit was one of the most bent there is. There is money to be made with horses, but it's not as clean as this article suggests...

Intersting articles. To quote from the first....

Per race ?

Thanks, always interesting to read these types of articles.

The guy Robert De Niro played in Casino is a really interesting gambler as well, super switched on. Read some of his musings on his website, always worth it.

Sam "Ace" Rothstein

http://frankrosenthal.com/

Glad you liked these :-)

Re: "Working from mathematical models that are calculated to deliver a 24 percent return on investments."

This is my understanding:

..."Bill Benter seems like an unassuming enough guy when you meet him. The well-dressed, soft-spoken computer buff is a Hong Kong Rotary Club member who occasionally lectures university students on subjects like statistics and mathematical probability. But Benter's real job begins in the evening, when his facility for numbers takes a glamorous twist. With the help of 750,000 lines of odds-calculating computer code he's spent years perfecting, the 43-year-old American makes his living as part of a small horse-racing gambling syndicate. And it's a very comfortable living at that.

Benter's software program works so well, it's riled the Hong Kong Jockey Club, the powerful organizer behind Hong Kong's $10.7 billion-a-year horse-racing circuit. The Jockey Club thinks Benter and other professional betting syndicates hold an unfair advantage over casual gamblers. It's closed the accounts of some of the pros in the past because it felt they were "not in the best interest of the general public." While not banned from the track entirely, Benter has not been allowed to place bets over the phone since 1996.

No matter. He and his buddies still usually bet about $260,000 each race, and make an average return of 24%. Let's do the math: There are some 600 races a year at Hong Kong's Sha Tin and Happy Valley racetracks. That means Benter's annual take-home pay amounts to $37 million."...

So that's 24% of his average bet of about $260K per race, which is $62K, multiplied by the 600 races he participates in, which gives him his profits of $37 mill / year.

More coming up:


""HK millionaires show that betting is science, not sport

Sydney Morning Herald

MAX PRESNELL

15 Mar 2002

`Crisscrossing telephone wires snake along the carpeting of Rod Dufficy's
littered home office near Hong Kong's Happy Valley racetrack. Dressed in
baggy sweatpants and a gym shirt, Dufficy, 32, sits at a large L-shaped
desk, rocking on his chair and eyeing three computer screens crowded with
numbers. He is cramming for a race that begins in 22 minutes, calling up
information from an online database and sifting it through a betting
analysis program built into his system. The Australian is one of Hong
Kong's elite breed of super-successful professional gamblers,
computer-assisted horse bettors who work in teams and net millions at the
races each year."

So reports Wired, an influential American magazine.

``Three slender Hong Kong sisters face Dufficy, waiting for a printer to
spit out a list of a couple of hundred bets with potentially big payoffs."
Go back 12 years to the old Sydney Morning Herald bunker at Broadway. A
world weary hack, more comfortable with a quill and ink, toils over a
computer. ``My load is heavy," he says. ``Rod, can you get this ******* of
a thing to work. I've just hit 55##= PC toggle and everything has
disappeared. Pol Pot is right, every computer should be put to the torch."
Young Rod Dufficy, at that stage, is still working on the racing form
cards. He hits a few keys and the screen lights up.

Rod was a form clerk, most racing writers started that way. He wrote the
details of a race onto a large card kept for every horse. It's never been
the same since the cards were replaced by the computer printout. But Rod
doesn't seem to be inconvenienced.

A few years back I was at Honkers for the International meeting and Rod had
reached the greatest goal of all racing writers: he owned a bar.
Perhaps he is only little league as far as Hong Kong high-rollers are
concerned, but is still doing nicely.

As Wired pointed out: ``This city stands as the land of opportunity for
tech-inclined handicappers. The allure centres on Hong Kong's massive
handle the total amount of money wagered on each race which is the highest
in the world. It allows the teams to lay hundreds of thousands of dollars
on a single race without upsetting the odds.

But Hong Kong racing has other attractions as well.

Run by the not-for-profit Hong Kong Jockey Club, it is scrupulously honest
(fixing would hurt computer bettors calculations) and
there is a pool of only 1,200 horses per season (a manageable number for
form students). Then there are extravagant exotic bets and parlays,
comprising a rich smorgasbord of financial opportunities that seems
custom-made for the computer teams. One, the Triple Trio, requires picking
the top three finishers in three races and can pay six-figure dividends.
``Computer teams pick their winners by culling data from past performances.
They use custom-tailored software programs to determine their own odds,
search for overlays (situations in which their odds the calculated,
objective odds are more advantageous than the public's typically subjective
odds) and place bets that can deliver big dividends at a reduced risk. Team
leaders provide the multimillion-dollar bankrolls."

``Jobs with the teams range from accounting, to code writing, to placing
bets. Annual salaries start at $US50,000 for those who enter the wagers by
phone, and rise to more than $1 million for chief technology officers."
Estimates of $100m can be won in a good season, netting the boss $50m or
more. Australians have always played a major role in Hong Kong racing and
the punt is no different. In more recent years the ``Adelaide syndicate",
two brothers, have played the market successfully, as they have at home.

The Christopher Columbus of this land of plenty, discoverer of the mother
lode, is Bill Benter. Apart from producing the right figures, Benter,
US-educated, is regarded as ``more skilled at masking bets than anyone
else. It disguises his action. He leaves no footprints."
Benter has lectured at Hong Kong universities, consulted with
mathematicians, has been president of a Hong Kong Rotary club and is a
generous donor to charity.

According to Wired, Benter has employees whose sole job is to review race
tapes after each meeting. They judge each horse on 130 characteristics
attributes such as speed during the early section of the race, whether it
was bumped coming out of a turn, the quality of its recovery from the bumps
and how it finished.

The information goes into the database where it can be cross-referenced and
called up to help predict the outcome of any future event, attempting to
simulate the race before it has been run.

The software then determines each horse's likelihood of winning. When the
horse's computer odds are better than the public's, the message is to bet.
Benter developed the first successful program put into use at Happy Valley.
Later came Sha Tin. Benter got his start in the mid-1970s when he
discovered Beat The Dealer, a bible for blackjack and card counters. It was
during this period he met his future partner, Allan Woods, an actuary
turned counter. Benter stumbled upon a handicapping guide and turned from
casino to horse racing. Woods is said to have bankrolled him but they fell
out. Woods now captains another team.

Like most successful punters the syndicates avoid publicity. Leaks about
them come from AsiaweekCom and Wired. An article titled ``The winning edge"
estimated that Benter's ``take home pay amounts to $37 million a year".
He was winning so much he was kicked out of Las Vegas, and even in Hong
Kong has not been able to place bets over the phone since 1996, as
officials regard the activities as ``not in the best interests of the
general public".

Yet Winfred Englebrecht-Bresges, the Hong Kong Race Club's director of
racing, told Wired: ``We are worried that if you have the computer people
then your average customer sees himself as having no chance. But they're
the bettors who bring us 95 per cent of our revenue."

Apparently Benter likens himself to a professional golfer who participates
in amateur tournaments and wins all the prizes. ``If we do make money, the
money has to come from somewhere. Well, yes, the general public loses at a
somewhat higher ratio," Benter told AsiaweekCom.

Back at Broadway, the hack was whining for coffee. Dufficy riffled for
change and was having trouble making the weight. Old papers and the crust
of a pizza, much of which was eaten for lunch two days earlier, litters a
nearby desk under which a rugby league writer, renowned for computer skill,
has taken refuge. Close by, Peter FitzSimons, shoeless and with socks very
much indicating recent mileage, is tapping on a keyboard, his builder's
hat, worn for show rather than safety, is somewhat askew.
Rod wants a change of scenery. ``I've been offered a job in Hong Kong," he
says.
``You'll end up pulling a rickshaw," warned the hack."

MUNCHKIN ?????? is someone taking the urine ?

LOL Exile !

One more to go:

"Gambling: The Hundred and Fifty Million Dollar Man

Alan Woods has used computer technology to become one of the world's most successful gamblers. but it isn't always a sure thing.

By Michael Kaplan

It's just two hours before post time at Sha Tin Race Course, a big, modern-looking gambling mecca in the Hong Kong suburbs. Sleek Jaguars pull up to a members-only entrance, elite horseplayers show off custom-tailored finery, and Moët & Chandon flows as the Hong Kong Jockey Club (horse racing's ruling body here) prepares to host one of its richest days of the year.

It would seem to be the ideal place to encounter the world's most successful gamblers. But Australian Alan Woods and his team of high-flying horse bettors are nowhere in sight, even though they'll put millions of dollars into today's betting pools. This discreet bunch shun the track and are scattered across six countries, connected to the action via fiber optics and Instant Messages.

At Sha Tin, thousands of horse-obsessed gamblers crowd the stands and rush the betting windows to make wagers that are primarily based on half-baked hunches and illogical systems. Woods will have no part of that. Inside a small, neat home office, on the second floor of his duplex apartment some 1,500 miles away in a Manila high-rise, Woods is connected via computer to nearly $3 million worth of wagers that will be placed over the course of today's nine races.

These bets are all mathematically sound, divined from modeling software similar to what Wall Street's sophisticated hedge-fund analysts employ. And like the best stock market plays, Woods's wagers are rooted in a computer program that uses past performances and current conditions to find overlays