FT Weekend: The secret gamblers using AI to hack horseracing

This is an audio transcript of the Behind the Money podcast episode: ‘FT Weekend: The secret gamblers using AI to hack horseracing’

Michela Tindera
Hey there. It’s Michela. For this week, we’re bringing you an episode from another great Financial Times podcast. It’s called FT Weekend, and it’s a story all about how technology is changing the business of horseracing. Don’t worry. We’ll be back with a new episode next week. Thanks and enjoy!

Unidentified man 1
I want to make a bet, so . . . 

Oliver Roeder
OK, Sure. I know. I don’t want to stop you.

Scotty McKeever
Well, who are you going to bet on?

Unidentified man 1
Right here?

Scotty McKeever
Yeah.

Unidentified man 1
Bet that one.

Scotty McKeever
You bet, the one, the favourite, huh?

Lilah Raptopoulos
We are at the Gulfstream racetrack in Miami, Florida. And by racetrack, I mean horseracing. And you’re listening to a guy named Scotty McKeever chat with people who’ve come to do what you do at a racetrack. Place bets.

Scotty McKeever
Was there something in particular you liked about that one?

Unidentified man 1
Yes. He was wagging his tail. I don’t know about you but I’m guessing . . . 

Scotty McKeever
You have a form in your hand but you’re just looking at wagging its tail?

Unidentified man 1
Sure. Yeah, sure. She wants to run.

Lilah Raptopoulos
Scotty is talking to some regulars and he’s asking them how long it takes them to handicap horses. That basically means calculating different horses’ chances at winning.

Scotty McKeever
What about you? How do you handicap?

Unidentified man 2
I handicap jockey and trainer. Combine, you know. Yeah. Good trainer, good jockey.

Scotty McKeever
Gotcha.

Lilah Raptopoulos
Traditionally, people place bets by combing through the horse’s histories and looking for patterns. You can also do it like this guy by looking at a horse and choosing the one that waved its tail or maybe picking a jersey colour you like. But Scotty has a different way. He’s made an app and it uses AI and algorithms to place the bets.

Scotty McKeever
I don’t have 6 to 8 hours to handicap one track. None of us do. And if you look at this generation, here’s the thing more important. Forget about me. Forget about all the people that’ve been handicapping for 30 years. What about this new generation? Yeah. How are we going to draw them in? You think for a second there . . . 

Lilah Raptopoulos
I was given these recordings by my colleague Oliver Roeder. He’s a data journalist, and he recently went down to Florida to spend a weekend with Scotty to write this magazine cover story about horse betting. And he did that because, without exaggeration, Scotty is trying to entirely save horseracing as a sport.

Oliver Roeder
He thinks that in order for horseracing to survive, the little guy, as he calls them, needs to learn these technological tools. Otherwise, they will be left behind or completely crushed by these huge computer teams.

Lilah Raptopoulos
Here’s the problem. The sport is in a fragile place. Its popularity has been declining for years and there are these new players who are flooding it with money. They’re kind of giving it a sugar rush. We don’t know who they are. They never come to the track. And for them, this is just a financial scheme. It’s nothing more than that. It’s kind of like the plot to a movie.

Oliver Roeder
There’s not very many of these people, maybe something on the order of half a dozen, maybe a dozen?

Lilah Raptopoulos
Really.

Oliver Roeder
And most of them are members of something called the Elite Turf Club. And the Elite Turf Club is a company based in Curacao, which is the island’s sort of tax haven nation in the Dutch Caribbean. And they sort of operate . . . the big ones at least sort of operate like a quant trading firm, like they have a research arm and their bets are sort of placed algorithmically by the computer.

Lilah Raptopoulos
If these people get bored and move on to other kinds of gambling, horseracing as a sport will be even worse off than it was before. So it’s a takeover and it’s also a culture clash. It’s these little guys who are betting on the horse that wagged its tail versus these well-funded computer scientists and statisticians. Today we visit the Gulfstream racetrack to see how all of this is playing out. This is FT Weekend. I’m Lilah Raptopoulos.

[RACE TRACK ANNOUNCER SPEAKING]

Oliver Roeder
Got a really tight grip of horses packed together, rounding the turn.

Lilah Raptopoulos
That’s Oliver sitting in a suite at the Gulfstream watching a race with Scotty. They both love being at the track.

Oliver, hi, welcome back to the show.

Oliver Roeder
Hey, thanks for having me.

Lilah Raptopoulos
So you recently wrote a piece about how algorithms are changing horse betting, and I’m gonna be honest, that’s not something I knew anything about before I read your piece. It was also something that I didn’t really think about or care about before I read your piece.

Oliver Roeder
Well, thank you.

Lilah Raptopoulos
(Laughter) No offence, but now I do, which is a true compliment. And I guess for listeners, I’m curious if you can start by telling us why this story was interesting to you. Very big picture.

Oliver Roeder
Yeah. So I was raised by gamblers, essentially. (Chuckle) My family, especially my grandpa, big poker players, card players and horse players. And as a little kid, I would be dragged along to the racetrack on summer evenings and just kind of fell in love with the game. And it’s essentially a game of turning data into a bet, sort of analysing what horses have done in the past and trying to imagine what you think they’re likely to do that day. And it’s sort of half empirics and half sort of storytelling. And I was just really drawn, drawn to it as a pursuit, even since I was a little kid.

Lilah Raptopoulos
Yeah. And what was like, what was the atmosphere like at the racetrack back then?

Oliver Roeder
Like it is now. I mean, mostly misfits, right? I mean, but loveable misfits, like just, you know, I think gambling and horseracing in particular brings together a really eclectic mix of people and makes a really, really great scene to hang out in and to write about. I mean, you’re outside, you know, there’s drinks, there’s conversation, there’s friendly arguments, and, you know, every 15 or 20 minutes, some horses race around the track at incredible speed.

Lilah Raptopoulos
So before we get further into this story, can you just tell me, like, how does a horse race work?

Oliver Roeder
Yeah. So no two races are created equal. But the basic idea is there’s some number of horses running some distance. (Laughter) OK. And the first one to get to the finish line wins, right? Like, like any race.

Lilah Raptopoulos
Easy enough. Right.

Oliver Roeder
But sort of the trick comes in how you bet that race. And there are many, many, many ways to bet on a horse race. You can bet on who you think will win, who you think will get second, who you think will get third. You can bet more exotic combinations. For example, an exacta is betting first and second in that order. A trifecta is betting first, second and third in that order.

Lilah Raptopoulos
So you’re guessing the first, second and third winners. And if you get them all right then you . . . 

Oliver Roeder
Exactly right.

Lilah Raptopoulos
 . . . win a lot of money.

Oliver Roeder
And unsurprisingly, sort of the more exotic the bet, the more unlikely, but the bigger your pay-off.

Lilah Raptopoulos
Right.

Oliver Roeder
And you can even bet, you know, I’m gonna bet who’s gonna win the first six races today, something called a pick six. And sort of the combinations are almost completely endless.

Lilah Raptopoulos
Oliver, so can you just take us through, like, the process of placing a bet, just even logistically? What did it look like?

Oliver Roeder
Yeah, sure. So every day there’s maybe nine, ten, 12 races and there’s, you know, very much on purpose, there’s minutes in between the races. And why? Well, so you have a chance to place your bets. And up on this big board in the centre of the racetrack it will say some number MTP, which means minutes to post. And that’s basically how much time you have to go get to the betting window. So yeah, all kind of scattered throughout this very large racing complex. There’ll be, you know, stands like counters or windows with someone sitting there and you go up to them and you sort of speak in this kind of specific language.

Hello, how are you? He’s just walked me through my handicapping, so I’m ready to put my money where my mouth is.

Scotty McKeever
OK. So we’re gonna do, let’s just say $5 to win on the three . . . 

Oliver Roeder
Perfect.

And then, you know, they, you give them your $2, they give you a little slip of white paper that says basically $2, five to win on it. And then you go, you know, take your position on the rail by the finish line or wherever you like to sort of sweat the race. And, you know, minutes to post counts down. A bell rings. The gates open. The horse, horses start running a mile or, you know half or three quarters of a mile, however long they’re going that race. And roughly two minutes later, they cross the finish line. Let’s just assume I’m like in the actuality that my horse actually won (laughter) the five wins. And, you know, I go back to the counter and I give them my slip of white paper and they give me, you know, $5 back or whatever the odds dictated. And you sort of do this. And more often than not, you just collect little worthless white slips of paper all afternoon. (Laughter)

Seven, eight, one. Not even close. Got it? I wasn’t even close.

Scotty McKeever
We weren’t close on that one, were we?

Oliver Roeder
We’ll get them next time.

[MUSIC PLAYING]

Lilah Raptopoulos
OK, so bring me to the Miami Gulfstream, if you will. What was it like? What did it look like? What were the people like there?

Oliver Roeder
The entrance to Gulfstream is a 110-foot statue of Pegasus fighting a dragon. (Laughter) So it really, you’d really get in the mood sort of right from the beginning. And, you know, the horseracing tracks are a mile long, so they’re very, very big. And so you look out on this vast expanse of the dirt track on the outside and the grass track on the inside and this large kind of pond in the middle and sort of in the, in front of the pond is an enormous board, like a digital sort of screen, which displays the race and crucially displays the odds. Right. The sort of prices of your bets, which really dictate what you should do. And the odds are determined by everyone else betting. The odds can change as money comes in on this horse or that horse. So, in effect, unlike a casino, you’re not really betting against the house. You’re betting against sort of your fellow racegoer.

Lilah Raptopoulos
Right.

[MUSIC PLAYING]

OK. So that’s how old-school betting works — the tail wagging, the ticket seller, the board, the whole thing. The new way is honestly, at most, a few clicks on your phone or computer. You can let the machine bet for you. The algorithm is using AI to comb through all those stats on horses and trainers, all the incoming data on the odds and the Elite Turf Club members are using it to place hundreds of thousands of dollars in bets a day, maybe more.

Oliver Roeder
I was surprised by the sheer extent to which they dominate the sport in the US and elsewhere. I mean, the fact that a single person and his team accounts for 10 per cent of all horse-race betting in the US was absolutely astounding to me.

Lilah Raptopoulos
Unfortunately, I can’t really describe the Elite Turf Club any better than I already have. Because they’re so secretive, they wouldn’t even talk to Oliver for his piece. We also can’t compare Scotty’s algorithm that Oliver use to theirs because that’s secret, too. You can’t just Google it and sign up for it. What we do know is that these six to 12 secretive teams now account for $4bn a year. That’s a third of all the money bet annually on all horseracing in the US.

So these, like, six to 12 totally anonymous, assumedly very wealthy people are throwing a ton of money in and like affecting the odds really intensely?

Oliver Roeder
That’s right. And these computer-assisted players are very, I would say, infamous for placing all their bets at the last possible second.

Lilah Raptopoulos
Oh.

Oliver Roeder
And the reason they do this is because that gives them the most information about what the odds on the horses will be. Like we mentioned, the odds can change as the money comes in. So if you place your bets at the last possible second, you’ve got as much information as you can possibly get. And the reason they’re able to do this is because Elite Turf Club connects them to the pool in this very high-speed, sort of high-bandwidth way. And indeed, oftentimes you see the odds on horses sort of dropping precipitously as the horses are, you know, loading into the gate and getting ready to run because these computer players have spotted, you know, a good deal on a horse and have flooded all this money in at the last, at the last possible second.

Lilah Raptopoulos
Right. So the little guy must be really annoyed by how this can influence what they think they’re betting on.

Oliver Roeder
I think it’s, these last second odds changes are one of the biggest frustrations that you read about. And one of the biggest frustrations that folks I spoke to for the story kind of expressed to me.

Lilah Raptopoulos
You can imagine the difference. Right? So you’re at the racetrack and you’re watching the board with the odds. And then in the last few seconds, right before time is up, they change. You just don’t have any physical time to react. You can’t go to the guy and get a new ticket. It’s not possible, but the racetracks are hooked on the Elite Turf Club.

So you were shown around by Scotty McKeever. Can you tell me about him?

Oliver Roeder
Yes. ScottyPick6 McKeever is the developer of one of these AI systems. His is called Equinedge. And he, you know, he has a day job. He works in the metals industry. But horseracing is really his passion. And he’s had a sort of side gig in the past as a horseracing commentator on a horseracing TV network.

[CLIP OF SCOTTY MCKEEVER AS A COMMENTATOR]

Scotty McKeever
Top of the afternoon. I’m Scotty McKeever and welcome to the Golden Hour series from Golden Gate Fields in Santa Anita Park. We’re gonna cover races, of course, from Santa Anita, Golden Gate Fields, Pimlico, as well as Gulfstream Park.

Lilah Raptopoulos
Tell me what he looks like. Tell me what he’s like. What was his energy like? Or his sort of character?

Oliver Roeder
Yes. So Scotty is a big guy. He’s in his fifties, but like in fantastic shape, just endlessly charming, knew absolutely everybody at the racetrack. You know, he goes there enough and bets there enough that, you know, we got access to a large luxury suite where he places his bets and yeah, just an incredibly kind of gregarious horse player.

Lilah Raptopoulos
Scottie seems to be one of these people who’s trying to democratise the algorithm. Can you talk a little bit about that and the people who are trying to do that?

Oliver Roeder
Yeah, I think that’s definitely a fair characterisation of what Scotty is trying to do. And so, you know, I think he is trying to do this in a few ways. One is just by making this thing publicly available. You know, you have to pay for it, but it’s, you know, it’s not that expensive. Another is Scotty kind of hosts these livestreams. So on a Saturday afternoon’s racing, he will broadcast from his apartment and sort of talk you through every race and say, you know, OK, here’s what my AI says and here’s kind of what my human instincts for this race are. And essentially to kind of educate people about, you know, how horse race betting works. I would say, you know, he described it to me as I’m trying to teach people a foreign language.

Lilah Raptopoulos
And, Oliver, can you just explain to us, like in simple terms, why is horseracing so vulnerable right now?

Oliver Roeder
Yeah, I mean, most simply, there’s just far, far fewer dollars bet on horseracing in the US and that’s just a function of basically declining popularity. I mean, time was in the US that there were three sports: baseball, boxing and horseracing. And this would be, you know, in the newspaper every day. It was followed very, very closely. And adjusting for inflation in the last 20 or so years, dollar spent on horseracing had been roughly cut in half.

Lilah Raptopoulos
Mm-hmm. OK. So Scotty is trying to bring this algorithm to the people. I’m kind of curious if it’s working.

Oliver Roeder
I think in some sense, absolutely. I think one of the, one thing that really stuck with me from, I was in his house while he was doing one of these shows, and there’s just a real camaraderie among his viewers. And I don’t remember exactly how many people were viewing it on the order of a couple hundred people. So this is not an enormous thing. But they were all sort of in it together. Right. And Scottie, to his credit, he places actual money bets when he’s sort of describing what you should do in a given race. And presumably a lot of his viewers do, too. And then, you know, if the race goes well, they sort of all celebrate together. And I describe it in my story as sort of people gathering around an AI algorithm like our ancestors sort of gathered around a fire. Is it working? Looked at in another way, it’s very hard to tell because it’s a bit like, you know, retail investors in the stock market versus like a very established quant firm.

Lilah Raptopoulos
Right.

Oliver Roeder
You know, you could imagine educating retail investors very thoroughly, but you still have to imagine that the established quant firm just has the money, you know, the capital, the wherewithal, the research staff, you know, to be, to have a huge advantage.

Lilah Raptopoulos
Yeah.

Oliver Roeder
And I think an existential question for horseracing is, you know, will the retail bettors be entertained enough to kind of stay interested in horseracing like, or will they just move to betting on football or poker or whatever else?

Lilah Raptopoulos
And can you just reiterate, like, what is . . . what would happen if they all just got bored and left and stopped horse betting.

Oliver Roeder
I mean, if all the big computer teams just left, I mean, there would be an enormous hole in the horse . . . in the pool of dollars that support the sport of horseracing. I, to be honest, I don’t know if that hole means that horseracing collapses tomorrow, but I mean that the horseracing, that the tracks, the companies that own the tracks will do a lot to keep these people betting because they are a huge tent pole that is holding up the sport as we know it in 2023.

Lilah Raptopoulos
Oliver, I’m kind of curious what’s at stake for you in this story? Like, why do you love horse-betting?

Oliver Roeder
I think I love a few things about horseracing. One, I love the puzzle, right? More than, you know, if you’re betting football, for example, you’ve got, you know, a few bets you can make. But basically you’re looking at two teams and which one’s gonna win? Betting on horses, you’ve got eight, ten, 12, in the Derby, 20 horses. It’s an incredibly, incredibly rich puzzle. On top of which, it’s an incredibly beautiful thing to watch. There’s no denying, like the absolute beauty of a thoroughbred racehorse. And even if you don’t bet one ought to go to the racetrack just to take in the spectacle.

Lilah Raptopoulos
You know, it’s funny because I felt in this conversation in an ear piece, sort of like I’m rooting for horse betting. And I’m rooting for it as it was to sort of maintain and the little guy to hold on. But it’s still betting. So should I not be? Isn’t that bad?

Oliver Roeder
I mean, listen, I’m a gambler and I think there is a lot to speak for gambling. And, you know, I think back to, you know, my fondest memories with my grandpa were at horseracing tracks. And my fondest memories with my family were around poker tables. Right. And, you know, it’s puzzle-solving, essentially. And, you know, I think you should . . . if you’re betting on horses, you should be prepared to lose a little bit of money. But you should also prepare to be very engaged and very entertained.

Lilah Raptopoulos
Mm-hmm. There’s this tension between, like, the excitement of gambling. The way that you explain it as puzzle-solving is exciting. And then also the sort of like the dangers of gambling . . . 

Oliver Roeder
Yeah, but on the other hand, like, everything is gambling. Like, being born is a huge gamble. We’re the FT. Finances is gambling, come on.

Lilah Raptopoulos
Totally. (Laughter) Yeah. Oliver, you’ve totally blown my mind about horse betting.

Oliver Roeder
I’m very happy to hear that. Thank you.

Lilah Raptopoulos
Thanks for being here.

Oliver Roeder
Thanks for having me.

[MUSIC PLAYING]

Lilah Raptopoulos
That’s the show this week. Thank you for listening to FT Weekend, the Life and Arts podcast of the Financial Times. Next week we are talking to the Pulitzer Prize-winning MacArthur Genius playwright Suzan-Lori Parks. If you’re in the US, the second annual US Weekend Festival is on Saturday, May 20th, in Washington, DC. There’s a special discount link in the show notes alongside a link to an exceptional deal on an FT subscription. That’s at ft.com/weekendpodcast. Make sure to use that link to get the discount.

I say this next part every week, but I mean it. We really love hearing from you. You can email us at ftweekendpodcast@ft.com. The show is on Twitter @ftweekendpod and I am personally on Instagram and Twitter @lilahrap. I post a lot of cultural recommendations and questions for you on my Instagram. I’m Lilah Raptopoulos and here is my incredible team: Katya Kumkova is our senior producer. Lulu Smyth is our producer. Molly Nugent is our contributing producer. Our sound engineers are Breen Turner and Sam Giovinco with original music by Metaphor Music. Topher Forhecz is our executive producer and our global head of audio is Cheryl Brumley. Have a wonderful weekend and we’ll find each other again next week.