What do you understand as "value"? How do you determine value? (how do you price up an event, if you don't price one up what method do you use?)

What is Value and how can you use "it"? Value is often discussed as the key premise behind betting. This is one man's personal "journey":

1) Early Days: I only used to bet when I was positive a horse would win, I therefore felt value was irrelevant. It's going to win so whatever the price is, it's largely immaterial. The odd horse falling used to kill me though. Two fallers / pu/p in a row would mean needing about 4 winners in a row just to break even. 

2) A light appears: Making money was like painting a house with a pubic hair. It would be painted in the end but was it worth the effort?. I had to develop my thinking. I began to think the only time price is irrelevant is when the outcome is certain....and...The only time an outcome was certain is when no other result is possible. People just don't offer odds on that. I had to introduce an odds-on threshold to my betting. In horses I set this at 1/4. This felt like a good threshold.

3) Early value: 1/4 was far too arbitrary for me - How can I begin to assess whether a horse at 1/4 is value? I would have to find out the "likelihood of accident". If there was a 25% chance of a horse falling / being pulled-up / brought down / breaking a blood vessel then at 1/4 I would never get an edge as the odds were pretty accurate - and we haven't even taken into account the opposition yet. 

I also realised that this threshold was sport specific. In the NBA a whole team doesn't fall or get pulled up. I see DCdude in his drip is setting his lowest odds and is basically operating a "threshold". No matter how good the bet there comes a time when the price doesn't sufficiently cover the "likelihood of accident". In NBA there is the team factor / possibility of food poisoning etc.

4) Value gone mad?: I soon became uncomfortable with the 1/4 shot as, whether you like or not, the opposition does have an effect on a result - even with a 1/4 certainty. The next step was to evaluate the opposition and try to factor in their likelihood of winning. I tried Nick Coton's approach by assigning a point for every danger. 

E.g in a 6 horse race there is one horse that could beat it (1 point), a doubt about the ground (1 point) and "the field" (1 point). Therefore my horse was a bet at greater than 3/1 (3 points). The reason being that when the odds exceed the probability you have found yourself a bet (e.g. 11/10 on a coin toss) I found myself betting numerous times a day (rather than 3 / 4 times a week) and making money but the method seemed very crass and I've never been comfortable with low strike rates. 
I started thinking
of more sophisticated ways....

5) Camel Coater: I started with the experts. How do the bookies price an event up? Obviously you assess each horses chance and assign a value representing that chance. So I priced up my first race (race obviously unrealistic):


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2:30 Haydock

Sea Pigeon - evs
Nijinsky - 6/4
Rambos Hall - 5/2
Best Mate - 5/1
Red Rum - 8/1
Baps - 20/1

Needless to say I didn't bet for a week as my market was operating at 151% overround in a 6 runner race and I never found a value bet. However I had established in my mind a "correct" way to define value. To determine value you have to be able to determine the likelihood of an outcome and be able to compare the odds on offer against the likelihood of this outcome.

6) Applying Overround: With my 151% overround I was wrongly applying a bookmakers margin on my prices. Therefore my sum of event likelihoods was greater than 100% - which is obviously ridiculous. I had to squeeze in my likelihoods into a 100% scenario. I did this in 3 steps:
a) Express my odds as a %. This is done by the following= 100/(dec odds + 1). So my evens shot becomes 100 / (1+1) = 50%. Therefore I think Sea Pigeon will win the race once out of every two runnings. The full %'s are:

Sea Pigeon - 50%
Nijinsky - 40%
Rambos Hall - 29%
Best Mate - 17%
Red Rum - 11%
Baps - 5%.

I need to now adjust these prices to reflect the true likelihood,i.e. had to cram the sum of %'s into 100%. Try it - it's not that easy. This would mean my odds would look like this:

Sea Pigeon - EVS (50%)
Nijinsky - 4/1 (20%)
Rambos Hall - 6/1 (14%)
Best Mate - 14/1 (7%)
Red Rum - 16/1 (5%)
Baps - 25/1 (4%).

Remember these are the likelihoods of winning of each horse. However compare that with a typical bookmakers book which has a 20% profit margin and will look more like this:

Sea Pigeon - 4/5 (56%)
Nijinsky - 3/1 (25%)
Rambos Hall - 5/1 (17%)
Best Mate - 10/1 (9%)
Red Rum - 14/1 (7%)
Baps - 20/1 (5%).

This is why overround is such a big deal and betfair quote it. The higher the overround the bigger the bookies margin - the less likely your true book is going to be at such a discrepancy that warrants a bet because it's value. Whether you like it or not the bigger the field it's usually a higher overround and therefore it's harder to get value on your bets. (Is this right - it doesn't seem correct as I write it!!!). The above race would be no bet because the likelihood of each outcome is less than the odds offered.

However if Sea Pigeon was offered at 11/10, and Rambos Hall was at 3/1 then it would be a bet. This is because you are getting 11/10 on an evens shot. This means if you're odds setting is accurate then in the long run you will make a 10% profit because you'll the odds are in your favour. This is why I believe people who bet in every race can't be betting at value or they have a inbuilt sense of value.

7) Where am I now?: Still a 10% margin isn't that great so I like to set a higher cushion factor. One that takes into account possible discrepancies in my prices and gives a decent profit margin. I'm still deciding on what is best but I think 25% will work for me. This means I will back a 5/4 shot if I give it an evens chance. A 10/1 shot if I give it an 8/1 chance.

Where i find the value in the races is where often whereI have a genuine reason to oppose a short priced horse. If they offer Rambos Hall at 5/1 but I don't believe it will handle the ground (it's firm) and the trip is too short (6.5 furlongs) I might give it a 10/1 chance. I'm not afraid to do this despite it being a 3rd favourite. So my decision can be two fold - shall I back one of the others because they are likely to be overpriced or should I lay Rambo's Hall. Again which one is value. I'll leave that one until later.

To me value is not one bookie going 2/1 when the others go 6/4. This is a price discrepancy - if you have set it's chance at 9/4 then they are all bad prices!

Of course the technique of evaluating the likelihood of an event is essentially handicapping. Lets leave that till later aswell.

I'm interested in everyone elses approach on:
Do you believe in the concept? If not, what's your alternative?
What you believe to be value.
How you measure value.
Do you have minimum / maximum prices / thresholds and why?
What technique do you price up your own markets? 
Do you have any additional rules to add to the mix?

Andrew Moraghan
(Comments on this article to Moz via the forum)

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