Computer bettors are good? One Derby-winning owner says yes

Computer bettors are good? One Derby-winning owner says yes
Photo: Eclipse

Players are familiar with the strategy. Program a computer to make risk calculations at high speeds and make big volume bets that yield successful outcomes. These pros are the bane of the average Joe’s existence.

This sounds like the frequently told story of the batch bettor who makes yet another big score at the racetrack without so much as looking at a single horse. Yes, the dreaded computer player.

This, however, started long ago on Wall Street. Vincent Viola pioneered the model in 2008 when he created Virtu Financial. Forbes magazine described it as a “company that uses powerful computers to make large numbers of transactions at very high speeds.” Sound familiar?

Since that idea turned Viola into billionaire, it is no wonder he appreciates racing’s computer players.

“I applaud them. They work real hard. They put their money down. I think it’s great for the game.”

Wait. What?

Yes, the man who won the Kentucky Derby with Always Dreaming and the Breeders’ Cup Classic with Vino Rosso actually said that about that mysterious group that is cursed by traditional horseplayers.

Viola obviously has given this a lot of thought. Whether he is preaching a message of fixing what ails racing or simply putting spin on the concept that made him a rich man is for others to decide.

In and around seeing his company’s stock price approach a 50 percent gain in a pandemic year, making a software deal with a big company in Japan, hiring a new general manager for his Florida Panthers hockey team and apparently seeing hopes fade to buy the New York Mets and make them his baseball team, Viola took time for a one-hour telephone conversation during Derby week to talk about the business of racing.

He outlined his thoughts about everything from the new Horseracing Integrity and Safety Act that is suddenly speeding through Congress (“I think it’s a great step forward for the sport.”) to catastrophic racetrack injuries (“As long as horses die, the sport will never be able to reach its magnificence.”) to the use of advanced technology to guide the buying and breeding of Thoroughbreds (“Yeah, it’s happening.”).

Gregarious and charismatic, Viola greets a reporter with a friendliness that would define a decades-long friendship, even though it is a first-ever meeting. If there is such a thing as laid-back New York smart, Viola sounds it.

So it was not swagger as much as it was matter-of-fact when he said, “I think it’s great for the game.”

Computer players bring transparency

To understand Viola’s thinking about batch betting, it helps to read a passage on his company’s website.

“Virtu was founded on the belief that transparency enables market participants to make better, more informed decisions and that all investors benefit from markets that are more efficient.”

When he elaborated on his endorsement of computer betting, Viola evoked his company’s mission.

“Anything that improves the efficiency of the outcome enhances the predictability of that outcome going forward,” he said. “That always attracts more participants. That’s what we’ve seen in the stock market. The volumes are much larger now than they were five years ago, 10 years ago. Ultimately this transparency is efficiency. It breeds trust and attraction. It’s just like an innate sense of a square deal.”

But how is it square if someone who is churning algorithms and optics and angles through computer software at what might as well be the speed of light can change the odds on a horse race without most of the public being aware of it? Viola admitted that this is racing’s shortcoming, and it needs to be repaired.

“Quite frankly, we don’t really need great advances in technology for that to happen,” he said. “We just need procedures that tracks agree to. You take your last flash, and then you put the first horse in the gate. The cycle of final calculations I’ve been told is anywhere from 10 to 15 seconds. I’ve seen six-horse races load as quickly as 15-20 seconds, but it usually takes around 30 seconds. If you get a flash on the board, and then load the horses, you’ll always have the final flash. The bettor still might be frustrated by the odds that he’s receiving vs. the odds that he played 45 seconds to a minute ago, but it’ll be a convention that everybody will understand.”

He hopes to have a plan soon for the Jockey Club to take to state racing authorities and racetracks in hopes of a trial run that could conceivably involve the deployment of newer hardware.

“If the computers were more robust, the final logic should be calculated in really, quite frankly, microseconds,” Viola said. “We could have larger data-capacity systems calculating real-time odds such that the final flash doesn’t change when the horse hits the quarter pole.”

Support for Congressional involvement

Because of his varied business interests, Viola had to turn down President Trump’s offer in 2017 to become Secretary of the Army. But that did not mean he took his eyes off Washington.

In his role as a steward for the Jockey Club board of directors, he has been more than a casual observer of the Horseracing Integrity and Safety Act. With Senate Majority Leader Mitch McConnell wanting to fast-track it through Congress before election day, it was one of dozens of bills pushed through a House committee this week in a late surge of bipartisan legislation.

“The Jockey Club was a very strong proponent of the Horseracing Integrity and Safety Act,” Viola said. “Yes, I was consulted. Yes, I had input, but not in any official capacity.”

Both the House and Senate versions of the bill would create an independent authority to write uniform, national standards to regulate horse medication and racetrack safety and to enforce those new rules. Viola said this reform is “critical to the improvement of sport and, quite frankly, the way the sport is received.”

The bill calls for the new authority to work with the U.S. Anti-Doping Agency to enforce drug standards. But Viola said a culture change has to go with it, one that embraces the idea from within the sport that rules are made to be followed.

“Quite frankly, testing is just one component of it,” he said. “Testing in and of itself is not going to eliminate cheating. I come from a background of regulation on Wall Street, having served on the board and eventually become chairman and CEO of (the New York Mercantile) Exchange that was self-regulated. I know the deterrent and quite frankly the educational impact of centrally promulgated standards of compliance.”

Acknowledging that the plan includes the contentious phasing out of Lasix from the sport, Viola still felt that “it’s a great step forward for the sport. I think the bill has great bones.”

Deaths, indictments are forcing progress

Disconcerting changes in our way of life so consumed us six months ago that it is easy to forget what happened only days before the coronavirus locked down the planet. Trainers Jason Servis and Jorge Navarro were at the top of the list of 27 people who were charged in a federal sting to stop the use of illegal drugs on racehorses. (Servis and Navarro pleaded not guilty.)

Although critics would beg to differ, Viola saw the indictments in early March as a positive — a message that racing’s establishment is cracking down on cheaters.

“We see the result of an investigation that was initiated by concerned and important bodies within the sport,” he said. “It’s important to demonstrate that these are criminal acts at the end of the day and remind people that the technology that can be brought to bear on greatly reducing the amount of training-induced fatalities is proliferating. With cheating, we have to be proactive.”

Challenged on that point when it was suggested that it took the FBI and a U.S. Attorney to do a job that state racing authorities would not, Viola audibly shrugged.

“That’s a tough one,” he said. “I think that’s a tad too harsh on the state-level regulators. The testing is advanced on the state level. It’s been consistently applied. More and more that when they do find a violation, it seems to me like it’s been announced more quickly, and there have been consequences.”

This is where Viola sees an avenue for the same modern technology that changed his life for the better to do the same for racing. He makes the pitch not just for regulators but for horsemen, veterinarians and track superintendents to use existing software to examine horses for illegal drugs and physical trouble and to find flaws on racing surfaces. The ultimate goal is to prevent horses from dying unnecessarily.

“Technology that can be brought to bear on greatly reducing the amount of training-induced fatalities is proliferating,” he said. “We have taken great strides. It’s a matter of commitment, and I think the commitment is being demonstrated. As long as horses die, the sport will never be able to reach its magnificence, its real innocent magnificence, of two animals giving their heart and soul to get somewhere first.”

Even though the intervention of the Justice Department last winter and Congress this summer were driven by negatives, Viola saw them as filling the gaps. “I think the federal government has always been able to focus on particular areas of systemic failings and dig into them with its capacity and resources that would be impractical at the state level.”

Technology reaches the sales ring

Despite all the social distancing forced by the pandemic, it is a big month for horse sales in Kentucky. Yearlings are passing through the sales rings at Fasig-Tipton and Keeneland. In November, older Thoroughbreds, even established champions, will be bought and sold.

The coronavirus, though, is only the most recent cause for change at horse sales. Technology got there first, advancing the research so much that the close examination of catalog pages seems quaint by comparison. Call it the equine version of what humans a half-century ago knew as computer dating.

“Yeah, it’s happening,” Viola said. “I guess it’s Equineline where you go to the nick service, and you have a set of inputs that determine the nick between a mare and a sire, and they are graded.”

Saying that he has used such tools to do his own buying and breeding, Viola offered insight into what technology is doing for coming generations of racehorses.

“There are firms out there now for farms that use genetic studies or genetic measures,” he said. “They have taken on individual horses and genetic analysis as part of the consideration of mating. People are using spatial computing that compares different conformation types to predict the outcome of a mating between a particular body type of a specific sire and a mare.”

Technology also has been applied to the human side of ownership, what with the tools that allowed anyone with $206 to use to buy a microshare of Authentic before he won last week’s Kentucky Derby.

“It was called the sport of kings for a reason,” Viola said. “But what has technology done to society? It has redefined access. It has redefined the price of admission. You could buy microshares of Apple, right? Now you could buy microshares of stallions and racehorses. Technology has created a magnificently egalitarian dynamic benefiting our sport.”

A whole new way of betting horses

How long has it been since win, place and show expanded to the boundaries of superfectas and the Pick 6? Not much has happened since to expand that menu, so Viola considers that model outdated.

Asked how he would use his star quantitative analysts at Virtu if he turned them loose on racing, Viola said he would see your horizontal and vertical bets and raise you all the chips on the table.

“If I want to buy Microsoft one day and sell Apple, I could do it simultaneously,” he said. “There’s no reason why we can’t have real-time betting odds and self-created propositions where the calculator can instantly react with odds. If a bettor wants to say, ‘I want to make it a daily double that the 3 horse in the first race is going to come in last and the 4 horse in the second race is going to come in first,’ they can do it. The calculative capacity exists for that to be possible.”

The very idea brought him back to the question about computer bettors, who have further incentive to make high-volume wagers because they are given big rebates by racetracks in exchange for fueling their handle. That concept had him thinking about the very structure of racing economics in a way that he might have thought of stock brokers 12 years ago.

“We know through rebates and other means to attract gamblers to a particular platform that the takeout has been reduced,” Viola said. “You know that. I know that. So the question really becomes, what role does the racetrack play? How’s it managed? And how’s it rationalized as an enterprise? Is it simply as a utility that provides the event? And how efficiently can it be run?”

Viola did not verbalize the answers. But he seemed to have a firm grip on the role that technology already is playing for bettors who use the bells and whistles on advanced-deposit wagering platforms to do some of their handicapping work for them. In a way, it makes them — dare we say? — entry-level computer bettors.

“It’s there already,” he said. “You can already create filters that you want to uniquely identify value and to decide whether you want to stop investing in a stock. That knowledge can be deployed multifactorially to determine uniquely to a handicapper what he thinks the value is in a particular race.”

‘I really do think we’re a better sport’

Reading his bio, it is easy to see Viola’s path to success. In his 64 years, he graduated from West Point, served as a U.S. Army officer, earned a law degree, rose from trader to chairman of NYMEX, launched one successful business after another and established endowments at Fordham University and at his alma mater, one of them to support anti-terrorism education after 9/11.

It is also easy to hear after a one-hour conversation how Viola has taken his passion for horse racing and applied his business acumen to it. Even in a time when it is difficult to look at the bright side, he has done just that.

“I might be a little bit too optimistic, but I really do think we’re a better sport because of the attention that’s been attracted to us,” he said. “For a while, we were the only sporting event that could be viewed during COVID-mandated quarantines. I really do think we created a good amount of new fans.”

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