27: Kentucky Derby Edition: Flip This Horse

back next week, so I am all alone. But I was really excited about this episode because, as you may or may not know, it's about to be Kentucky Derby Day. And I think on when the Kentucky Derby Day rolls along, maybe the day of the raise or the day before the raise, people suddenly try to cram and learn a

buy about horses. But we're going to get ahead of that because today we have David Popadopopoulos, who is a managing editor here at Bloomberg, and most importantly this week, he is an expert on all things horses, horse racing, horse gambling, horse breeding, and we're going to talk to him about horses obviously and everything you need to know to get ready for this weekend's Derby and the business

of betting on horses and breeding horses. And so rather than just cramming Saturday morning, you're gonna listen to this podcast. You're gonna know a lot more than everyone else at your Kentucky Derby party. Thanks David for joining us, Thank you Joe. And basically what you just said, in other words, is that rather than losing your money and having no idea how you lost it, you're gonna lose it, at least you'll have you know, you'll have given it some thought,

and then go on to lose your money. At least you'll learn something and maybe I'll have a little more enjoyable time watching the race. So I've never won money on horses. I've placed a lot of bets, not a lot, but I've been to races, a bet on the Derby, and I'm terrible at it. So we're gonna fix that this week. We're certainly gonna try. I mean, the Derby is a tough race. If you're just gonna bet once a year and you bet the Derby, it's a tough race.

There are twenty horses on the track. That's more than double the size of a typical field and a typical race very chaotic. Uh, and just obviously just given the the sheer number of the horses out there, you know, if you're betting on one or two horses, Uh, it could be very tough. And you know the way things tend to unfold in these races, horses that often seem very logical. Not only may they not win, you could all of a sudden, you can see, they could come

in dead last. That's a that's a common occurrence with a race like this. Well, I mean, you know, one of the things I was just looking at again just to to refresh my memory. You know, we had a period of twenty years. For instance, ninth teen, eight to nine, the favorite in the Kentucky Derby did not win a single one of those races. Um and in some cases I'm looking here, they finished twelve six eight. One of

them did not finish eleven. So you know, it's just a chaotic race that How many horses are normally in a race you mentioned there twenty and I would say, you know, typical size varies, but you know anywhere you could have fields as small as five or six or you name some cases for a typical typical field be eight or ten. Twelve would kind of be a lot. So twenty. There's only one time in America in horse racing where there are twenty horses on the track for

a race, and it's the Kentucky Derby. And the reason for that is because every owner, every horse race racehorse owner in America is dying to say I had a horse in the Kentucky Derby. So Churchill Downs really goes out of its way to try to accommodate and try to had as many owners bring their horses to the

race as possible. Uh, and you get this stampede of horses. Well. Um, before we get into talk about this weekend's Derby and the Derby in general, I want to talk really briefly about this obsession that I had a few years ago related to horses. And it wasn't related to horse bedding, but it was something called pin hooking which I read about and then I got obsessed with. And that's this idea of buying horses at auction and flipping them, selling

them horses as speculations. Uh. I even thought, you know, there was that show Flipped This House, and I thought there would be a really great show flipped this horse. People who went out to these auctions and bought one year old horses or young horses and then tried to sell them. Eventually I realized it was it wasn't my world. I wasn't living in Kentucky. I didn't have any particular reason to be buying horses at auction. But it really

fascinated me. And while you're here, I wanted to ask you about this world of pin hooking, because there are different ways to speculate on horses. One is gambling, but the other way is some people buy and sell horses like commodities. Yeah, no, pen hooking is. Indeed, it's a fascinating segment of the market. About a decade ago, I I once did a feature story on on the market. What it basically comes down to is guys who will

buy yearlings. Um, it's a one year old. It's a one year old horse, a yearling, and they will flip them as two year olds. Uh. And it's not even a full year. Doesn't even transpire from the time they purchased them in the time that they flipped them. Really it's about six months. Um. It It's a very volatile market. You can have some huge home runs. You know, sometimes these guys will buy yearlings for two d thousand and managed to flip them for one point six million and

have some huge score. But then they'll have any number of busts along the way, horses that get injured in that six month period and never make it to the track at all. You know. But what they're basically looking to do is, um they are looking you know, in the yearling sale when horses are one year old. Um, when you go and buy those horses at auction, you don't actually see them running. You simply see them on a shank, standing or walking. So you know what a

pin hooker is looking to do. Is he looking to gauge the horses balance athletic ability. You know, if you're going to flip a two year old. You know, a two year old is a very young horse. It's like a young teenager. They have to be precocious, they have to be fast, and they have to be racy. And at one year old, they've never really raised. They've never raced before. They've absolutely never raced before, and when they're sold as two year olds, they still haven't raced in

proper races. But at that point they are being trained on the track, and all the perspective buyers, before they bid on the horses, we'll watch them run on the racetrack. So again what they never run when they're one, not even like a practice, you know. Uh, they're certainly running in the fields, you know, the breeders fields, not running around, not on the track. And when you go to these these auctions, these yearling auctions, all they'll let you do

is they'll let them. They'll they'll let you see them standing whilst the handlers holding the shank, they let him see him stand and walk. So are the people who participate in this, these pinhookers, They have to have been around for a long time. I mean, because if you're going to try to see that a horse has a swagger at just one year old and they haven't run at all, you need to be able to just have

some intuition that you can't explain. I mean, the guy I spend a lot of time with back then, Buzz Chase Um, who just had developed a terrific eye over a sixty year period. Right his entire life was around horses, and he just developed that eye and he could see things that other buyers couldn't see, so he would buy them and being able to project six months out, you know what that horse would look like. And again, you know, it's not an exact science. These guys get any of

them wrong or you know, horses get injured. They're very fragile animals. Um, but the but you know, the model is Joe, you need to hit a big home run. You need something to flip something in a really big price, and that will pay for a lot of the strike.

It reminds me kind of like venture capital investing in terms of you invest in these seedlings or seed rounds, and most of them don't work out, and then every once in a while you invest in an uber and AIRBNBA hopefully and you make up for all the losses. And at that early stage, the only thing you really

have to go on is intuition and pattern recognitions. And you know, bringing it back to the Derby, one of the things that really allowed the pin hooking market to take off was um Bob Baffort, trainer of of of American Pharaoh, last year's Triple Crown winner and trainer this year of More Spirit. He's the guy that in a lot of ways got the pin hooking market going how well.

He'd picked a horse named silver Charm in he plucked Silver Charm out of a two year old sale, and Silver Charm the next year would go on to win the Kentucky Derby. So that was the first moment when buyers said, hey, you know what in these two year old sales, you can really find talent, talent that's even cabable of winning the Derby. And so as more and more buyers went to the two year old sales to buy, it created a bigger market for pinhookers to sell into.

He has a pin hook and this year and he does, and and Baffort's got a pin hook. He was not the pin hooker, he was the buyer. He purchased at the two year old sale for I believe six hundred and fifty thousand dollars. Um. Very nice horse. More spirit is his name, and he's the lone pin hook in this year's uh and this year's Derby. But um after Silver Charm one in seven then Monarchos, who was another pin hook or if he wasn't a pin hook, he was at the very least he was purchased in a

two year old sale. Those kind of especially those two back to back really allowed the thing to take off. And that the interesting about Bafford as a buyer, and he specifically bought this horse more spirit for these clients. Baffort's not a big guy about pedigree, Like he's not gonna spend hours and hours contemplating pedigree. He's another guy who's got a G eight dies the horses, the horse.

He's just looking for athletes. Now, of course you want some pedigree because if you simply buy an athlete that goes on to do great things, if the horse has got no pedigree but did great things on the track, he's not going to be very attractive as a stallion or a study. You're not gonna be able to sell him as a stallion. So even like a horse that had a great track record, people still want to see. I guess that it wasn't a fluke in the that's great.

So if a horse like California Chrome, you remember, may remember from a couple of years ago, almost won the Triple Crown. He came from essentially a bad family. He basically could have come from the Popadopolis family. I think his father was old Yeller. I don't remember who his mother was but so even though he won the Derby, he won the Preakness, he won all these races, breeders weren't knocking down his door to have him come in and, you know, and and make him a big stallion offer

and pay them countless millions. The reason why Joe's yes, breeders will assume that in a case like that, he's just a freak athlete and a bad family. All right, let's let's we're gonna turn our attention to the Kentucky Derby. But first let's take a quick break for our sponsor. But knowledge to work and grow your business with c I T from transportation to healthcare to manufacturing. C i T offers commercial lending, leasing, and treasury management services for

small and middle market businesses. Learn more at c i T dot com. Put knowledge to work. All right, David, let's talk about the Derby, But let's talk about Let's say someone doesn't do anything about horse bedding. As I said in the intro, maybe they pay attention to horses one day a year. How do you start to look for a good bet to a good horse to bet on,

or a good wager? What's the framework? Well, you take to take a half step back, I would say the first thing that you know, most gamblers do, and even people who don't have a great sense that they should really be looking for value, not simply thing to identify the horse with the best chance to win, but looking for value. I think they'll typically look out a handful of things. Obviously simply whether this horse is winning or losing recently in his most recent races, what kind of

speed figures the horses producing. Nobody looks pretty much at raw times. Um most obviously tracks are dirt surfaces. They're very affected day to day, hour to hour by rain, wind and everything, so you can't look at raw times. There are any number of groups. That's why we don't hear about like the equivalent of the hundred meter world record,

because that's correct. It is true. That's Secretariat arguably the greatest throb in America of all time to this day, has the record in the Kentucky Derby, and the record in the Preakness, and the record in the Belmont. All those things are true raw times. But generally speaking, you know, raw times are are kind of skews to speed figures.

They're they're a handful of them. They're Andy buyer an old Harvard guy's got the buyer speed figures, And then there's the is the ragazine sheets and there, and there's the brig net and there those well, those are basically they take the raw times, but then they figure out how they have their own formulas for how fast or slow the track is playing on that particular day in the which it's it's conceivable that on Tuesday, if a horse does a mile, runs a mile in an eighth

in a minute forty seven, and then three days later another horse does that same mile in an eight and in a minute fifty, it's conceivable that the mile the minute fifty is actually a better figure, is a faster time than a minute forty seven, depending how the tracks playing. So they'll they'll take all those things into consideration. And as a amateur gambler, when I want to see a horse's speed figure, what where do I look? And what

is a good number? Is it lower numbers, higher numbers? What? Right? So everyone's got their own system. The most the most common sort of the the gold standard, I guess in the industry are the buyer speed figures, which you'd find in the daily Racing form. And they're big, bold type that basically the only number in the racing formats in bold type. The higher the better, Uh, you're looking in the Derby, typically people want scale. There's no you know,

there's no set scale. But you know, I think for instance, they went and they did, uh they back off top seed. For instance, Secretariat's Belmont and I think he got a hundred and thirty eight. I think the hundred thirty eight is basically the highest you'll ever see. You know, maidens horses that have never run in their lives before, you know, made you get figures as low as thirty or forty.

You know. You know, typically Derby winners, before they run in the Derby will have done something in the hundred range hundred plus um. So, So anyway, so your typical gambler, he looks at win loss record, he looks at speed figures. He probably looks at the competition the horse has been facing recently to give him a sense, all right, has he been racing against really good horses or weaker horses?

And then we'll just you know, most handicappers will will put most emphasis on the horses most recent race is you know, um recency matters much more than whether a horse was doing great things two years ago. And that's the way, you know, generally speaking, your average gambler would approach.

And those are all important initial steps, you know. I think, though, if you're really trying to find value, and I was just gonna say, if these buyer speed figures are in Bright's correct, you're not getting any edge by looking That's correct, Joe, to the point, to the extent that you know, honestly, in my mind, when I really made up my mind that I just like a horse visually, because I will break these horses down on film, and I will watch them race after races, and I will watch I may

watch certain portions of the race multiple times when I've decided I really like a horse. I like the way he travels, I like the way he he takes the jockey forward. When that race is over, I'm actually hoping he gets a low buyer figure, because a big buyer number is gonna gonna attract a lot of attention. It's gonna attract a lot of money. But if he gets a weaker figure, that's going to sort of scare people off, scare other gamblers off. I may still believe in the horse.

Think it's the point where you say, you're watching horses on film that most people should realize they don't stand a chance. I mean, like, like there are people out there watching film of these horses. That means that the one day year gambler really really doesn't they don't have a print. All right, let's take it a bit further, so everyone sees those same buyer speed rating. You go as far, and I imagine others watch film to like

really size up the horses. You said, Um, you had an epiphany at some point in your career to take your bedding to the next level. Um, what what was that epiphany? I did, Joe. It was probably about a decade ago, and I was I was kind of playing hockey from work. I think I think I properly took it as a vacation day. I'll have to go back and check it. And I went to at the time. Okay, so it's all on the database. It's all on the database.

We can go back and check it. Uh. And I went up to Saratoga with my father and a buddy of his, and I was kind of trying to handicap on the fly like most people, and and doing the things that I I had walked you through earlier looking at you know, when wins loss is looking at speed figures. And I was trying to do this for race after race, ten races on the day and throughout the day. If I zagged, they zagged. I just had it wrong all day. I went over ten on the day and I and

I dropped every penny I bet. I remember walking out of there and my father's buddy was giving me a hard time. He was kind of just kind of laughing at me whatever. I remember just walking out of there saying, you know, this thing about trying to chase each and every race and trying to handicap on the fly, this is for the birds. There's no way, no how, you can truly find any kind of value doing this. I

need to take a much more patient approach. I'm really pick my spots, and when I'm gonna bet, really make sure that I believe I'm I have an information advantage over everybody else. So now when I go to the track on a given day there are ten twelve races, I may bet one, two, three, zero, depending on what I see. And so, you know, it takes a lot

of discipline. People want to I mean, even if you establish that Okay, you really want to pick your spots, figure out where you have an edge people, It's hard to do that when there's races. It's it's it's it's human nature, and especially when you get down. Also, let's say I only plan on betting race six on a given day, and I bet whatever, fifty dollars, whatever it is, and and I lose it instinct, this is sort of immediately start looking through the racing forma. Sorry, how am

I going to bring that back in the seventh race? So, as a disciplined gambler, I try to just walk away and not do that because at that point then you're sort of chasing. You're chasing, Uh, You're you're throwing. You're exactly, you're throwing good money after bad. But so the kind of ways you can find value in my case, I watch a lot of film. Um, you know, film can tell you question, where do you get There is that online everywhere? There are multiple places you can get that online, um,

and and they're great. You can get multiple shots. You can get the pan shot that everyone's traditionally used to seeing. You can get the head on shot, which is great, which gives you a lot of you know, a lot of different uh insight. UM, So you can do film work, uh, you know, to gain value. You can, um, you can subscribe to Cocker Reports, guys who are watching these horses train each and every morning and they can watch their evolution and report to you on their evolution. And it's

kind of thing. Yes, it's it's accessible to other people, but folks tend not to spend the money for it. And it can be very insightful because these are, after all, agricultural products, right, their horses, right, they go good and bad, and so it's very important to know how they're doing day to day, week to week. Um. You know they are also um, if you were to go to the

paddock before the race. I mean I'm a big believer and being in the paddock before the race and watching those horses, and over the course of years and years I've learned and read about you know, you know what when a horse is giving signs that the horses physically really ready to roll, and when he's not so ready to roll, And that's just kind of going back to the pinhooking something. You just learned to watch the patterns over the years, and there's no shortcut on that. Yeah,

you you do. And also I mean, in my case, you know, initially started I probably picked up a handful of books on the subject written by horsemen, not not by uh not by journalists like myself. But yeah, I mean there are certain telltale signs that become pretty obvious to you. Like you know, if you ever see in paintings, classical paintings, you know, a horse and a painting, you know,

they always get that really bowed arched neck. And if you ever see a horse it's really bowing its neck arch neck that is you know what we call like a sort of war horse kind of pose. That is a very proud, very a horse that's feeling full of himself. That's usually pretty good tip off something we're talking about before that you uh uh, sort of based on being in the paddock. You told me something about how smart

money is early in the bedding. That's right. Yeah, smart money is often early and and it's a great thing to watch, not so much on derby day. It's probably a little bit harder on derby day because so much money is pouring in. But you know, typically in a trainer, an owner, the grooms, everybody involved at the horse loves

the way their horses is doing. They love the way he's he's suddenly back eating well, and he's training great, and his coat looks terrific, and they love their horse this day, and they want to bet on him in the paramutual windows, which they're allowed to, which is legal. They will typically do that early on in the day because when it comes time to saddle the horse and for him to run, they're busy. They well, it's it's it's they typically, at least traditionally, I've always got that

done early. So when when when a race is about, you know, when the fifth races ended, and now we're going to the sixth race, and there's twenty five minutes of the sixth race. That first flash of odds you see on the board is often very telling. If a horse out of the blue that no one expected to be the favorite, starts off at two to one. Uh, and you can take a look at the wind pools. You always want to look at the wind pools. There there really a lot of money in that wind pool

or is it just a little money. And if you see that horse that no one expected is starting off at two to one and there's a lot of money in the windpool, it's a pretty good tip off that the barn likes their horse. The insiders, the insiders, legal inside, you know, inside information, they have um. Again, they're just privy to things that we would not be. Yes, the clocker reports can give you a bit of an inclination

of that for sure. Yes, what you see in the paddock can tell you that a little bit as well. But they ultimately know this horse in a way that we just wouldn't. So, you know, it's always a great sign when you see a horse out of the blue like that he starts off at two to one, because because the barn itself really pounded him, and then he drifts two to one, three to one, five to one, eight to one. That eight to one when the horse when the race goes off, that's the odds. Those are

the odds you get. All right, let's talk quickly about this specific race which is coming up on Saturday. So obviously between now and then, no one is going to gain the years of experience that you have checking out these horses in the barn and so forth. Most people are just going to be coming at it. But give us your take on this upcoming race and some insight that could help the one day year gambler do a little better than he might have done here she might

have done in previous than in previous year. Yeah, so a couple of things on that. I mean, one thing I would say is that the Derby is traditionally a somewhat chaotic event, right, So whereas if you were to look at the r o I over an extended period of time on the long on long shots in races non Kentucky Derby races, just normal races, bending long shots

thirty one hundreds of one, it's a terrible bet. Decades ago, my father ran a very significant study has this, and about a decade ago I ran the data as well. The returns are just abysmal because they're overpriced because everybody wants to bet. It's there's always some pool of money out there that's just gonna bet the long shot because

it looks like it looks cheap. Exactly. It's the dollar in a dream kind of thing, and so it looks cheap at eighty to one, But Joe, you know what at eighty one actually is not perhaps, but in the Derby, it turns out, given the fact that there are three key elements that make it a chaotic race. You know, betting long shots has been pretty good over the past

twenty years. And so the three elements are a the size of the crowd, hundred and fifty thousand drunk Kentuckians and other Americans, creating a very boisterous, unnerving environment for horses, for animals that are ultimately prey animals, they're very skittish, they're very jumpy, they're very nervous, and the big favorite of the top five favorites, for all we know, they may leave their race on the track before the race even begins. They may be so unnerved by the crowd.

Keep in mind, in a typical Saturday at the at racetracks across America, these horses are running in front of ten thousand people. So go from ten thousand people to hundred fifty thousand people is a big difference. That's one. Two is none of them has ever run this distance before in their life. A mile and a quarter. It's the longest distance. It's hard sometimes to fully project who's going to really want to go that far. That's a

second element that makes it a big chodech. And the third element, and perhaps the most important, is with twenty horses, on the race track, it's this cavalry charge, it's a stampede, and many, many times the best horse will be compromised by a bad trip. He'll get slammed into, he'll get stuck behind other horses, He'll find himself in situations he's never confronted before, and things can sort of lead to these bizarre long shots coming up and out of nowhere

and winning. So, you know, history just shows that you know, if you were to if there's a race to chase long shots, the Derby is not a bad one to chase. The other thing I would just say is if you were to sort of practically apply some of the value handicapping concepts of this race, I think you could look at it through two horses that I'd like to look at, Exaggerator, who's probably going to be the second favorite in the race, and a horse named gun Runner, who will be somewhere

midpack in the betting now. Exaggerator on the buyer's speed figures scale, got a huge number last time out in the Santa Nita Derby out in California. You got a one hundred and three buyer, which, if if memory serves me correct, it's probably the highest last out buyer of any horse in the field. Gun Runner, on the other hand, has been running figures in the low nineties, and Exaggerator is gonna probably be about six to one eight to one as the second favorite, and gun Runner is probably

gonna be in the fifteenth to one category. Now, the thing that you know they keep in mind now that the reason why I would say these horses were probably fair odds would probably have both of them closer to ten to one. So rather than Exaggerator being eight to one in gun Runner fifteen to one, I would say fair price would be tend to one and tend to one. A couple of things play into that. Exaggerators big figure in the Santa Nita Derby was largely created by the

pace of the race. Turned he was twenty lengths off the lead eaters. The leaders were flying early, going way too fast. They all absolutely knocked themselves out, crawled home, and he came flying from behind, and because they had softened themselves up so much, he was able to sort of just inhale them all and it looked very visually impressive. He won by four or five lengths. He got this huge speed figure, and he's a nice horse. And I'm

not saying he can't win the race. He certainly can, but that race on paper looks a lot better than it actually was. Any horse that's worth his salt that's sitting twenty lengths off of a torrid battle upfront, damn well better win the race. So that's that's why that hundred three buyer and that big win he had is going to inflate, essentially, inflate his appearance and attract more

money than should. Gun runner, on the other hand, as a horse who's been only running middling poor buyer figures, and people would look at that and sort of be driven away, scared off. Having broken this horse down on fit home, I can tell you I think forget about the speed figures. This horse is just a runner. He is tactical. He breaks well out of the gate, He sits nicely behind other horses and and does what we say,

he eats dirt. You know, horses, it doesn't come natural to them to sit, to run behind other horses and have all that dirt and mud kicked into their eyes, their nose, their mouth, And it happens a lot in the derby because it's such a big field. He does that very easily, very nicely, doesn't seem to bother him at all. And he's just a horse that runs very forwardly,

really carries the jockey wherever he wants to go. And in these races which he has been winning and producing low buyer figures, he's just been pulled out at the end. He's been traveling behind other horses and he's been pulled out, you know, as they head into the home stretch and he goes by him and the jockey then sort of wraps him up and the race ends. And it may not be producing really big numbers, but I can tell visually watching him, you can tell this horse can run. David,

this is awesome. I could I could listen to talking about this stuff for a long time. And now one one of my new life goals. I want to watch film with you sometime and see how you break all this down. But thank you very much for coming on the podcast. And I feel I feel smarter than I did half an hour ago, or than I was half an hour ago. And I feel like if I were betting, i'd feel a little more confident. Excellent show. Does that mean you're gonna make any good right? Right? But I'll

lose money, feeling less stupid. All right, thank you, David, Papa Doubulas. I'm Joe Wisenthal. You could follow me on Twitter at the Stalwart and David you're on Twitter right. I am el Greco. David el Greco, David el Greco, thank you very much for listening. We'll be back here next week. But knowledge to work and grow your business with ce i T. From transportation to healthcare to manufacturing. Ce i T offers commercial lending, leasing, and try measury

management services for small and middle market businesses. Learn more at c i T dot com. Put knowledge to work