Tuesday, 8 June 2010

Name appeal and favouritism

Reputation is a funny old thing. It is invariably something that you only acquire long after you deserve it and something that you give up long after you should. You only have to look at the NFL all star game, the Pro Bowl, to see a good example of it in action. With alarming regularity, players who had a good previous year are selected despite a mediocre year and, for those who have been a top player for a while, quite often continue to be selected well after their powers have peaked and they approach the steady decline to retirement.

It’s an issue that for mine has interesting influence on betting markets. I’ve chronicled in the past extensively on my beliefs as to the correlation (or lack of) from previous results to future performance in Rugby League, and especially so in relation to market behaviour and starting prices.

It’s also a trend that I am starting to see more and more in Formula One where opinions on driver ability appear fixed and drivers get far more support than they deserve.

A quick look at the Race winner market for the Canadian Grand Prix proves my point. Ferrari were undoubtedly slower than Mercedes and around the same pace as Renault in Turkey, and have no new planned improvements to speed their car up, and Montreal would not appear to be a track which would suit them.

However, Fernando Alonso is a clear fifth favourite despite having a car which would place him at best seventh. Alonso’s poor season (for all the talk that Massa is underperforming this year, Alonso has arguably been more disappointing – he has definitely made more mistakes) has simply not been factored into the price.

Yet, Felipe Massa is eighth favourite for the race, behind Robert Kubica and Michael Schumacher, and is available at odds three times greater than Alonso. Massa has had a disappointing season, but the general perception that he is a poorer driver than Alonso is blindly factored into the price despite the fact that they have the same car.

So, is it clear where the value lies?

In my opinion, trading value lies more with Fernando Alonso.

Allow me to explain. As a trader, it is important to remember what your goal is and that is, to make a profit. To do so, you need not select the winner. What you need to do is back at a price higher than that you can lay at, or vice versa and the successful trader will take into account the fact that Alonso has his supporters which will always drive his price down further below his true chance of victory, whereas the lack of support for Massa will see his price drift out to well beyond his true chance of victory. Of course, for gamblers, there is little question where the true value lies (and the same goes for traders who are more reliant upon on track events to achieve profits.)

None of this should be construed as a recommendation to back Alonso, however. In Formula One prices are so heavily reliant upon grid position that trades should not be made until this is settled. (Note – I would believe that leaving a position open during Qualification is akin to gambling.)

Indeed, in several races this year, I have seen Alonso start behind Massa at shorter prices, stay behind Massa at the start who can drift severely whilst Alonso stays at the same, much shorter price, despite sometimes having a further two cars to overtake to get to Massa, a very difficult proposition in Formula One! (Although we must note that in play liquidity is sketchy if your car is outside the top 5 or 6 and so is more reliant upon individual driver opinion than if Alonso was actually near the front of the field.) Also, in Australia I remember Lewis Hamilton being favoured over Jenson Button despite all pit stops having been made and Button having a lead! Sometimes it can work out, like last week when Hamilton was curiously favoured over second placed Vettel, but the vast majority of times, it doesn’t!

Finally, whilst being far away from a F1 expert, if I had to list the drivers in accordance with likelihood of victory this week, I would go Hamilton, Vettel, Webber, Button, Rosberg, Schumacher, Kubica, Alonso, Massa, Petrov. (I think the Red Bulls have more chance of victory than the McLaren, but the quality gap between Hamilton and Button means that I believe Lewis has the best chance.)

A quick look at the market would show where I believe the value to lie, and for once, I have actually availed myself to keeping an open position on one driver, even if the superiority of the top 4 is such that it will be difficult for an outsider to break in.


  1. I'm not sure I would call leaving a position open into qualy a 'gamble'. If you leave it open into Q3 then yes, I agree. But most of my positions are taken based on what will happen in Q1 and Q2, trading them off or trying to reduce liability by the time Q3 starts. Unless a driver crashes out your are 'safe' - although I always ensure I have back up anyway for such scenarios as Alonso in Monaco where he crashed out in practice before qualy.

  2. Completely agree with you.

    What I meant to say is I was talking in relation to the race market. As that suspends for qualifying, then any open positions are a gamble. (Whilst you can hedge in Qualifying some, what if the driver comes 3rd on a last lap which is way behind pole so the odds never drop?)

    Any thoughts on Montreal by the way? You always seem to be one step ahead!

  3. Ah, I see what you mean. I did used to do that in the early days - thought it was great as I made a few good choices and profited. Then a run of bad choices made me notice the loss on such a position is far greater than the return which is a big no no!
    Struggling this weekend to be honest, but sure something will turn up.

  4. Quality post Craig, as a RL fan that bets on football ?? F1 has never been on my list of sports to bet on, a few more posts like this though and I might be tempted to dip my toe in Keep 'em coming please Craig.