Friday, March 1, 2013

Friday, November 2, 2012

The Economics of Horse Racing, Gambling, and the Breeder's Cup

This weekend marks the 28th Annual Breeder's Cup and it will be the 6th time hosted by the Santa Anita Race Track in Arcadia. Before I discuss the economics of horse racing/gambling, and this event, I will admit my biases towards these topics/events: horse racing is animal friendly and a justified sport, but most of its popularity is due to gambling; gambling is a game where the more you play - the more you lose, but figuring out a way to win or getting lucky can be entertaining; the Breeder's Cup is a successful event that promotes the sport, fashion, gambling, drinking alcohol, and a spirited social environment.

The Economics of Horse Racing and Gambling

My history with horse racing probably dates as far as my first year of living. I've been told that my father frequently took our family to the Santa Anita Race Track (it helped that we lived only five miles away). At a young age I enjoyed watching my father win, especially since I got to participate in his horse selection.

Surprisingly, this was a learning experience. I started with calculating basic odds: If a horse is paying 5 to 1 for a win bet, and a minimum bet is $2, then the pay is near $12.00 if you win [($X * 5) + $X = Y; X = $2; then Y = $12]. Then I moved on to calculating formulas for exotic bets like exactas (first and second place bets), which is a bit more complicated and tends to have more variation (or high sampling error term). By high school age, I pondered the thought of the least risky bet: if the lowest odds a horse can have are 1 to 10 [meaning $0.10 for the dollar], and this rule applied to a show bet (a third place or better finish) as well, then this seemed like a sure way to make a 10% profit in less than 2 minutes (but I now know that nothing is sure in gambling). So learning to gamble on horse racing somewhat helped in my mathematical development skills, but I'm sure these are examples a teacher may not give to her 4th grade students.

In learning how odds are structured, you begin to understand why the more you gamble - the more you lose. Say, for example that the pot paid will be $1,000,000. If a horse is 8 to 1, then it should mean that 12.5% of the bets are going towards that horse selection and your winnings should reflect your stake in the 12.5%. Here's an example of odds-to-win from a race randomly selected where the goal is to win $100:
  1. 8/1 : [($X * 8) + $X = Y; Y = $100; then X = $11.11]
  2. 12/1: [($X * 12) + $X = Y; Y = $100; then X = $7.69]
  3. 8/5: [($X * 8/5) + $X = Y; Y = $100; then X = $38.46]
  4. 6/1: [($X * 6) + $X = Y; Y = $100; then X = $14.29]
  5. Scratched
  6. 8/1: [($X * 8) + $X = Y; Y = $100; then X = $11.11]
  7. 4/1: [($X * 4) + $X = Y; Y = $100; then X = $20.00]

What you learn is that it costs $102.66 to win $100.00, a $2.66 loss. The more you aim to win, the more you end up losing.

The Economics of the Breeder's Cup

The economic impact of last year's Breeder's Cup in Kentucky is estimated at $53.3 million by an economist at the University of Louisville. The LAEDC estimates the the 2008 and 2009 Breeder's Cup events in Santa Anita generated $60 million in economic impact each year. The 2009 event hosted over 96,000 attendees, a trend that has grown from 51,600 attendees when Santa Anita hosted in 2003.

Wednesday, October 10, 2012

L.A. Gas Prices Rise, not a cliché

With constant news coverage and a well-known alternative to awkward weather related chatter, I usually find gasoline price hikes irrelevant to the economic situation. Spending on gasoline is about 5 percent of the average consumer's spending in any given year (that's $2,650 in 2011 according to the BLS), and prices are so volatile that a two-dime increase can be offset the following week and hardly be noticed. Also, I use public transportation, so I'm usually much more concerned with the prices of other goods and services (food, clothes, movie tickets, cable television, Disneyland Season Pass, etc.)

However, last week's rise in gasoline prices in Los Angeles was, admittedly, strange. Los Angeles gasoline prices went up $0.52 cents over the week to $4.74 (regular unleaded), the highest one-week increase ever recorded! Yet nationally, the average price of gasoline only increased $0.05. Los Angeles gasoline prices were $0.84 higher than the national average price, the highest spread ever recorded as well.

So what's the deal? Here are a few contributors (according to this article):
  • The fire at Chevron's Richmond, CA refinery.
  • Power outage at the Exxon refinery in Torrance, CA in the summer.
  • Major oil-pipeline knocked offline.
I have a hunch there's another important factor: increased employment. The national employment figures for September that came out two weeks ago were encouraging. Los Angeles' figures are due out soon, but if the demand for gasoline rose because of employment, then we wouldn't see it until the October figures are released. An alternative measurement for the local labor market is the number of initial claims for unemployment insurance in the state. The latest figure available for California is 47,894 claims for the week ending on September 22, 2012, which puts the 4-week moving average at 50,819, the lowest mark since June 2008.

Thursday, July 19, 2012

Which Gender was Most Hurt by the Great Recession?

Looking at median wages throughout the U.S., here are a few facts from a recent B.L.S. report:

Male Median Weekly Wages (not adjusted for inflation)
2006Q2 - $732
2009Q2 - $816
2012Q2 - $865
2006Q2 to 2009Q2 Change - up by 11.5%
2009Q2 to 2012Q2 Change - up by 6.0%

Female Median Weekly Wages (not adjusted for inflation)
2006Q2 - $597
2009Q2 - $652
2012Q2 - $688
2006Q2 to 2009Q2 Change - up by 9.2%
2009Q2 to 2012Q2 Change - up by 5.5%

Female median wages are lower in each period, increased less from 2006 to 2009, and increased less from 2009 to 2012. The female labor force

Tuesday, June 5, 2012

Unemployment Rates by Ethnic Group

This past Friday, the B.L.S. reported an 8.2% unemployment rate in the U.S. for the month of May, up from 8.1% in April. Meanwhile, the Hispanic or Latino population's unemployment rate rose from 10.3% to 11.0%! Similarly, the Black or African American population's unemployment rate rose from 13.0% to 13.6% (all figures seasonally adjusted for the population aged 16 and over).

Tuesday, April 24, 2012

2012 GDP Forecast

Based on some data that I've been studying (industrial production, labor market, trade, and overall leading economic indicators, my GDP forecast for the second quarter of 2012 is 2.3%.

For 2012, I'm a bit more optimistic and saying 2.8%.

Tuesday, April 3, 2012

Mortgage Rates at Historic Lows

Something to consider
Mortgage rates have dropped from 6.8 percent before the recession to 4.0 percent at the end of March 2012. 
The federal funds rate dropped from 5.3 percent before the recession to 0.1 percent at the end of March 2012.

Wednesday, February 1, 2012

Spain's Unemployment Rate

Spain's unemployment rate was recently announced at 22.9% for November 2011! The unemployment rate has been above 20% since May 2010.

Wednesday, November 16, 2011

Have Home Prices Hit Rock Bottom?

My parents constantly remind me of the monetary rewards to home investments. Their first home was bought in 1987 and their experience clearly has created a positive bias.

Below is the Case-Shiller Price Index (Seasonally Adjusted) for L.A./O.C. counties since 1987. The most recent observation recorded here was 167.31 for August 2011 (where 2000=100). In other words, home prices are 67.31% more expensive than they were in 2000, ceteris paribus, and approximately 108% higher than they were in January 1987.

S&P/Case-Shiller Home Price Indices, The McGraw-Hill Companies
Is now a good time to purchase a home? The CSPI is lower than any month between November 2003 and January 2009. If prices ever seemed reasonable to you then, then they must look like a bargain now. But can they get any lower? I would think prices can get lower. They had been lower for any month before November 2003 (January 1987 was the earliest recorded price).