TrueCar was one of the world’s best websites. It created a reverse auction for any car, requiring dealers bid against one another in an effort to sell cars to its frugal visitors. Visitors who simply wanted the best deal possible could now force dealerships to compete.

Over time, it pissed off the car dealers. Thousands of dealers fled the site, fearing it would expose what dealerships really are — an ineffective, expensive, and piss-poor way to sell a car.

Today, TrueCar operates like any other aggregator. Dealers name their price for their inventory, and TrueCar simply picks the best one for the buyer based on the parameters. TrueCar takes $299 and $399 for each new and used car sold, respectively. Dealers retain some of their pricing power, since it no longer operates on a reverse-auction basis.

It’s still a race to the bottom, but the race isn’t as fast as it was. Conveniently for TrueCar, it has effectively inserted itself into the capital-light part of the business model — the shopping experience. TrueCar stole the best part of the business, and left the worst part (carrying inventory, owning massive car lots) to the dealers.

Cars vs. Homes
Zillow shares similar economics in that it forces transparency into the real estate market, hoping to knock-off real estate agents and expose them for what they are — an ineffective, expensive, and piss-poor way to sell a home.

The only question for online home listing sites is whether the real estate agents of the world are as powerful as the car dealers. Car dealers effectively forced TrueCar to change. Can real estate agents force real estate sites to change?

After all, real estate agents have pricing power and economics on their side. If they invested a mere 1% of their 6% sales commissions into defending their turf, real estate agents and REALTORS® could have a very powerful legal and economic lobby.

Then again, Zillow/Trulia have an incentive to allow real estate agents their beefy commissions, for now. Why not? Zillow/Trulia are just rent-seeking on the backs of rent-seekers. (No pun intended.) Note, though, that their executive rosters were largely responsible for the death of travel agents.

I just wanted to share this because I find it an interesting microeconomic thought exercise. And because it’s a story that needs more attention.

The middlemen don’t like being told to kick rocks.


It’s that time of the year again. The time of the year I go to the nearby horse track, PPs in hand, and grind it out for hours at a time only to win $0.20.

(That’s what happened yesterday — 7 hours invested for $0.20 in winnings!)

There are some aspects of the sport that fascinate me. Of particular interest to me is how much more money is wagered on statistically poor bets vs. the statistically best bets.

Here are my two biggest gripes:

Win vs. Pick 3

If you are going to bet 3 races in a row, there is little reason to make 3 separate “win” bets.

Monmouth Park, for instance, takes 17% of the money out of win pools each race. On the other hand, it takes out 25% of pick-3 pools.

.83^3 = ~57%
.75^1 = 75%

Thus, all else equal, the risk-reward is much better on a pick-3 bet. And, although it’s much harder to pick 3 winners in 3 races in a row, it is the statistically better wager.

Win vs. show

A win bet pays only when your horse comes in first. A show bet pays if your horse comes in first, second, or third.

What’s the statistically better wager, all else equal? The win bet.

Tracks break payouts down to 10% of the minimum wager. On a $2 bet, that’s $0.20.

So, if a bet should mathematically pay out…say, $12.75 on a $2 wager, the track will pay $12.60 and pocket the $0.15.

As payouts get smaller, the “breakage” becomes more significant. “Show” bets almost always pay less than winning bets. Frequently, show bets will return as little as $2.40 on a $2 wager, even when a horse pays $8 to win on $2.

The maximum breakage is $.19. That’s about 10% of a show bet payout, or about 2.5% of a win bet payout in the example above.

Thus, the effect of rounding down is larger relative to bet size for show bets, making show bets a much worse wager than a win bet.

Sidebar: Betting east coast tracks is arguably your best bet, since most break down to $0.10, instead of $0.20.

So why do people bet statistically poorer wagers?

Most betters largely seek to minimize their drawdowns.

Grannies love $2 show bets, because, even though it’s a statistically poor bet, the odds of cashing a winning ticket are substantially higher than the odds of cashing a win bet.

Likewise, bettors would prefer to place 3 win bets in a row than bet a pick-3, because they would prefer to cash 2 winning tickets than lose a pick-3 in the third race.


  • The “smart money” on any given day is betting the daily doubles (2 winners in a row), pick-Xs (pick-3 to pick-6s), knowing the takeout has a smaller effect on paydays. Look at the “will pays” for any pick-X bet to see where the serious handicappers are putting their money.
  • The “smartest money” is betting the pick-Xs at a track that have guaranteed pool sizes (say, a $250k guaranteed pool for a pick-6), as well as pick-Xs at tracks which have a carryover (money from the previous day that was not won because no one had the winning combination). Carryovers are closely followed by the most experienced bettors.
  • Betting more-likely wagers like show and place bets may make you feel more comfortable, but you’re slowly getting robbed due to breakage.
  • Making money at a race track today is exponentially harder than years ago. The decline of horse racing left only the experienced handicappers — the “dumb” money is watching some other sport, not betting on ponies.
  • Don’t gamble to make money. Seriously. I have a simple rule: if you bet more than the minimum bet, you’re betting to make money. If you’re betting to make money, you probably have a gambling problem, or you’re on the fast track to a gambling problem. I refuse to bet any more than the track minimum.


Golf is Dying

by JT McGee

horse racingSome recent headlines have caught my attention:

I both love and hate golf. I love the business of it; I find it fascinating. (You have to be really good with your inventory!) And I enjoy the struggle at the local par 3, on which I often lose at least 2 balls to a single lake. Champ. Truthfully, I think I enjoy most the idea that I’m forced to walk a couple miles in between the shots from hole 1 to 18.

But it seems like golf is joining the ranks of horse racing as a sport that’s growing smaller with every new obituary. I’ll miss horse racing much more than golf, though.

P.S. A special someone appears in the third article. Poor ol’ Chip Brewer — can’t catch a break.


By now, many of you have probably read Mr. Money Moustache’s post on making booze at home.

Basically, juice + champagne yeast + time = booze.

After reading it, I had to try it. Doing what any rational person would do, I quickly came up with about 5 gallons of various juices, and 30 packets of champagne yeast, which, I realized only later, is capable of producing 150 gallons of boozy juice.


Here are a few quick thoughts:

  • Waiting is for suckers – I let my juice ferment for only 3 days. At that point, it was more than alcoholic, tolerable tasting, and, by my not-so-scientific discovery, good enough. Another blogger found that after 3 days, regular Welch’s juice turned into wine with a 7.1% alcohol content.
  • This is PTSD-inducing wine – After three days, two different juices (white grape and pear, and white grape and cherry) tasted like a boozier version of Catholic church wine. It took me back to the days of third grade, where required church participation during school hours allowed a quick childhood buzz before math class.
  • Add sugar – Allowing the yeast to consume only the sugar from the juice results in something only slightly more alcoholic than your average beer. If you want to get to the upper-end of the range for champagne yeast, try 4-5 cups of sugar to a gallon. That’ll get you close to the supposed 18% ABV limit at which champagne yeast commit suicide by their own design. And, besides, if a frugal drunk is your goal, sugar is the cheapest way to maximize the booziness.
  • Additives to avoid – The internet tells you to avoid perservatives. That’s not good enough. What they mean to tell you is to avoid juices with potassium sorbate and sodium benzoate. So few juices actually contain these that it’s pretty darn easy to avoid them. I did my shopping at both Wal-Mart and The Fresh Market (a Whole Foods knock-off), for the record.
  • Balloons suffice as airlocks – Airlock? Pfft. Just run a toothpick up a balloon until roughly half of the toothpick has gone through the top. That provides a way for gas to escape without allowing unwanted oxygen in. And you don’t have to worry that your airlock won’t fit your container.
  • Yeast multiplies – MMM recommends adding a full packet of champagne yeast to a gallon of fruit juice. Unnecessary, I say. The yeast packet says you can make up to 5 gallons of champagne with one packet. From experience, this seems accurate, given I just started another 5 gallons of this putrid stuff with a single packet. Sure, it may take slightly longer, but, if you’re impatient like me, dipping into it earlier with less yeast should result in less yeasty-tasting early wine.
  • Don’t add sugar later - I made the mistake of trying to add sugar to a batch that was already fermenting. It quickly bubbled over. I suspect it’s due to the added oxygen from the sugar falling in, plus the fact that sugar crystals are porous and thus a perfect surface for CO2 to gather — though I have no freaking idea if my suspicions are correct.
  • Speaking to the alcohol content – I’m pretty drunk at 12pm on a Sunday, when ordinarily I wouldn’t be able to purchase anything with a remote amount of alcohol content. You’ve met your match, backwards Indiana laws.
  • Decanting helps – You can get a much better flavor by merely allowing a drinkable quantity of your new wine to decant for 20-30 minutes. This is, by far, the most important lesson I ever learned in college. Decanting can make a $3 bottle of wine taste like a $10 bottle of wine, which, by my calculations, is a 233% return on capital!
  • I’ll be making more of this – Is it frugal? Yes. Is it tasty? Kind of. Is it fun? Hell yeah! There’s something to be said about the fun of watching your juice turn into wine. Each bubble that comes to the surface is evidence that your juice is, in fact, becoming booze. I don’t want to tell you how much time I spent staring at the rising bubbles.

On Making Your Own Wine

For the curious among us, there are few things more fun than making your own wine on a shoestring budget. I’d highly recommend it. Unfortunately, I think this may have led me into a new hobby of homebrewing, which is substantially more expensive than backwoods wine making.

P.S. I’m sufficiently drunk.

P.P.S. Virtually all of the snarkiest posts on Money Mamba are the product of drinking a little too much. The more you know…

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