Pari-Mutuel System Betting

Have you ever been to the track and bet on a horse with 8/1 odds, only to see the odds change for the worst right before the race started? That 8/1 horse that you were hoping to make a lot of cash off of might have dropped down to 4/1 by the time the race starts. Or maybe the odds became more favorable for you and climbed to 12/1. This happens because bets at the race track are calculated by the pari-mutuel system.

The pari-mutuel system is a broad term that explains how the final odds for a particular horse are calculated. Unlike with the betting of other sports which operate on fixed-odds, horse racing odds will change after you have made a bet. That 8/1 horse might become 4/1 if enough money is wagered on it. As more and more people wager on different outcomes of the race, the prize pool for each horse changes causing possible payouts to change in response.

Here’s how it works

All of the money placed on a particular type of wager for a horse is pooled together. The track takes out their portion of the money; usually around 17 percent, depending on the type of wager and your state’s taxation laws. This money goes towards state and municipal taxes, race purses, and track maintenance. The remainder is then averaged out and returned to the winning bettors.

Confused? Here’s an example. Suppose there are ten people each wagering ten dollars on a race, for a total prize pool of $100. Before anything happens, the house would take their commission out. If the house take is 17 percent, $17 would be removed from the possible prize pool, leaving a total of $83. If only one person had picked the winning horse, he would receive the entire $83 back as his winnings. If two people had selected the winning horse, their winnings would be $41.50 each, and so on.

Now that we have seen a theoretical example, let’s look at a more realistic one. Suppose we are looking at a race with a ten horse field. The following amounts are bet on each horse:

As you can see, the overwhelming favorite is horse 9, since this horse has garnered the largest amount of betting money. The total prize pool here is $900. When calculating the final odds, remember we must first take out the house’s commission. 17 percent of $900 is $153, leaving a total prize pool of $747.

Now we can look at a possible outcome. If horse 9 were to win, the overall odds of the horse would be calculated by taking the total bet on all horses minus the amount of the bet. That amount is then divided by the amount bet on the horse. In this instance, it would look like this:

($747-$239)/$239

This breaks down to about 2.1/1 and would be posted on the tote boards as simply “2.” This means that for every $1 bet on that horse, the house would pay $2.10 back to the bettor, plus their original $1. So if you picked the winning horse here, you would receive a total of $3.10 returned to you for each dollar handed over to the track mutuel window.

Now that you understand how the system works, we can move forward and learn how to make smarter wagers. In our next class, we will be discussing some of the various types of bets that you can make at the horse races.