If you plan to bet on horse racing in the United States you need to understand how parimutuel betting works. The vast majority of horse race wagering at American tracks and online racebooks uses the parimutuel system, and it operates very differently from the fixed odds betting you are used to with football, basketball and other major sports.

The biggest difference is that with parimutuel betting your odds are not locked in when you place your wager. The odds you see on the screen are just a snapshot of where things stand at that moment, and they will continue to shift right up until the race begins. Understanding why that happens and how payouts are calculated will help you make smarter bets at the racebook.

What Is Parimutuel Betting?

With a standard fixed odds sports bet you are wagering against the sportsbook. The book sets the odds, you lock in a price when you place your bet, and the sportsbook pays you at those exact odds if you win. The sportsbook takes on the risk.

Parimutuel betting flips that model. Instead of betting against the house you are betting against every other person who wagered on the same race. All bets of the same type are pooled together – win bets go into one pool, place bets go into another, exacta bets go into their own pool, and so on. The track or racebook takes a percentage off the top as commission, and the remaining money is divided among the winning ticket holders.

Because the payout depends on how much total money is in the pool and how many people picked the winner, the odds shift constantly as new bets come in. The morning line odds posted by the track before race day are just estimates. They have no bearing on the actual payouts – those are determined entirely by the final betting pool at post time.

How Parimutuel Odds Are Calculated

The odds displayed at the racebook reflect the current distribution of money in the pool. If a horse has 4/1 odds, that means roughly 20% of the money in the win pool has been placed on that horse. The other 80% is spread across the rest of the field.

If a wave of money comes in on that horse just before post time – say a big bettor drops a large wager – the odds will drop. That same horse might go from 4/1 down to 3/1, which would mean about 25% of the pool is now behind them. The key point is that this affects everyone who bet on that horse, not just the late bettor. Your payout is based on the final odds at post time, not the odds that were showing when you placed your bet.

Parimutuel Payout Example

Here is a simplified example using round numbers and setting the track’s commission aside for the moment.

Let’s say the win pool for a race has a total of $20,000 wagered across all horses. Horse A has $1,000 in win bets placed on them. If Horse A wins, the entire $20,000 pool is divided among the $1,000 worth of winning tickets. That works out to $20 for every $1 wagered, which is a $19 profit and a $20 total payout per dollar. In fractional odds that is 19/1.

Now imagine another bettor places a $1,000 wager on Horse A right before post time. The pool grows to $21,000 and Horse A now has $2,000 in bets. If Horse A wins, the payout drops to $21,000 divided by $2,000, which is $10.50 per dollar wagered. That is a $9.50 profit per dollar, pushing the odds down from 19/1 to roughly 9.5/1. One large late bet changed the payout for everyone who had a ticket on that horse.

The Track’s Take

In the example above I left out the track’s commission to keep the math simple. In reality the track removes a percentage of each betting pool before calculating payouts. This is known as the takeout, and it is how the track, horsemen and state governments get paid.

Takeout rates vary by track and by bet type, but for straight win, place and show bets the rate typically falls in the range of 15% to 19%. Exotic bets like exactas, trifectas and pick sixes carry higher takeout rates that can reach 20% to 25% or more at some tracks. This means the odds you see on the tote board already reflect the takeout – the money has been removed from the pool before the payouts are calculated.

Compared to traditional sports betting where the vig on a standard -110 line works out to roughly 4.5%, the takeout on horse racing is significantly steeper. This is one of the reasons finding value in the betting pools matters so much when wagering on horses. The higher the takeout, the more often you need to pick winners at good prices to come out ahead over the long run.

Common Parimutuel Bet Types

Each of the following bet types has its own separate pool at the track. The more complex the bet, the bigger the potential payouts, but also the higher the takeout and the harder it is to win.

A win bet is the simplest wager – you pick the horse you think will finish first. A place bet pays out if your horse finishes first or second. A show bet pays if your horse finishes first, second or third. Place and show bets pay less than win bets because the pool is split among more winning tickets.

Exotic bets require you to predict multiple outcomes. An exacta requires picking the first and second place finishers in the correct order. A trifecta requires the top three in order. A superfecta requires the top four in order. Multi-race bets like the daily double, pick three, pick four and pick six require picking winners across consecutive races. These exotic pools can produce enormous payouts when longshots come in, but they are much harder to hit.

Tips for Parimutuel Betting

The best advice for betting in parimutuel pools is to think like a contrarian. Because you are betting against other bettors rather than the house, the most profitable approach is to find horses the public is overlooking. When the crowd piles money onto a popular favorite, the odds on that horse drop and the odds on every other horse in the field go up. The value sits with the overlooked runners whose odds are inflated by the public’s money flowing elsewhere.

Watch the tote board as post time approaches. Late money can shift the odds dramatically, and spotting these movements can give you a sense of where the sharp bettors are putting their money. If a horse’s odds suddenly drop in the final minutes before the race, it often means informed money is coming in.

You should also pay attention to takeout rates if you bet at multiple tracks. A track with an 18% takeout on win bets will pay less on the exact same result than a track with a 15% takeout. Over hundreds of bets that difference adds up, so choosing lower-takeout pools when possible is a simple way to improve your bottom line.

Parimutuel vs Fixed Odds at Online Sportsbooks

It is important to know which system you are betting into when you wager on a horse race online. At most betting sites, bets placed through the racebook section use the parimutuel system and your payout will be determined by the final pool. However, horse racing futures and proposition bets listed in the sportsbook section – such as a bet on which horse will win the Kentucky Derby placed weeks before the race – typically use fixed odds. With fixed odds your price is locked in at the time of the bet and will not change regardless of what happens with the pools on race day.

Check your sportsbook to see which system applies to the bet you are placing, because the difference between parimutuel and fixed odds can have a real impact on your return. If you want to learn more about betting on horse racing or explore other types of wagers, our guide section covers a wide range of topics to help you get started.