Pari-Mutuel Betting Explained

How Pari-Mutuel Betting Works

The basic concept behind pari-mutuel wagering is reasonably straightforward. We’ll use horse racing in our examples since it’s where pari-mutuel betting is most commonly used. Horse racing also serves as a straightforward introduction to sports betting through pool bets.

Bettors make their selections for which horse they think will win the race. Every pari-mutuel wager placed on goes into a specific pool for that type of wager (straight, show, place, exotics, etc.). When the race is finished, the total amount of wagers in each pool is added up. The house takes a commission off the top, and then divides what’s left between the winning bettors. Winners are paid out based on how much they wagered.

Example: For illustration purposes let’s say there is a race with five horses. The house takes in the following amount of money for each horse:

$200
$400
$100
$200
$300

These wagers add up to a sum of $1,200. First off, the house takes a 20% commission of the entire pool for $240. This leaves $960 in the betting pool.

The potential payouts for each horse are then calculated by dividing the remaining pool by the amount wagered on that horse.

$4.80
$2.40
$9.60
$4.80
$3.20

Since the payout for horse number one is $4.80, anyone betting on horse number one would win $4.80 for every $1 they wagered (including the initial $1). So if horse number one won the race, players would receive $48 on a successful $10 wager. If horse number two won the race, winners would receive $24 on a $10 bet, and so on.

The payout per $1 wagered changes based on the total amount wagered on each selection. The more that was wagered on a horse, the smaller the payout per $1 is. In this example, horse number three has less wagers than the other horses, so successful bets on that horse would pay out more per dollar than horse two – which had the most bets placed on it, and therefore has the lowest payout.

This can be compared to fixed odds betting, where the odds for the favorite (and therefore the potential payout) are the lowest, and the odds for the outsiders are the highest. Although the odds aren’t fixed here, typically there is more money coming in for the favorite than for long shot picks.

How Betting Pools Are Formed

Pari-mutuel betting pools are formed by grouping the same type of bets together on a race-by-race basis.

Straight Bets

Win
Place (1st or 2nd place finish)
Show (1st, 2nd, or 3rd place finish)

Exotic Bets

Exacta (correctly pick the first two finishers in order)
Trifecta (correctly pick the first three finishers in order)
Superfecta (correctly pick the first four finishers in order)
Quinella (correctly pick the first two finishers in any order)

Multi-Race Bets

Daily Double (correctly pick the winners of two consecutive races)
Pick 3/Pick 4/Pick 6 (correctly pick the winners across several races in a row)

Straight bets are fairly straightforward predictions of where a particular horse will finish, and can be reasonably compared to moneyline bets in fixed odds. Exotics, meanwhile, are similar to parlay bets in which multiple conditions must be met for the bettor to win.

Role of the Track Takeout (Commission)

Tracks always take out a commission from each betting pool before dividing it between the winning bettors. The more that the track takes, the less money is paid out to the winners. This is in contrast to fixed sports betting, where the house builds a commission directly into the odds themselves.

The specific takeout amount removed from the pool varies on a track-by-track basis, but generally adhere to the following ranges:

Straight Bets (Win/Place/Show): 15%–20%
Exotic Bets (Exacta/Trifecta/Superfecta/Pick Bets): 20%–30%

How Are Pari-Mutuel Odds Calculated?

It’s worth mentioning that pari-mutuel odds are considered “Probable Odds” since they aren’t attached to fixed lines. The number of bets placed on each horse/race affect the payout odds in real time, since the payouts are determined by how much is placed on each horse.

Probable Odds are calculated as follows:

All bets of a certain type (win, place, show, etc.) for each race are placed into pools.
The track adds up how much money was wagered on each horse and calculates the total pool.
The track collects its takeout fee, which is usually anywhere from 15%–30% of the total pool depending on the wager type.
The remaining money becomes the payout pool.
The payout pool is divided by the number of wagers placed on each respective horse, giving each horse its respective payout rate.
An implied probability for each horse is created based on that payout rate. For example: If a horse garnered 25% of the win pool, an implied probability of 3/1 is created using the formula of (1 ÷ 0.25) – 1 = 3. The subtracted 1 is the initial wager.
This converts to American odds of +300 for that particular horse.

How Odds Fluctuate Until Post Time

Probable odds are in constant fluctuation until post time. This is because every wager placed on each bet type affects the overall pool. If a bettor places a large amount of money on a longshot horse, that horse’s payout rate will be lowered by a significant amount.

The fluctuating odds based on received bets in pari-mutuel wagering makes it nearly impossible to deploy betting strategies like the arbitrage system that covers all outcomes. That’s because arbitrage requires taking advantage of fixed odds discrepancies by placing bets on outcomes at multiple sportsbooks.

Reading Pari-Mutuel Odds

Pari-mutuel odds are the payout odds for successfully betting on each horse, not what the actual odds of the horse winning the race are. This is a key distinction to make when reading pari-mutuel odds. The more money a horse attracts, the less the per-dollar wagered payout will be if it wins. Therefore the odds also reflect who the favorites are according to bettors, not the oddsmakers.

Racebooks offer Morning Lines that are predictions of where the final odds may end up, and Tote Boards that keep bettors up-to-date with the latest payout odds.

Morning Line (ML)

The Morning Line (ML) is a prediction made by the track’s oddsmakers describing what they think the final implied odds of each horse will be. They are strictly predictions and not actual odds. The ML is released before betting opens on a particular race and is unaffected by actual betting action. It can help you learn the potential favorites, and can be used in conjunction with a Tote Board to potentially identify bets with the best value as you get closer to post time.

Tote Boards

Where as Morning Lines are set before betting opens, Tote Boards show current pari-mutuel odds, pool sizes, and payouts. They are normally updated every 30–60 seconds, though some can update more frequently closer to post time.

Each horse has information about its pool size and potential payouts. Horses with more money wagered on them display lower odds, and are considered favorites. Conversely, horses that are considered longshots have higher odds since less money was placed on them.

It’s also common for Tote Boards to display up-to-date betting action on individual wagers like win, place, show, and exotic bets like trifectas.

Distribution of Winnings

Pari-mutuel payouts are calculated and distributed after the house collects its takeout fee. Once the fee is removed, the remaining pool is divided among bettors that correctly picked the winning horse/exotic bet. The amount paid to each winner is calculated using a preset formula.

Payout Formula

The amount distributed to each winner is calculated using this formula:

Payout = (Total pool – Takeout) ÷ Amount Bet on Winning Horse

For example, the per $1 wagered payout can be calculated as follows:

Total pool: $1,000
Takeout: 17% ($170)
Remaining win pool distributed to winners: $830
Total amount bet on winning horse: $500
$830 ÷ $500 = $1.66
Payout per $1 wagered on winning horse: $2.66 (which includes the original $1 wager)

Unknown Payouts Until After the Race

Payout odds are constantly updated as wagers on each bet are collected, so therefore the final payouts aren’t known until after the race has finished.

Scratches and Refunds: How They Affect Bets

Scratches occur when a horse is withdrawn from a race after betting has opened. For straight bets most tracks simply refund your money if you wagered on that horse. If the scratch is a “late scratch,” meaning the horse withdrew after betting has closed, some tracks may also replace the wager with the post-time favorite instead.

Since exotics contain bets on multiple horses, some tracks may modify the exotic payout according to their particular policies. The bet may simply be refunded as well.

It’s a good idea to verify a track’s policy towards scratched horses before placing a bet, that way you’re not surprised if something happens to a horse you bet on.

Pari-Mutuel in Horse Racing: Why It’s Standard

Pari-mutuel betting in horse racing is standard because it’s a transparent, self-balancing system for collecting and paying out wagers. Whereas standard betting odds are determined by oddsmakers, pari-mutuel odds are wholly determined by the total amount of money bet on the horses themselves.

Betting pools also have dynamic odds that shift in real time according to betting patterns. It also works well for exotic bets like exactas and trifectas, since setting fixed odds for these bets can be complicated.

Pari-Mutuel Betting in Other Sports

Horse racing isn’t the only sports pari-mutuel betting systems are used in. They’re used in greyhound racing and other animal races around the world as well, including camel and ostrich races. Pool betting can also be found on Jai Alai wagers. While pari-mutuel wagering is used on other sports like soccer or baseball, these wagers are less common.

What is Pari-Mutuel Betting?

Pari-mutuel wagering is a fun, straightforward alternative to fixed odds betting. Rather than wagering on outcomes against the house, pari-mutuel wagers allow bettors to compete against each other for their share of the overall prize pool. The payouts are structured according to how much people wager on a particular horse, and are fair, transparent, and constantly changing right up until post time.

Zachary

Wolf

Content Editor

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Zachary Wolf is a Content Editor specializing in online gambling content. His writing credits include state-specific U.S. gambling laws, casino reviews, and various sports betting guides — most notably WWE betting guides. He enjoys playing slots, poker, and blackjack, among other games.

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