Horse racing betting is, quite literally, a horse of a different color when it comes to wagering on sports.
Sports bettors generally wager on fixed odds at the best horse racing betting sites, where they lock in their price at the time of their bet. But all thoroughbred and harness tracks in North America operate via what's called pari-mutuel wagering.
If you’ve never placed a pari-mutuel wager before — or have no idea how it works — fear not, as our handy guide will make understanding this system as easy as possible ahead of the 2025 Kentucky Derby.
What is pari-mutuel betting?
Unlike fixed odds wagering, where the bettor is essentially betting against the bookmaker, pari-mutuel betting is effectively wagering against your fellow bettors.
Odds are determined by the amount of wagers placed on a horse — or combination of horses, depending on the wager type — by the betting public, minus the track takeout. This is not unlike playing Texas Hold ‘Em at a casino, where the players all throw their money into the pot, and the winner gets his or her share, minus the house rake.
For pari-mutuel win wagers, a standard track takeout is about 16%. Wagers with bigger payouts, like trifectas for example, usually see a takeout above 20%.
Another major difference between fixed odds and pari-mutuel betting is the fluctuation of odds. Fixed odds are exactly as they sound — they don’t move one way or the other once you lock in your bet.
For pari-mutuel betting, odds can change drastically as post time approaches for any given race, especially if pool sizes are small. The smaller a pool, the smaller a bet or series of bets would have to be to manipulate the odds in a noticeable way.
Horseplayers never know for sure the odds they will receive on their selection until the start of a race. It is not uncommon to see win odds increase or decrease by multiple points inside the final two minutes of betting. This can work to the advantage or disadvantage of a pari-mutuel bettor, depending on who they wagered on.
How pari-mutuel wagering works
Pari-mutuel betting is sometimes referred to as "pool betting" because the bets for each wager are broken up into separate wagering pools. From these pools, the racetrack takes the appropriate percentage off the top before paying out to the betting public.
Payoffs are rounded down to the nearest dime in most jurisdictions — this is often referred to as "breakage." Many jurisdictions impose a minimum payout of $2.10 on a $2 wager, which can create what’s called a "minus pool." This happens when a horse has taken a significant chunk of the bets (otherwise known as "handle" or "action") so that the true odds would actually be $2.09 or less on a $2 bet.
Minus pools are rare, and practically unheard of when discussing the Kentucky Derby odds or the Breeders’ Cup odds.
Pari-mutuel payoffs are determined by three factors:
- The amount of money placed on the winning horse or combination of horses
- The track takeout
- Breakage
If 40% of the win pool is wagered on one horse, the wagering public would effectively be saying that the horse in question is a 3-2 proposition. But factor in the track takeout, and that potential payoff would drop to 4-3 (which would display as 1-1, or even money, on your screen). Then breakage could take away up to nine cents per every $2 wagered.
Types of pari-mutuel bets
There are two different categories of horse racing bets you can place: straight wagers and exotic wagers.
Straight wagers
When making a straight horse racing bet, the focus is on the performance of a single horse in a single race. There are four versions of straight wagers:
Win
This wager requires your selected horse to finish first. If your horse fails to do so, the ticket is not a winner. A win bet carries a higher risk than other straight wagers and therefore pays out more.
Place
Betting on a horse to finish first or second. The payout on a place bet is less than a win bet (smaller risk due to two payout results per race), but if your horse finishes first or second, you collect.
Show
Betting on a horse to finish either first, second or third — also known as “hitting the board” or running “in the money.” Due to the nature of this bet, you have a better chance at winning, but the payout is substantially less than on a bet to win or place.
Across the board
You're also able to combine all three of these straight wagers by doing an across-the-board bet — betting a horse to win, place, and show. If the horse wins, you collect all three payouts. You can also bet a combination of win and place, or place and show.
Exotic wagers
Exotic wagers offer the option of tying together a number of horse racing picks from the same race or across various races.
Exotics have the potential for a much larger payout than straight wagers but have a higher risk due to the numerous results involved. Think of these bets they way you do when it comes to parlays and SGPs in other sports — all the picks included in the exotic wager must be correct to be graded a winner.
There are multiple variations of horse racing exotics:
Exacta bet
Betting on the combination of horses that will come in first and second in a race. You can bet it straight or box the selections, which means that as long as the horses you pick finish in the Top 2 — regardless of order — you win the bet. A two-horse boxed exacta costs twice as much as a straight exacta because you're paying for the added number of combinations. The more horses that are added to an exacta box, the greater the cost will be since more combinations are being added.
Quinella bet
Similar to the exacta, you're betting on which horses will come first and second, but the order in which they finish first and second doesn't matter. However, unlike a box exacta (which requires two bets), a Quinella bet requires only one. It typically pays half the exacta payout.
Trifecta bet
Trifecta wagers are similar to exacta bets but you're selecting the Top 3 finishers of the race. You can bet it straight, use a trifecta box, or include multiple horses. Of course, the more horses you include on the bet ticket, the larger the risk amount.
Superfecta bet
Predicting the Top 4 finishers of the race. This is a very tricky wager. A lot of tracks or horse racing online allow this wager to be played at a 10 or 20 cent base, which allows you to maximize how many horses you can have on a ticket.
Daily double bet
A daily double wager is betting on the winner of two consecutive races. To win, you must correctly select the winner of both races.
Pick 3, 4, 5, 6 bet
You must select the winner of each race in sequential order. The “pick” number refers to the number of races in the sequence, rather than the order of where they finish. You can bet it straight or like exotic wagers, you can include more horses in each race. But with more horses added, the cost of the ticket drastically increases.
Weighted betting
Weighted betting is the balancing of a bunch of wagers in a given race to reflect the bettor’s thinking more accurately than a standard "box."
Depending on the odds, a bettor may wish to put different amounts of money on different outcomes.
For instance, if he or she believes the No. 3 will beat the No. 4, but wants to have an "insurance" wager on a 4/3 exacta, he or she could wager this way:
- $4 exacta 3/4
- $2 exacta 4/3
How pari-mutuel payouts are calculated
Pari-mutuel payouts are a matter of division, regardless of the size of the pool.
Whether there are millions in the win pool of the Kentucky Derby, or only a few thousand in the win pool of a bottom-level claiming race held on a Tuesday at a random North American oval, payouts are determined based on the amount of money wagered on the winner, minus track takeout and breakage.
If there’s 50% or more wagered on one horse to win, the payout will be less than an even-money proposition. If 5% or less is wagered on the winner, a large $2 mutuel will be the result.
A brief history of pari-mutuel betting
The pari-mutuel system was invented by Joseph Oller — founder of the famous Moulin Rouge — in 1867, and it was eventually adopted by French race tracks in 1891. Pari-mutuel wagering was quickly adopted around the world in the years that followed.
The first "totalizator" or "tote board" was installed in New Zealand in 1913.
Pari-Mutuel Betting FAQs
A pari-mutuel bet is a wager that pays off based on the amount of money placed on that outcome in a given wagering pool. The greater percentage of handle on the winning outcome, the smaller the payout will be.
Pari-Mutuel odds are not locked in at the moment a bet is placed. The odds can fluctuate up until wagering is closed on the event in question, based on how much money is bet on each potential outcome. Fixed odds mean that your odds are locked in at the moment you place your bet and will not change.
Pari-mutuel odds are calculated by the percentage of money from a pool placed on each available outcome, minus the track takeout and breakage. The standard takeout on a win wager is 16%, and breakage means the rounding down of a payout to the nearest dime for every $2 bet.
