What is Pari-Mutuel Betting in Horse Racing?

Horse racing and betting on horse racing have a rich history in the U.S. with races dating back to 1665. The first quarter-mile length races in the country date back to 1674 and were held in Henrico County, Virginia.

While sports betting is only recently becoming legal in states like Virginia, pari-mutuel betting on horse racing has been legal for decades in most states around the country. This guide will cover everything that you need to know about pari-mutuel betting and horse racing including how it works, how it is different from sports (fixed odds) betting, and the history behind it.

How does pari-mutuel betting work?

Pari-mutuel betting is a form of betting in which the bettors participating are betting against each other instead of the house. In other words, all of the money wagered on a pari-mutuel event is collected into a pool, and all of the winning wagers are paid from that pool. The amount that winners are paid is directly correlated to how much money was wagered overall and how many other bettors had winning tickets.

This may sound complicated at first, but it is easier to understand with an example. Say that there is a horse race featuring four horses that generates the following betting action:

  • Horse 1: 50 bets of $2 to win = $100 wagered
  • Horse 2: 20 bets of $2 to win = $40 wagered
  • Horse 3: 150 bets of $2 to win = $300 wagered
  • Horse 4: 30 bets of $2 to win = $60 wagered

In this race, “Horse 3” is the clear favorite to win as 150 of the 250 $2 bets to win placed on this race were on that horse. “Horse 2” is the longest shot to win with only 20 bets to win coming in on him. In this example, $500 total was wagered, and this represents the total prize pool up for grabs. Before any payouts are made, the house takes its cut; for this example, we’ll say the house takes 10%, but in reality, this number varies from track to track.

So of the $500 wagered, the house takes its 10%, or $50, before payouts are made. That leaves $450 left in the pot to be divvied out among the winners.

Say that “Horse 3” wins the race. The 150 bettors who bet $2 to win on this horse will split the prize pool of $450 150 ways, yielding a payout of $3 (450 divided by 150) to each of these bettors. They each received their initial $2 wager back and a $1 profit.

If “Horse 1” wins the race, it will be 50 $2 bettors splitting the prize pool this time. $450 divided by 50 would generate a payout of $9 per bet, resulting in each bettor getting their $2 back and a $7 profit. As you can see, payouts vary greatly depending on the horse; the horses that command the most bets payout the least as the prize pool will need to be split among more winners.

Different types of parimutuel bets

The pari-mutuel betting example used above was of a simplified version of a “win” pool. Each type of pari-mutuel wagering has its pool; losing wagers in the “win” pool pay out the winners in the “win” pool exclusively and losing wagers in the “place” pool payout winners in the “place” pool exclusively. Below are some of the most popular pari-mutuel betting pools that can be wagered on in North American horse racing.

  • Win: The most standard sports bet in horse racing, the “win” wager is simply a bet on your selected horse to win the race.
  • Place: The “place” bet is a wager that your selected horse will finish in first OR second place. Place bets pay out less than win bets if your horse wins, but gives you the additional coverage of winning the bet if your horse finishes in second place.
  • Show: The “show” bet is the safest of the three classic bet types as it pays out if your horse finishes in first, second, OR third place. More conservative bettors tend to lean towards the show wager as their preferred horse can finish anywhere in the top three.
  • Across the board: The “across the board” option is not its pool but is instead a convenient way to place money on your selected horse to win, place, and show. For example, a $5 across the board (or WPS, which stands for win-place-show) bet would cost $15 and enter your selected horse into the win pool, the place pool, and the show pool for $5 each. Bettors can win in all three pools if their horse wins or at least get some of their money back if their horse finishes in second or third.
  • Exacta: The “exacta” wager is one in which the horse bettor attempts to predict the exact order of the first and second-place finishers. A $2 bet on the 3-7 exacta means that the No. 3 horse will finish in the first place and the No. 7 horse will finish in second place. These types of wagers referred to as “exotics” are difficult to hit but offer higher payouts than standard win-place-show wagers.
  • Trifecta: The “trifecta” bet is a wager on the exact order of finish of the top three horses. These exotic bets are even more difficult to hit and can yield very large payouts if the favorite in the race loses or finishes outside of the top three.
  • Superfecta: A “superfecta” is a bet picking the exact order of the top four horses in a race. Many race tracks offer 10-cent superfectas as these bets are notoriously difficult to hit and many more combinations can be purchased at just 10 cents each.
  • Box: A “box” is a convenient way to bet on multiple combinations of horses you like in the exacta, trifecta, or superfecta pools. For example, say that you like the 1, 3, and 6 in the upcoming race. A $1 exacta box on the 1-3-6 would cost $6 and give you each of the following exactas: 1-3, 1-6, 3-1, 3-6, 6-1, 6-3 so that you’d win no matter what order your preferred horses came in. A $1 trifecta box would also cost $6 and give you the 1-3-6, 1-6-3, 3-1-6, 3-6-1, 6-1-3, and 6-3-1 trifectas.
  • Multiple race pools: All of the betting pools above are single-race pari-mutuel betting pools on horse racing. There are also multiple race pools such as the “double” (two races in a row), “triple” (three races in a row), and “pick six” (the final six races of the day). In these pools, you must pick the exact winners across multiple races.

What states don’t allow pari-mutuel betting?

There are only seven states in the U.S. that do not participate in pari-mutuel betting:

  • Alaska
  • Georgia
  • Hawaii
  • Mississippi
  • North Carolina
  • South Carolina
  • Utah

Pari-mutuel betting on horse racing is legal at the federal level. Many states, including Virginia, do not have active live tracks but do offer legal interstate pari-mutuel betting on horse racing taking place in other states. According to federal law, interstate gambling on horse racing is legal as long as it is legal in both states participating (where the race is being held and where the bets are being placed). So all betting on horse racing outside of the seven states listed above is legal.

How is pari-mutuel different from fixed odds betting?

Pari-mutuel bets are paid out entirely by other bettors in the pool. When you bet with fixed odds against the sportsbook, the sportsbook is wagering its money against yours on whatever position you have chosen.

The house wins no matter what as it gets its cut out of each race before any money is paid out; it makes no difference to the racebook who wins or loses. This dynamic creates two very big differences between pari-mutuel betting and fixed odds betting that all Virginia bettors should be aware of:

  • You get closing odds, not current odds – When you bet on a horse that is going off at 10-to-1, the price you are seeing is based on current projections of how much you will get paid based on the current amounts being wagered on each horse. As more bets come in on your horse and others, the odds on the race can fluctuate rapidly. You won’t know your actual payout until the race has already started and the betting window is closed.
  • This comes as a major surprise to sports bettors who are used to their odds being locked in at the price they wager them at. Because your payout is based entirely on how all of the other bettors in the pool bet, you don’t have the option to lock in a specific price when it comes to pari-mutuel betting.
  • You can cancel your wager at any time before the event begins – Fortunately, the fluctuating odds of pari-mutuel betting come with the freedom of being able to cancel your wager at any time before the race starts. When you place a bet at a fixed-odds sportsbook, your wager is final as soon as you confirm the bet. Even if your team’s star quarterback gets injured and the odds move severely against you, you are stuck with your betting ticket at whatever price and the amount you bet.
  • In pari-mutuel betting, you can cancel your wager right up until the starting gate is lifted. If you bet on a horse or an exacta due to the potential payout and see that payout shrink due to too many other bettors joining you on the same side, you can cancel your bet and wait for a more favorable spot.

History of pari-mutuel betting

The pari-mutuel betting system was invented by a Catalan entrepreneur named Joseph Oller in 1867. It first made its way to the U.S. in the early 1900s, a few decades after the American Stud Book was founded in 1868. The American Stud Book kept track of thoroughbred racehorses and paved the way for organized horse racing in the U.S.

By 1890, over 300 race tracks were being operated around the country. The sport of horse racing was put in jeopardy in the early 20th century due to anti-gambling sentiment banning bookmaking in most states. Pari-mutuel betting is credited for saving horse racing and turning the industry around.

Standard bookmaking was vilified on the national level in 1919 after the Chicago White Sox allegedly threw the World Series in exchange for money from a gambling syndicate. Pari-mutuel betting was viewed as a much more fair system; because the race tracks made the same amount of money regardless of which horse won the race, there was less incentive to cheat and more incentive to keep the races clean.

Pari-mutuel betting and horse racing have gone hand in hand for over a century. Even as laws like the Interstate Wire Act were enacted to crack down on sports betting in the 1960s, horse racing and pari-mutuel betting maintained their legality and remained a popular form of sports betting around the country.