With complicated, ever-changing win rates and different types of bets, it can be difficult to figure out how horse racing bets actually work. So, how do you decide which horse to wager on and calculate how much you could win? All is revealed in this simple guide to understanding horse betting odds.

What is pari-mutuel betting?

In the U.S., most states that allow betting on horse racing use the pari-mutuel system. This is also known as pool betting and is commonly used in short sporting events such as horse or greyhound racing where the participants finish in a ranked order. All the money wagered on a particular race is placed into a pool and after a house take is deducted, the rest of the money is divided between the people who bet on the winning horse.

Horse racing in the U.K. (Courtesy MyWinners)

In a pari-mutuel system, you don’t know exactly how much you’ll win when you place a bet because the odds change as more people wager. This is different from fixed-odds betting, including money-line or spread betting, where the payout amount is already set at the time you place a bet. Here’s a step-by-step guide to how pari-mutuel horse betting works:

All bets on a particular horse race are placed into a pool.

A house commission to cover taxes, expenses, and profits is deducted from the pool. This is called takeout and usually amounts to 15 to 22 percent of the pool, depending on the track and the type of bet.

Payoffs are calculated by sharing the remaining pool among all the people who placed bets on the winning horse.

For example, in a five-horse race, the following amounts were bet on each horse:

Horse 1: $200

Horse 2: $450

Horse 3: $500

Horse 4: $350

Horse 5: $400

This gives a total pool of $1,900. Next, the house deducts its 15 percent take from the pool:

$1,900 – $285 = $1,615.

Say horse No. 3 won the race. That would mean the remaining pool of $1,615 would be divided between the people who bet on that winning horse. So, taking off the $500 they originally bet (which will be returned to them), they’re left with a total payout to be shared between them of $1,115:

$1,615 - $500 = $1,115 total payout.

How a horse's payout is calculated

This payout information can be used to calculate betting odds which will help you figure out how much you could win if you wagered on a particular horse. Using the example above, here’s how to calculate and read the win odds. First, the total payout of $1,115 is divided by the amount of money that was wagered on the winner, horse No. 3:

$1,115 / $500 = $2.23.

This amount is then rounded down to the nearest nickel or dime (this is called breakage), so in this example:

$2.23 becomes $2.20.

Horses on-track (Courtesy MyWinners)

This is converted into odds of 2.2-1, which means for every $1 you bet, you get $2.20 back plus your original dollar. To avoid using decimals, the odds are either rounded or multiplied until you reach whole numbers, so in this example the win odds would be written as 2-1. This tells you that for every $1 you bet, you’ll win approximately $2 plus your original $1, giving you a total of $3. 

So, the final odds for betting on horse No. 3 are approximately 2-1, or 11-5 in international markets.

At horse racing tracks the win rate and payout information is easily available on the tote board, which is usually visible from nearly any part of the track. When you bet online, there are sites you can use such as Oddschecker for international racing or the America’s Best Racing gambling calculator that will tell you the odds and win rates.

Types of horse racing bets

There are various types of pari-mutuel bets you can place in horse racing, these include:

Win: You bet on the horse you think will win.

Place: You bet on a horse to finish second, but win if the horse comes first or second.

Show: You bet on the horse you think will finish third and win if the horse finishes first, second, or third.

Exacta: You bet on which horses you think will come in first and second and to win, you must get them in the correct order.

Trifecta: You bet on which horses you think will come in first, second, and third in that exact order.

Superfecta: You bet on which horses you think will come first, second, third, and fourth in exact order. 

Boxed bets: You can pay extra when placing an exacta, trifecta, or superfecta bet to wager on horses to finish in the top two, three, or four in any order.

Calculating horse betting odds can be tricky, especially when it comes to a pari-mutuel system where the win odds and payouts are constantly changing. For further help understanding bets, check out this guide on how horse betting payouts work, look at win rates displayed at race tracks, and use online odds calculators.