Pari-mutuel betting is a form of wagering in which the organizer pools all wagers, keeps a percentage as the house “take,” and pays the winners with the collected bets.

As a result, the betting action determines the final payout odds. If ten people bet equal amounts into a pool and only one wins, the winner receives the wagers from nine other bettors for a 9/1 payout. That’s an extremely simplified example, but it shows how the betting action rather than an oddsmaker determines the payouts.

In contrast, fixed-odds betting involves a price set by the house oddsmaker. Once a bettor places a fixed-odds wager, their potential payout remains fixed in place no matter how much money other people bet.

Traditionally, pari-mutuel wagering is the default system used in horse racing, and fixed-odds betting is the default in sports betting. Some states are experimenting with fixed-odds horse racing betting, but the overwhelming majority of horse racing betting remains pari-mutuel in nature.

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How Does Pari-Mutuel Betting Work?

Pari-mutuel wagering works by aggregating all wagers into a common pool and using that money (minus a commission for the track) to pay the winners.

Unlike fixed-odds betting, pari-mutuel wagering involves frequent odds changes as the action flows toward or away from individual horses. A horse priced at 6/1 the morning of a race can easily shift to 2/1 by post time if a lot of action comes in on that horse.

Track oddsmakers post the morning-line odds ahead of the race, but that’s just a projection based on the anticipated betting action. Ultimately, the betting public determines the final price of every horse.

As such, not only are pari-mutuel bettors attempting to pick winning horses, but they’re also hoping to do so alongside as few other bettors as possible. A horse may have the objectively best record, but if the public overwhelmingly favors that horse, that selection may provide little value because the public will push the horse’s odds so low.

Thus, bettors must consider more than just a horse’s objective abilities. They must also anticipate how the public will weigh in on that horse. Bettors never know what the final odds will be when they place a bet in a pari-mutuel pool. They may know the current odds and have a general sense of which way the action will go, but late action can drastically alter a horse’s price – especially in smaller races where a single large wager can significantly impact the betting pool.

Pari-mutuel wagering can be frustrating for bettors accustomed to fixed odds, but it offers the benefit of removing any interest the house would have on the outcome. The track receives its take no matter the outcome because the bettors are wagering against one another. In contrast, fixed-odds betting pits bettors against the house, which often results in the house ending up in a situation where it stands to win or lose money based on the outcome.

Pari-Mutuel Betting Example

A simplistic example of how pari-mutuel horse racing betting works goes a long way toward demystifying the concept.

Imagine 20 people place straight WIN bets on a small race at a track that keeps a 10% commission. In this example, the people betting on the race collectively wager $1,112 across seven horses:

  • Horse 1 – $32
  • Horse 2 – $200
  • Horse 3 – $180
  • Horse 4 – $300
  • Horse 5 – $100
  • Horse 6 – $200
  • Horse 7 – $100

After the track keeps its 10% commission, $1,000 and some change remains in the betting pool to be split among the winners.

Now, imagine the $100 wagered on Horse 7 is the result of five people each betting $20 on that runner to win.

If Horse 7 wins the race, those five people split the betting pool equally for $200 payouts each. That’s a 9/1 payout for each bettor ($20 wager returns $180 in net profit + the return of the initial wager).

Similarly, if a single person was responsible for the $200 bet on Horse 6 and that horse wins, that person receives a 4/1 payout ($800 in profit + return of the $200 initial wager).

The total amount paid to winners ($1,000) is the same no matter which horse wins, but each bettor’s payout varies based on the amount they wagered and how much money backed each horse.

Another way to think of it is that the more popular a horse is, the lower the potential payout. If a popular horse wins, the betting pool is split among more bettors. The less popular a horse is, the higher the potential payout because there will be fewer people splitting the pool if that horse wins.

Pari-mutuel betting pools tend to be much more complicated in the real world, but the underlying theme is the same: the track collects all wagers of a specific type into a pool, takes a commission, and pays the winners with what remains.

Pari-Mutuel Wagering FAQ

Racetracks calculate pari-mutuel wagering odds by collecting all bets of one type into a pool, taking a percentage off the top for the house, and using the remaining to pay winning bets.

In short, the pari-mutuel wagering system creates odds that are representative of the public’s opinion on every horse in a race. Popular horses that attract many wagers offer lower payouts because there are more winning tickets to pay. Similarly, unpopular horses offer higher payouts because there are fewer winning tickets to pay.

Pari-mutuel wagering odds are determined entirely by the public as explained in the answer to the above question. In contrast, fixed-odds wagers are determined by an oddsmaker.

As a result, pari-mutuel wagers fluctuate until post-time, even after bettors place their wagers. In comparison, the payouts on fixed-odds wagers remain fixed in place after bettors submit their bets.

Racetracks post pari-mutuel wagering odds as fractions that represent the ratio of the amount the bettor stands to win versus how much they must risk.

For example, odds of 7-5 indicate a bettor stands to win $7.00 for every $5.00 risked. Likewise, odds of 10-1 indicate a bettor stands to win $10.00 for every $1.00 wagered. The total payout on a successful $1.00 wager at 10-1 odds would be $11.00, consisting of the $10.00 net profit and return of the initial wager.

Bettors can read more about horse racing odds here:

The track take-out varies by track, type of wager, and location of the originating bet. The total take-out can be significant, ranging from about 15% to almost 30% on some types of wagers. Typically, straight bets involve less take-out than exotics.

Pari-mutuel wagering is legal in most states. The only states that prohibit all forms of pari-mutuel wagering are Alaska, Georgia, Hawaii, North Carolina (sportsbooks may offer horse racing betting but none offer it now), South Carolina, and Utah.

State Specific Pari-Mutuel Betting Guides