What Does Pari-Mutuel Betting Mean In Horse Racing?

Instilled Regard

Instilled Regard (Photo by Hodges Photography)

by Ed DeRosa

The most important thing to know about betting on horse races in North America is that it’s predominantly pari-mutuel.

With very limited exceptions, a horseplayer bets against other bettors whereas a typical casino gambler is betting against the house. I.e., when I win, you’re more likely to have lost and vice versa. This is important because understanding how other people bet can be as much of an edge as understanding how and who to bet.


Racetracks, Bookmaking and Origins

The same process plays out for each race at each track every day: The track where the race takes place pools the money bet, takes a cut off the top for expenses (often referred to as takeout), and then pays the balance to the winners.

Considering gambling has been going on for millennia, pari-mutuel gambling is relatively new: attributed to Moulin Rouge impresario Joseph Oller who introduced the system in 1867 to French tracks, which adopted it at the expense of fixed-odds wagering (i.e. bookmaking) in 1891.

Pari-mutuel wagering took another step forward in 1913 when Australian engineer George Julius invented the totalisator machine, whose output was displayed on a tote board. The ability for United States racing to offer pools instead of bookmaking helped keep racing legal in some jurisdictions during a temperance movement that lasted through the Great Depression.

During this time the Kentucky Derby had a tumultuous history with bookmakers and pari-mutuel machines. Churchill Downs outlawed pari-mutuel betting in 1889 at the behest of bookmakers, but 19 years later turned the tables by restoring the toteboard and removing the bookmakers, and that policy stuck.


Wager Types and Offerings

For generations, pari-mutuel wagering was used primarily to offer the same types of wagers bookmakers offered—Win, place, and show—but the nature of paying out winners from the losers has allowed so-called “exotic” wagers to flourish. This started with the daily double in 1931 and expanded to the exacta. Now, 3-, 4-, 5-, and 6-horse bets are common at racetracks all across the country every day.

The Pick 6 is the most popular “super exotic” wager—not necessarily in terms of pool size, anymore, but in its reputation for being able to deliver life-changing payouts. Whereas most bookies would never expose themselves to six- and seven-figure payouts, the pari-mutuel system allows for this when pool size is directly proportional to the difficulty of hitting the wager.

It’s not atypical for 50% of win bettors to cash a ticket in a race, but a Pick 6 might have fewer than one-hundredth of one percent (0.01% or 0.0001) winners.


So how does the bettor take advantage of the pari-mutuel system? 

Well, if you win when they lose, then it’s likely to help when you know something they don’t, or at least know more than they do.

But good information is not enough. A) Because there’s not enough information, anyway. Even if you know as much as possible going into the race there’s still the takeout and randomness of the event to overcome.

That’s why knowing your opponent is so important in pari-mutuel betting. It’s not enough to pick the winner. You have to get paid a fair price for it, and pari-mutuel wagering offers that opportunity. At an American casino, picking a number in roulette will always pay 35-to-1. That it’s a 37-to-1 chance is how the casino makes money. Sure, the casino could lose money on any given spin, but the odds catch up with everyone eventually and the casino makes money.

With pari-mutuel wagering, the odds are not fixed and rather are determined by the amount bet on each numbers, so there is an opportunity to leverage your opinion against the odds. If I roll a die there is a 1 in 6 (5-to-1) chance of picking the number that will show up. 3 might be your favorite number, but if I were to offer you 6-to-1 on 6 and only 4-to-1 on any other number, then I would hope you’d bet on 6 every time.

How to determine fair odds is all a part of the handicapping process that many of these betting guides will address—either in general terms or as it applies to a certain race or race types.