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Pari-Mutuel Betting

When you place a sports bet in Tennessee, your wager locks in at the price you bet it at. For example, say you bet the Tennessee Volunteers as a 4-point favorite. The sportsbook will still honor your ticket at Tennessee -4 even if the Volunteers eventually close as a 6.5-point favorite. Sports bettors wagering on a sport like horse racing are often confused to find out that the system is different and that their payout is based on the final odds posted as opposed to the odds when they placed their bet. The reason for this difference is that horse racing is a form of pari-mutuel betting.

Pari-mutuel betting functions differently from standard sports betting (which uses a fixed-odds system) in many ways. To understand these differences, you first need to understand what pari-mutuel betting is and how it works.

How pari-mutuel betting works

Fixed-odds betting

When it comes to sports betting in Tennessee and around the world, sports bettors are betting against the house. These bets are offered with fixed odds. The sportsbook bakes its commission, or vigorish, right into the price of the bet.

For example, if you want to bet on the Tennessee Volunteers -4 at home against the Ole Miss Rebels, you will not be laying this bet at even-money odds of +100 (bet $100 to win $100). The sportsbook will charge a set commission (or vigorish) on this bet with a price of -110 (bet $110 to win $100). If you wager on the Volunteers, you do so understanding that you are laying odds slightly in the sportsbook’s favor. This is in exchange for the sportsbook accepting your bet on the side and amount you choose.

Once you have placed your bet, this locks your wager in at the agreed-upon price. A sportsbook will honor a $220 to win $200 bet on Tennessee -4 regardless of how much betting action it takes on Tennessee or Ole Miss. Even an injury to a star player that causes a major line movement won’t affect your bet.

Pari-mutuel betting

While fixed-odds bets are wagers placed directly against the house, pari-mutuel bets have bettors betting against one another. All of the money wagered on an event goes into one pool. The winners receive their payment from this pool with the losers’ money. The house makes its money by collecting its commissions out of that prize pool before paying the winners. Sports that use the pari-mutuel betting system include horse racing, greyhound racing and jai alai.

The standard takeout rates on horse racing range from 15% to 35%, depending on the track and bet type. This means that this percentage of the total betting pool is removed from the payout pool to be distributed among the host track’s various operations, taxes, fees, and on-site and off-site betting operators.

Take for example a simplified horse race in which five horses are racing. One hundred bettors have placed $2 win wagers on their preferred horses. When the race begins, the bet distribution is as follows:

  • Horse No. 1: 40 bets of $2 to win = $80 wagered
  • Horse No. 2: 10 bets of $2 to win = $20 wagered
  • Horse No. 3: 30 bets of $2 to win = $60 wagered
  • Horse No. 4: 15 bets of $2 to win = $30 wagered
  • Horse No. 5: 5 bets of $2 to win = $10 wagered

In this scenario, total wagers equal $200. Assuming the takeout on this race is 15%, 15% of $200 ($30) will be removed from the payout pool. This leaves $170 once the race ends.

Say that the favorite, Horse No. 1, wins the race. The 40 bettors who placed $2 to win on Horse No. 1 will each get an equal share of the remaining $170 in the pool: $170 divided by 40 equals a $4.25 payout for each $2 bet. Because this horse’s payout was roughly even money (a $2.25 profit on a $2 bet), its closing odds would have been rounded to “1/1.”

On the other hand, say that the largely overlooked Horse No. 5 pulls off the upset and wins. This time, the $170 remaining in the pool will be distributed to only five people. $170 divided by five equals $34 per $2 bet. With a profit of $32 for every $2 wagered, this horse’s closing odds would have been listed at “16/1.”

As you can see, in both scenarios, the house made the exact same amount. It makes no difference to the on-track and off-track betting operators who wins the race as they will get the same cut of the pool regardless.

The pari-mutuel payout format in Tennessee also explains why the projected payout odds are constantly changing. Every bet up until the gate opens changes the ratios of the betting pool. The example above was just to illustrate the concept of pari-mutuel betting. In reality, race bets often total thousands of dollars, and there are all kinds of different denominations in play. Even just one bettor placing a very large bet on a horse to win can shift the payout pool dramatically.

Standard pari-mutuel bet types

Sports that use a pari-mutuel betting system like horse racing and greyhound racing have a handful of different bet types. Each of these bet types has its own separate pool. The example above covered a hypothetical pool on the “win” wager, but that is just one of the various pools available. The following bet types will be listed with horse racing references, but these same bet types are available on greyhound racing.

Win bets

These are bets on which horse will cross the finish line first and win the race.

Place bets

A place bet is a wager that the selected horse will come in first or second place. Because you are covering more possible outcomes, these bets will pay less than standard win bets if your horse wins.

Show bets

Popular among beginners and casual horse racing fans, the show bet allows you to collect if your selected horse finishes in first, second or third place.

Win-place-show bets

A win-place-show bet (aka WPS or an “across the board” bet) is a bet in which you place the same amount on all three possible outcomes. For example, a $5 WPS bet on a horse will cost $15 and give you a $5 win bet, a $5 place bet and a $5 show bet on the same horse. These wagers do not have a separate pool. Each of your three bets will go into its respective betting pool.

“Exotic” pari-mutuel bet types

“Exotic” wagers involve multiple horses and are harder to hit than standard pari-mutuel wagers. These types of bets have much higher potential paydays but also have higher average takeouts in Tennessee and around the nation. Many exotic pools will subtract 23-25% or more from the payout pool.

Exacta bets

An exacta bet is a wager in which you pick the exact order of the two horses that will finish in first and second place. A popular variation of the exacta bet is an exacta box, which allows your selected horses to win in any order. For example, a standard $2 exacta would be No. 2 with No. 4, meaning No. 2 must finish in first place and No. 4 in second place. A $2 exacta box would charge $4 and give you both a $2 exacta No. 2 with No. 4 and a $2 exacta No. 4 with No. 2.

Quinella bets

A quinella is the same thing as an exacta box, a bet on which two horses will come in first and second place in any order. One quinella bet covers both combinations.

Trifecta bets

A trifecta is a wager in which the you select the exact order of the three horses that will finish in first, second and third place. Like exactas, these bets are often made in boxes.

Superfecta bets

Superfectas are the toughest single-race exotic bets of all, requiring bettors to select the exact order of the first four horses to cross the finish line. Most tracks offer 10-cent superfectas to entice bettors into buying multiple potential combinations in hopes of hitting a big payout.

Multi-race bets

The Daily Double, Pick 3, Pick 4, Pick 5 and Pick 6 are all examples of bets in which the player must select the winner of multiple horse races in a row. Many racing tracks have a carryover if no one hits this wager the day before, carrying over a large chunk of the prize pool into the next day’s action. It isn’t uncommon to see tracks like Santa Anita touting six-figure prizes for the Pick 6 after a carryover.

Key differences between pari-mutuel betting and fixed-odds betting

You are not facing the house in pari-mutuel wagering

As mentioned above, the betting operator you place your bets with doesn’t care what horse wins or what players win as it will make the same amount of money regardless. While many sportsbooks in Las Vegas are very stingy with their drink tickets, racebooks give them away readily as they want you to stick around and keep placing bets. Whether you win or lose, the racebook gets a cut of the total amount you wager.

This can make it tough to come out ahead in a pari-mutuel betting system. But successful horse or greyhound handicappers never need to worry about cuts to their betting limits or losing betting privileges as elite sports bettors do. A consistent winner at sports betting will cut into a sportsbook’s profits. A consistent winner at horse racing will contribute to the racebook’s profits.

You can cancel your bet at any time before the race starts

While fixed-odds bets are locked in as soon as you hit confirm on your betting screen at your favorite Tennessee sportsbook, you can cancel pari-mutuel wagers at any time as long as the event hasn’t started yet. This is extremely helpful to know as your payout will depend on what the price is at closing, not the price when you bet on the race.

You may like a long shot at 8/1 to win the race and place a bet on him. But if a crowd also bets on him and drives the price down to 3/1, you might decide against it. As long as the race hasn’t started, you can cancel or change your bet.

Fixed-odds bets are sometimes available on horse racing

Be sure not to confuse pari-mutuel betting with sportsbook futures betting. In some cases, especially on major races like the Kentucky Derby, Preakness Stakes and Belmont Stakes, sportsbooks will offer betting odds on the race. These odds function in the same way that standard sportsbook lines do as they are locked in once placed and will not be affected by what the horses eventually close at on the betting board.

This can work for or against you. The horse you like may end up being a bigger favorite with a worse payout on race day or a bigger long shot with a better payout. When deciding between betting on a horse in the pari-mutuel or fixed-odds futures format, try to gauge public opinion. Locking in a price you like on what you anticipate will be a popular pick can’t be a bad idea. Waiting until race day and hoping your upset special doesn’t get much action could be the play on a less popular pick.