Jumping Into the Pool - How Payouts Are Calculated

When I began this blog, I figured that I would primarily be communicating with my friends and buds, especially my fellow members of what is affectionately known as The Derby Crew; seasoned horse players all.  But as I look at the various search terms that lead others here, I see that there are many that are relatively new to the game that are searching for some basic information as to how it all works.  With that in mind, I thought it might be a good idea to have a post describing one the most basic aspects of the game: how payouts are calculated.  

Let's start here: nearly all wagering on horse racing in North America (and many other parts of the world) is parimutuel - a nice French word that basically means that we're betting among ourselves, rather than against the house (as with, say, casino games like Blackjack).  Parimutuel wagering means that the odds (and, therefore, the payouts) on any given wager on the menu is determined by the amount of money that has been bet on that occurrence.  For example, the amount that a horse pays to win in any given race is determined by the amount of money bet on that particular horse to win compared to all the money bet on each of the other horses in the race to win.  Likewise, a Pick Four payout is determined by the amount of money wagered on that specific Pick Four combination compared to the total amount wagered on all the other possible Pick Four combinations.

Basically, parimutuel wagering means that the more money that is wagered on a specific outcome, the less that outcome will pay, should it occur.  A horse with a lot of money bet on it to win will pay much less than a horse with only a small amount of money wagered on it.  

Since payouts are based upon the percentage of money bet on a specific occurrence (i.e., Horse A will win) versus the total amount bet on all occurrences, parimutuel odds are in a constant state of flux, from the moment wagering begins right up until the betting is officially closed.  And since math takes time (even with computers) that's why you'll often see odds change while the race is being run.  It doesn't mean that folks are still betting; but rather that the final calculations can't be made until the total amount in the pool is known, and that can't be known until betting has closed (an event that is simultaneous with the gates opening and the race beginning).

The next concept to understand is that all wager types (i.e., Win, Place, Show, Exacta, Pick Three, etc., etc.) all form their own totally independent pools.  That means that the odds on Horse A to Win is totally meaningless to the odds that Horse A will Place; which, in turn, is totally meaningless to how much the Horse A and Horse B Exacta will pay.

OK; not totally meaningless.  Humans being human, it stands to reason that if a large percentage of the money in the Win Pool is wagered on Horse A, then a large percentage of the money in, say, the Exacta Pool will be wagered on combinations that have Horse A on top.  But the main point holds true: each pool is totally independent; no pool payout is used to determine the payout in any other pool.  And, of course, humans don't always behave logically; so every once in a while you'll see something like what happened in Race 7 at Calder on August 18, when Daddys Jewel paid $3.80 to Place; the same amount that she paid to Win. 

Let's see if working out some examples help make everything clear.  Let's say that Race 3 at the no longer in existence Sportsman's Park is won by Some Colt.  There was $100,000 bet into the Win Pool.  How do we determine how much Some Colt paid to Win?


First Step: Deduct the track take out

The Take Out is the amount that the track keeps for itself out of each of the pools; this is the money that the racetrack uses to pay its bills, chief of which is the purse money that gets paid out to the victors in each event.  Let’s pretend that FDR is still President of the United States, and the track takeout is a mere ten percent (here's a more recent accounting of current track take out rates at various racetracks throughout the U.S.  While the chart is somewhat out of date, it will at least give you an idea of how much of the wagering money the racing facilities keep for themselves).  So we’ll deduct ten percent out of our Gross Win Pool of $100k, giving us a Net Win Pool of $90,000.

Next Step: Determine how much was wagered on the Winner

A review of the tote board shows that $23,000 was bet on Some Colt to Win.

Net Step: Determine the profit amount to be divided among the winning bettors

Simple enough; we just subtract the amount wagered on Some Colt from our Net Win Pool.  Removing $23k from $90k gives us $67k, which is the amount of profit to be split up among the winners.

Next Step: Divide the profits equally among all winning tickets

We've got $67k in profits to be split among $23k worth of winning tickets.  Dividing $67,000 by $23,000 gives us $2.91.


Next Step: Remove breakage

Oh, you thought the track was done dipping its hand in the till, did you?  No, not yet; now the track will round each winning share down to the nearest dime (some tracks, such as New York, will give the players a break and just round down to the nearest nickel).  With that, the $2.91 profit becomes $2.90.

Next Step: Double the amount and add two dollars to determine payouts

Since it's traditional to state Win (and most other) payouts in terms of each $2 bet, we'll double our one dollar profit calculations, and then add in the original $2.00 wagered (since that gets returned to the winners; after all, their bets didn't lose). $2.90 doubled is $5.80; plus $2.00 gives us $7.80, which is what Some Colt pays to Win.


The steps for determining Win payouts are the same steps used for all other single-winner wagers; that is to say, every payout except Place (which has two "winning" wagers) and Show (which has three "winning" wagers)  is determined the same way as above.

Let's work another example to demonstrate.  Let's say the Race 3 Trifecta was Some Colt / Second Best / Third in the Bunch.  If Race 3 had a total of ten horses entered, then the winning Trifecta was one out of 720 possible Trifecta combinations (10 x 9 x 8).  An interesting piece of information, but meaningless to what we want to know: What did it pay?

We'll start our calculations by stating that $50,000 was bet into the Trifecta Pool

First Step: Deduct the track take out

For this example, let's use a more realistic 25% track take out.  Removing twenty-five percent from the Gross Trifecta Pool of $50,000 gives us a Net Trifecta Pool of $37,500.

Next Step: Determine how much was wagered on the winning Trifecta combination

The Some Colt / Second Best / Third in the Bunch Trifecta combination (in that order; Trifecta bets with those horses in any other order are as much losers as those combinations containing other horses) had a grand total of $725 bet on it to come to pass.

Net Step: Determine the profit amount to be divided among the winning bettors

Deducting the $725 bet by the winners from the Net Trifecta Pool of $37,500 gives us $36,775 to be divided among the winners.

Next Step: Divide the profits equally among all winning tickets

$36,775 divided by $725 is $50.72.

Next Step: Remove breakage

Once again the race track double dips, in this case making the profit per dollar $50.70.

Next Step: Double the amount and add two dollars to determine payouts

That is, if we want to state the payout in terms of $2 bets.  While traditional to do so for Win, Place, and Show wagers, it's quite common for exotic wagers, such as Trifectas, to be stated in terms of $1 bets.  To be consistent, we'll state the $2 payout of $103.40 ($50.70 + $50.70 + $2.00), though giving the $1 payout of $51.70 ($50.70 + $1.00) is perfectly acceptable.

And there you go.  As I mentioned above, calculating Pick Six, Pick Four, Pick Three, Daily Double, Exacta, Quinella, etc., etc., payouts follow these same basic steps.  The exceptions are Place and Show wagers, which I'll cover in my next post sometime later this week.

If you have any questions, or if you see (or think you see) someplace where I messed up, or if everything above is clear as mud LET ME KNOW and post a comment below.

Peace and Love,

Jimbo