People like to bet on horse races.  It’s fun and exciting, and sometimes profitable.  Parimutuel betting is the most common way to put money on your favorite horse.  But just what is parimutuel betting and how does it work?  The word parimutuel comes from a French phrase meaning “to bet among ourselves.”  Back in 1835, a French shopkeeper, Pierre Oller, set up a betting pool out of his shop.  His customers wagered on horse races, and the ones who picked the winning horse split the pool (minus a percentage for Monsieur Oller!).

That is the basic idea behind parimutuel betting.  When you wager money in this way, it’s not like playing roulette in a casino, where you are playing against the house.  In a parimutuel wager, you bet against the other people placing wagers. To place a parimutuel wager on a horse race, you go to a bookmaker (or sportsbook). The bookmaker is the racetrack, online, or other off-track betting site you place your bet with.

If your horse wins, you and everyone else who won split the pool of money wagered, minus the “rake.”  The rake is the percentage the bookmaker takes and is usually about 15-20%.  The parimutuel form of betting is often favored by lawmakers because the bookmaker gets the same percentage regardless of which horse wins, and so has no vested interest in the outcome of the race.

Many people are surprised to learn the odds on a horse race don’t have anything to do with which horse is most likely to win! The horses people think have the best chance will usually have lower odds, of course.  However, the odds for a horse actually tell you what your share of the pool will be.  Here’s an example of how this works.

Suppose 100 people place bets on a horse race totaling $200.  If the rake is 20%, that leaves a pool of $160.  Forty people bet on the number 2 horse, Lightspeed, but only five bet on number 8, Molasses.  The total amount of money bet on Lightspeed is $80.  If Lightspeed win, forty people divide the $160.  Collectively, they get $160 back for the $80 they wagered or $2 for every dollar bet.  The odds on Lightspeed are therefore 2-1.  But if Molasses noses out Lightspeed, the $160 is divided among just five people who bet a total of $10.  They win $16 for every dollar bet, making the odds on Molasses 16-1.

In practice the calculations are far more complicated, since there are all kinds of wagers.  You can choose to bet on a horse to win, place, or show, or make combination bets like daily doubles.  However, all parimutuel betting works the same way in principle.