Horse racing odds are determined using a formula that takes into account the total amount of money that has been bet on a race, the amount that has been bet on each horse and the percentage of the money that the track or off-track betting site keeps. Before any bets have been placed, the odds are based on the oddsmaker's estimate of the percentage of the total betting pool that will be bet on each horse; these odds are often referred to as the morning line. As bets are placed and the calculations are made, the odds can change if the oddsmaker's estimates were not accurate. Unlike many other forms of betting, the payouts on horse racing odds usually are based on the final odds for each horse, rather than the odds that a bettor received when placing the bet. For example, someone might bet on a horse when the odds are 4-1, but if that horse's odds are 2-1 when the race begins, the bettor will win only half as much money as he or she would have if the odds had not changed.
The type of betting that is done on most horse races is called pari-mutuel betting. The name comes from the French words for "mutual stake" and reflects the fact that all of the bettors on a race are competing against each other for the same pool of money. In pari-mutuel betting, the odds are determined by the bets that have been placed. The business that accepted the bets keeps a portion of the money — often called a "take" or "rake" and usually 10 to 20% — so that it can pay for expenses and taxes and still make a profit. The rest of the money is then paid to the winning bettors.
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Example of Five-Horse Race
Calculating horse racing odds is rather simple. An example can be shown by a five-horse race on which a track has taken a total of $1,000 US Dollars (USD) in bets to win — $300 USD on one horse, $250 USD on another, $200 USD on the third, $150 USD on the fourth and $100 USD on the last. If the track's take is 15%, all of the bettors are competing for the remaining $850 USD. The odds for each horse are calculated by subtracting the amount bet on that horse from the available payout — $850 USD, in this case — and dividing that number by the amount bet on that horse. The result is then rounded downward, if necessary.
In this example, the horse on which the most money was bet — the "favorite" — would have odds of 9-5. Starting with the $850 USD payout pool and subtracting the $300 USD that was bet on the horse leaves $550 USD in potential winnings for the people who bet on that horse. Dividing $550 USD by $300 USD is 1.83, which is rounded down to 1.8. Horse racing odds are expressed in whole numbers, so 1.8 is converted to 9-5 odds. This means that a bettor would win $9 USD for every $5 USD that he or she bets. The bettor also would receive back the amount or his or her original bet, so the total payout for a winning $5 USD bet, in this case, would be $14 USD.
The same math is used to calculate the odds for the other horses. The second favorite would have 12-5 odds — $850 USD minus $250 USD is $600 USD, divided by $250 USD is 2.4. The last three horses would have odds of 13-4, 14-3 and 15-2, respectively, based on the same calculations.
No matter which horse wins, the track will pay out roughly the same amount. Rounding the odds downward when necessary might result in slightly less money being paid out, depending on which horse wins. In this example, only $840 USD will be paid out if the favorite wins, and $850 USD will be paid out if any other horse wins. If the 15-2 long shot in this example ended up winning the race, the track would return the $100 USD that was bet on that horse to those bettors and would give them a total of $750 USD in winnings — $15 USD for every $2 USD that they bet.
Place, Show and Other Bets
In horse racing, many types of bets can be placed in addition to bets on a horse to win. For example, in North America, people can also bet on horses to "place" or "show." A place bet wins when the horse finishes first or second, and a show bet wins when it finishes first, second or third. In addition, bets can be made on various combinations of horses and their order of finish. These are called exotic bets.
Like bets to win, the odds for other types of bets are calculated based on the same factors — the total amount bet, the take and the amount bet on each horse. When the payout for a specific type of bet is divided among more than one horse's bettors, such as the first three horses' bettors for show bets, the payout pool must be divided by that number. So, for example, the payout pool for show bets, also called the show pool, must be divided by three before the odds for each horse are calculated. Calculating the odds for other exotic bets can be quite complicated and involve combining various odds.