Introduction
The purpose of this article will be to explain the basic bets available to the racetrack bettor, how the payoffs are determined, and the cut the track takes from the betting pool.  This article will not give advice on how to choose which specific horse to bet on.  If you need to bone up on the basics of racetrack betting you are in the right place.

Pari-Mutuel Betting
The racetrack operates on the same principle as an insurance company.  A group of bettors pool their money together through an agent (either the track or the insurance company), the agent takes out a cut for themselves to cover expenses and profit, and the rest is given back the winning players.  In an insurance situation, the bettors are betting on death or some kind of casualty - at the track the bettors are betting on horses.

At the track there are various types of bets available.  All money bet on a specific kind of wager is pooled together.  Once the betting is closed, the track will deduct their share to cover taxes, dues to the Racing Association, overhead expenses, purse money, and the Breeders’ Fund.  For example, at the Pimlico track in Baltimore (home of the Preakness stakes) the track will deduct 17% to 25% depending on the type of wager.  The remainder of the pool will be divided among the winning bettors.

Betting Options

Win: This is that most basic bet that the chosen horse will finish in first place.

Place: This is a bet that the chosen horse will finish first or second.

Show: This is a bet that the chosen horse will finish first, second, or third.

Daily Double: This is a bet on the first place position in two consecutive races, generally the first two of the day.  The bettor must correctly pick both races to win.

Daily Triple/Pick Three: This is a bet on the first place position in three consecutive races.

Pick Six: This is a bet on the first place position of six consecutive races, generally the last six.  In the event nobody wins, the winning pool is split between those correctly picking five (or less if nobody picked five) and a carryover to the next pick six pool.

Exacta: This bet is on the first and second place horses in a given race in the correct order.

Quinella: This is a bet is on the first and second place horse in a given race in any order.

Trifecta: This bet is on the first, second, and third places in a given race in the correct order.

Twin Trifecta: This is a pair of trifecta bets on two races.  The winning pool is split between winners of the first trifecta and winners of both of them.  After the first race, winners of that trifecta should redeem their tickets for winnings from the first half of the pool and a ticket for the second half.

Superfecta: This bet is on the first, second, third, and fourth places in a given race in the correct order.

Odd/Even: This is an uncommon bet based on the number of the winning horse.

The minimum bet is generally $2 on win, place, and show bets, and $1 on all others.  The player may bet above the minimum but all bets must be an even dollar amount (no change).

Placing a Bet at the Track
The tote board and the television monitors at the track will display the odds on a win bet for each horse in the next race, as well as each exacta combination.  The odds will be refreshed every ten seconds or so to reflect the changes in betting activity.  The odds are reported on a "to" basis.  For example, if horse 4 is paying 8:5 then a $2 wager would win $3.20, for a total return of $5.20.  Unlike sports betting the bettor is not locked into the current odds when he makes a wager.  Rather, the odds keep changing until post time.

There is a specific way to make a wager at the betting window.  You should state in order: the track (if you don't specify it will be assumed you mean the home track), the race number, wager amount, type of wager, and horse number.  There is little tolerance for chit chat or indecision at the betting window.  Nobody standing behind you in line wants to risk getting locked out so make your bet as efficiently as possible.

About a minute after the end of the race, the tote board will display the value of winning tickets relative to a $2 wager.  For example the board may look like this:

Horse Win Place Show
1st 5 7.00 3.00 2.70
2nd 2 2.40 2.20
3rd 3 3.50

This shows what winning $2 win, place, and show tickets pay.  These amounts include the original $2 wager.  For example a $2 place bet on horse 5 would pay $3.00 ($1.00 in winnings and $2.00 for the original wager).  The tote board will also display what winning exotic bets pay.  Sometimes in inquiry occurs after the end of a race resulting in a horse being disqualified.  So, wait a few minutes after a race is over before discarding a losing ticket because a disqualification of another horse may cause yours to move up.

Payoff Calculations
On bets with only one way to win, the pool remaining after the track takes it's cut is divided among the winners in proportion to the amount bet.  The payoff per $2 bet is always rounded down to the next increment of 10 or 20 cents.  This is called the "breakage," which is not an insignificant amount of extra money for the track.

For example, if $1000 is bet in total on win bets, and $200 is bet on the winning horse, then the payoff for the winning tickets will be determined as follows.  First, the track collects it’s cut, we’ll say 17%, that leaves $830.  Then, the bets on the winner are deducted, that leaves $630 for paying winnings.

The ratio of winnings to winning bets is $630/$200=3.15.  This ratio is then applied to the minimum $2 bet: 3.15 * $2 = $6.30.  The $6.30 is rounded down to $6.20, which is the final payoff per $2 bet.  All winning bettors will be paid at this ratio.  For example, a $100 bet will win $100*(6.20/2.00) = $310.  When collecting a winning wager the bettor will also receive their original wager back.  In the above example, a $2 winning ticket would get back $8.20 ($6.20 in winnings plus original $2.00 bet).

In the case of the place and show bets, the winning pool is divided equally into one pool for each winning horse.  For example, assume $1000 is bet on place bets and the first and second place horses are x and y.  Further, assume $100 is bet on x and $200 is bet on y.  First, the house takes their 17% cut leaving $830.  Then winning bets of $300 are deducted leaving $530 to pay the winners.  Half of the $530, $265, will be paid to the winners of each horse.  In this case, the ratio of winnings to winning bets on horse x will be $265/$100=2.65 and on horse y will be $265/$200=1.325.  The un-rounded winnings for $2 on horse x are 2.65 * $2 = $5.30, and on horse y are 1.325 * $2 = $2.65.  These amounts are rounded down for winnings of $5.20 on x and $2.60 on y.  Including the original wager, winning $2 tickets on x receive $7.20 and on y receive $4.60.

Sometimes when a strong favorite wins, especially on a show bet, the winnings may round down to nothing.  In this event, the track must pay back a minimum of $2.10 per $2.00 bet, even if it results in a net loss for the track.

The Track Cut
As stated in the introduction the track cut varies depending on the type of wager.  The following table shows the house cut for various tracks according to the type of wager.

1. 2 horse picks refers to daily doubles, quinellas, and exactas.
2. 3+ horse picks refers to trifectas, pick 6, and other longshots.
3. Takeout for odd/even bet is 5% at Churchill Downs.
4. Takeout for pick 3 is 25% at Great Lakes Downs.
5. Takeout for pick 3 is 26% at Philadelphia Park.