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When you put a chip on a table in a casino, you have made a wager, a bet. Who "takes" your bet? The "other side" of your wager is the casino itself - the "house." The same is true when you bet in a sports book. Say that you put $22 down that the Giants will cover the spread in Sunday's game. The "house" is on the opposite side of that bet. In poker, the same concept does not apply. The "other side" of a bet at the poker table is "all other players in the pot." This is more like what happens in pari-mutuel betting at a racetrack. The pari-mutuel pool is the same as the "pot" in a poker game. If you win, your winnings come out of the pot in proportion to the bet you made, and you must share that pot with everyone else who won, just as you did. The major difference, of course, is that a poker player can, at any time in the hand, count up the poker pot by inspection and add up the money in his or her head.
Pari-mutuel betting nowadays employs high-tech methods to keep track of all the wagers made. The system reports the "pot odds" in real time, so that the players - the racing fans -- can just check the board to see what their odds are.
Pari-mutuel betting was an innovation that saved racing from almost certain death in the early 1900's. It was a safeguard against two different abuses common at the time: (1) the incorrect statement of betting propositions so that the house or bookie could keep all the edge for itself; and (2) speculation by the house or bookie on the outcomes of races, so that a gross miscalculation might cause funds not to be available for winners or to pay the purses.
The track posts the "track odds" on the "board" (really the big video screens) for each horse, prior to the race. Before a bets have been placed, the initial "track odds" can not reflect betting activity, so they are a prediction by track management on where each horse should start out in the bidding. This is called the "morning line." It stops being important after wagerers come into the picture. Pari-mutuel betting has this unique quality that the odds keep changing as bets are being placed, right up to the bell.
It should be obvious that when a horse is a strong favorite to win, the pot will have to be divided amongst many wagerers, so that each $2 bet will have a smaller projected payoff than a similar bet made on a less favored horse (where the number of tickets that will share the winnings is smaller.)
The "track odds" are nothing more than the result of this calculation: A $2 ticket with a possible payoff of $6 (based on the bets already registered) will have "track odds" of 2:1. This is parsed as follows: Of the $6 payoff, $2 goes to reimburse the wager. The $4 profit is twice the value of the ticket, so the payoff is "two-to-one." The implication in terms of the race itself is that the crowd thinks the horse has only one chance in three of winning. This would be a good bet to make if you thought the horse's chances of winning were better than 33%.
Once a bet has been made, and the bettor is sitting in the grandstands or standing on the apron, the question arises, "how much do I stand to win?"
A "win pool" is the amount of money going to the winning horse. The "place pool" is shared between the two placing horses, and the "show pool" is divided among the three top finishers. To figure how much a win ticket might yield, take the amount of money in the win pool, subtract the takeout (15% to 20%, depending on the track, see below) and also the total amount bet on the horse to win (as that money is returned to all the winners). Then divide the result by the number of $2 bets on the horse, and add back $2 to represent the bet you made. The answer is an estimate of the payout on a win ticket in terms of a $2 bet. If your ticket is in a higher denomination, multiply the $2 yield accordingly. All the information required is available from the tot board in the infield and on the screens.
The value of a place ticket will be, approximately, the full amount of the "place pool," less the takeout, less the amount bet on the horse in question (as that is returned to the bettors), less the highest amount wagered on some other horse (assuming that horse will win and the funds are returned to those bettors). The result is the profit, which is divided by 2, as two horses share the place pool. Then divide that result by the number of $2 "place bets" on the horse and add back the $2 bet. Adjust for the size of your bet, if higher than $2. A similar approach can be used for a show ticket, subtracting out two horses and dividing the profit by three.
Not all the money collected in bets is paid out to winning bettors. Each dollar bet has to send a few cents to other places, too. This is called the "take out." The takeout will vary from track to track and sometimes from race to race. Generally it sits at around 20% or a little less. The takeout pays for the track operations, the purses, and the government. Yes, most state or local governments find horse racing to be an opportunity for a payday, too. This takeout can be thought of as the "vig" or the "hold."
"Breakage" is the odd cent or two that is rounded off a payout if the calculation is uneven. For example, if a bet of $1 was bet instead of $2 and the horse paid $2.90, a $1 ticket would be worth $1.45. Tracks do not pay out nickels. So the payment will be $1.40. The $.05 is "breakage." Who gets the breakage? A government. Tracks in some states have to deal with breakage to the nearest 1/5 of a dollar, so that $1.50 would break to $1.40. Others have breakage to the nearest dime, so that $1.50 would not have any breakage.
Race tracks must pay at least $2.10 on any horse that shows. (Given breakage, this would be the smallest amount of money that can be paid for a horse that is "in the money." It is also the law.) Sometimes, particularly since off track betting entered the scene, someone may bet a ton of money on a very strong horse to show. This would be as close to a "sure thing" as possible. Even though the horse only pays ten cents net of the bet, it can be a good profit if a lot of money was wagered. It's essentially 5% on a few minutes' effort.
Such bettors are taking advantage of one of the limits of the pari-mutuel system. They are called "show plungers" and sometimes bridge jumpers, and most often, even worse names. This is what happens. The heavy favorite in the race is almost guaranteed to place at least third. But taking into account the takeout, there are more winners than the pot can handle (since only 80% of the pot can go to winners). The track will have to "pony up" to make the pot big enough to reimburse the wagers made in the show pool and still pay a dime on each $2 ticket. Though tracks hate show plungers, the other bettors should not frown. The excessive wagering on the favorite almost certainly makes other horses have higher payouts that the "true odds" would require. Thus, they are bargain bets. Betting against a show plunger (i.e., on other horses to show) is a fairly low risk bet with a high "edge." In more correct racing parlance, the show plunger created nice overlays among the other horses to show.