Horse racing in the United States uses a parimutuel process to calculate payoff odds to one dollar. Let’s use a $2 bet on a horse to win as an example. When you place a $2 bet to win on a horse your money goes into an electronic pool of money. In fact, every dollar bet for a horse to win goes into one pool of money called the win pool.

After every dollar is bet and counted in the win pool then the race track takes a cut off of the top. This cut of money is usually called the track take or track take out. Therefore, the track always takes the same amount of money for their cut no matter which horse wins the race. The amount of money the track takes is deducted from the win pool.

After the track takes their cut then the number of dollars bet on the winning horse are counted and deducted from the remainder of the win pool. After that deduction the money remaining in the win pool is distributed as evenly as possible to each winning dollar bet. These dollars can be considered the profit on the dollar bet.

For example, if you bet $2 to win on a horse with odds of 4 on the tote board that means your horse is going off at $4 profit for every $1 bet on the horse. Therefore, your $2 bet will be returned to you plus $8 profit. You will collect a total of $10 for your $2 winning bet. Similarly if your horse goes off at odds of 10 and you bet $2 to win and your horse wins then you will get your original $2 bet back plus $20 profit.

Sometimes you may hear a term called breakage which goes to the track. Remember that the dollars bet on a winning horse are deducted from the win pool and the rest is distributed to each winning dollar as evenly as possible. The process is a rounding process. SOme tracks round to the nearest $.10 and some tracks round to the nearest $.05. Breakage is the money left in the pool after as much money as possible is distributed to the dollars bet on the winning horse. It is always slightly better to bet on races at race tracks where the track rounds to the nearest $.05.

You should consider the odds the Holy Grail to winning at the race track. The only way to win money betting horses at the race track long term is to find inefficiencies in the win pool. That means you have to look for mistakes made by the betting public. The Holy Grail for betting horses is to find betting opportunities where the public mistakenly undervalues a horse.

Real horse racing algorithms give you a very good estimate of what odds every horse in the race is worth. All you have to do is find horses going off at post time with substantially higher odds than the estimated odds provided by the algorithms.