The 2014 Kentucky Derby: Inside the Numbers
May 2, 2014 : Brad Polizzano – Guest Contributor
Ed note: Betting on horse racing is its own breed (bad pun?). Brad Polizzano breaks down what you need to know before the Kentucky Derby tomorrow.
And they’re off!
Tomorrow marks the 140th running of the Kentucky Derby. Called “The Fastest Two Minutes in Sports,” the Derby is the first leg of the annual Triple Crown for three-year-old thoroughbred horses. Churchill Downs, located in Louisville, Kentucky, hosts the annual race.
The Kentucky Derby guarantees a minimum $2 million purse payable to the top five finishing horses in the race, with the following distribution:
First place: $1.24 million (estimated)
Second place: $400,000
Third place: $200,000
Fourth place: $100,000
Fifth place: $60,000
The first place jockey scores 10% of the horse’s winnings. Second and third place jockeys each get 5%. Putting their lives at risk each time the starting buzzer sounds, jockeys aren’t paid all too well considering the Derby is one the biggest of horse racing stages.
In the United States, the wagering system for horse racing is parimutuel betting. The wagers are pooled together, the house take is removed, and then the payoff odds for each wager are calculated based on the amount wagered for each outcome.
Parimutuel bettors are actually betting against each other instead of the house, as the final payouts for wagers are not determined until the betting pool is closed. Unlike other sports betting in the United States, a parimutuel bettor’s odds are subject to change after the wager is initially placed.
Some common types of parimutuel wagers:
Win: Pick the horse that finishes first
Place: Pick a horse that finishes either first or second
Show: Pick a horse that finishes first, second, or third
Exacta: Pick the two horses that finish first and second, in that order
Trifecta: Pick the three horses that finish first, second and third, in that order
Wagers for the Kentucky Derby may be placed in-person at Churchill Downs. Wagers may also be placed online.
The Kentucky Derby also offers the Future Wager, enabling bettors to place wagers well in advance at odds that could be much better (or worse) than the day of the race. For Future Wager, the Derby has four separate pools that run for three or four days during months prior to the race. The odds become fixed at the close of each respective pool. For the 2014 race, one pool ran in November 2013, two in February 2014 and one in March 2014.
Gambling Winnings and Income Taxes
Any winning Derby bets are subject to federal income tax. The payor is required to report a U.S. bettor’s winnings to the Internal Revenue Service if the winnings are $600 or more and the winnings are at least 300 times the amount of the wager. If the net winnings exceed $5,000 and are at least 300 times the wager, then the payor must withhold and remit to the IRS 25% of the proceeds.
Derby bets placed in-person at Churchill Downs may also be subject to Kentucky’s state income tax. Kentucky residents must report all gambling winnings on the state’s Form 740. For nonresidents or part-year Kentucky residents, gambling winnings from Kentucky sources are reportable on Form 740-NP. All gambling winnings are reported on your federal return Form 1040.
Just remember that when it comes to wagering, the house always wins in the end. Good luck!