The efficiency and profitability of exotic racetrack bets such as exactas and daily doubles are examined. Efficiency is understood to mean that above average returns cannot be made in the long run once risk is appropriately controlled for. The markets in question are found not to be efficient; the inefficiencies, however, are insufficient to permit simple strategies to show a consistent profit. Some evidence of "smart money" exists in that holders of inside information may bet on exactas rather than equivalent standard bets in order to avoid signaling their actions to the betting public. Copyright 1987 by The Review of Economic Studies Limited.