Does that longshot win? Because a bet like that would drive down the odds on the longshot to 1:20, which is the lowest they can legally go. And this is a parimutuel system, so we’re looking at ratios of money bet on one horse against money bet on all other horses.
In any event, if the longshot wins, the track is legally obligated to pay 5c to $1 (assuming nickel breakage), so the longshot player wins $50,000, plus his bet back. It likely results in what’s known as a negative pool, where the track has to dip into its own funds in order to pay off the winner. And tracks typically have a lot in reserve, for just such occasions, though they hope it never happens.
What would more likely happen in your example is that the mutuel teller (the person behind the betting window) would have to get authorization to book a bet that large. Given that we have $1000 in the pool from the other bettors (in your example), that authorization might come, but be limited to a $1000 wager. Or perhaps $2000 to $5000 if the track is willing to risk a negative pool, given that this is a longshot and other horses are more likely to win.
My source is a friend, who had a serious horse race gambling problem. He bet at a big track, where daily handles (even on weekdays) regularly exceeded $1M on the day, but when he tried to place even a $1000 wager, the mutuel teller would have to get authorization to book it. There are minimums in horse racing, but there are also informal maximums, depending on the track, its funds, the race, and the horse.
Aside: My friend got help, and has not gambled on anything (horses, dice, cards) since. Unless you want to count he and I betting on CFL football, and what’s on the line is our bar tabs at even money at the sports bar. It’s fun, and it’s a lot less of a loss for him than $1000 a race at Woodbine.