Jimmy Nickels, Shawn and Gus' childhood bully, has called and is coming to see them at the Psych office. The guys are scared but determined not to give up their lunch money again, until they open the door to see that Jimmy has not grown an inch since they last saw him, which is one of the reasons he became such a successful jockey. He's come to hire them. He's been losing his races and he doesn't know why. Despite Gus' protests, Shawn agrees to take the case. He has felt guilty ever since he turned Jimmy in for hitting a teacher with a spitball, which led to Jimmy's expulsion. Shawn feels he owes him.
They go to the track to "talk" to the horses and discover one of the other jockeys, Juan Carlos, is having an affair with a married tall blonde woman. They also come across Henry, who is a regular there and introduces them to Phil Shershow, a lifelong bad gambler who's on a hot streak. Henry insists they have no case. Horses lose for all kinds of reasons, but as he says this, a race comes to a close and Juan Carlos falls off his mount, dead. A track photographer does CPR, but to no avail. The police suspect he had a heart attack but, from what Gus saw of the body, he thinks it's more likely the result of poison or tranquilizers. It turns out they are both right. There were so many drugs in his system, from barbiturates to horse tranquilizers, his heart gave out. Shawn still thinks there was foul play involved and tells them about the affair with the blonde. Vick tells Lassiter and Juliet to look into it before they close the case. Meanwhile, Shawn realizes he was wrong about Jimmy when they were kids. It wasn't Jimmy who shot the spitball at the teacher. There was a second spitter.
Back at the track, they meet Barry, the track announcer who tells them that the track is closing down and that Juan Carlos had taken all of Jimmy's good mounts before he died. Not only that but the blonde woman they saw with Juan Carlos is Janine, Jimmy's wife. With everything pointing to Jimmy, Lassiter and Juliet arrive and arrest him.
Shawn and Gus visit Jimmy in the police station who tells them he's innocent. He didn't know about the affair. Shawn goes back to the beginning and asks about the races Jimmy lost. He said the horses were all running great until they hit the clubhouse turn then the all faded down the stretch. The guys go back to the track and don't see anything suspicious at the clubhouse turn. While there, they stop by and visit Barry in the announcer's booth to get a better look at the track. In his office Gus recognizes a Chocta Indian artifact. Barry tells them he's actually one-sixteenth Indian. Ryan, the photographer who tried to revive Juan Carlos, stops by to go over publicity shots. On the way out, Shawn spots a pile of videotaped races, which gives him an idea. He needs to look at the races again and goes to Henry, knowing he's got them all saved for research. But after watching them, he's still not seeing it. Henry tells him to broaden his vision, which frustrates Shawn, sending him back to the Psych office and the old "Second Spitter" case. He remembers that they all switched seats in class that day. He needs to look somewhere else for the spitter. Which leads him to look somewhere else on the racetrack. On the tape of Juan Carlos' last race, Shawn sees that he gets hit with something in the neck. But whatever it was, it wasn't meant for Juan Carlos. It was meant for the horse. This case is about fixing the races. That's why all Jimmy's horses faded down the stretch.
While playing the tapes for the cops, Shawn hears that Barry, while announcing Juan Carlos' race, was surprised when the target horse didn't fade down the stretch - as he was expecting it to. Barry was in on it. Shawn and Gus bring the cops down to the track the next day and during the big race Shawn notices Phil feeling confident about his bets, and Ryan not taking the same shots as all the other photographers. Shawn's solved it. Barry, Phil and Ryan wanted to cash in before the track closed for good. Phil made the bets on the long shots and Ryan used his camera as a dart gun, a weapon of the Chocta Indians, to take out the favorites on the track, using horse tranquilizer instead of poison, explaining why so much was found in Juan Carlos' body. Ryan wasn't trying to save Juan Carlos' life, he was looking for the dart to dispose of the evidence against them. Jimmy, now exonerated, thanks Shawn and Gus for their help and apologizes for the way he treated them as kids. Shawn, in return, apologizes for getting him kicked out of school and almost ruining his life. Jimmy laughs and tells them he went to live with his dad in Maui, possibly the greatest thing that ever happened to him. As he leaves, Gus finally confesses to Shawn that he was the second spitter, and he was not sorry to see Jimmy go.