Pari-Mutuel

What is Pari-Mutuel Betting?

Pari-mutuel betting, a term derived from the French phrase "pari mutuel" meaning "mutual betting," is a wagering system where all bets of a particular type are placed together in a pool. Instead of betting against a bookmaker or the "house," participants in a pari-mutuel system are betting against one another. The odds are not fixed; they are determined by the amount of money wagered on each possible outcome. This dynamic system is the standard for betting on horse racing, greyhound racing, and jai alai in many parts of the world.

The core principle of pari-mutuel betting is that the winners are paid from the total amount wagered, after a deduction is made by the organization hosting the betting. This deduction, known as the "takeout" or "commission," covers the costs of running the event, taxes, and the operator's profit. The remaining money is then distributed proportionally among those who made winning bets.

This system was invented by Joseph Oller in 1867 and was first introduced to a French racetrack. Its popularity grew, and with the invention of the totalisator—a machine that automatically calculates and displays the odds—pari-mutuel betting became the standard for many racing events. This contrasts sharply with fixed-odds betting, where the odds are set by a bookmaker and are agreed upon at the time the bet is placed.

How It Works

The mechanics of pari-mutuel betting are straightforward. When a bettor places a wager on a specific outcome, their money goes into a pool with all other bets of the same type. For example, all "win" bets on a horse race are collected in a single pool.

Once the race begins and no more bets are accepted, the pool is closed. After the race is over and the results are official, the takeout is deducted from the total pool. The remaining amount is then divided by the total amount of money wagered on the winning outcome. This calculation determines the payout for each winning ticket.

For instance, if the total win pool is $100,000 and the takeout is 15%, then $15,000 is deducted, leaving $85,000 to be distributed. If there is $10,000 in winning wagers on the first-place horse, then the payout per dollar wagered would be $8.50 ($85,000 / $10,000). A person who bet $2 to win would receive $17.00.

The odds in a pari-mutuel system are constantly changing in the lead-up to an event. As more money is wagered on a particular outcome, its odds will decrease. Conversely, outcomes with less money wagered on them will have higher odds. This creates a market where the collective opinion of the bettors determines the final odds.

Another important concept in pari-mutuel betting is "breakage." This refers to the rounding down of payouts to the nearest convenient denomination, such as the nearest 10 or 20 cents. The small amount of money that is rounded off is kept by the track as additional commission.

Example

Let's consider a hypothetical horse race with five horses. The total amount wagered in the "win" pool is $50,000. The track has a 17% takeout. Here's how the wagers are distributed:

• Horse #1: $15,000
• Horse #2: $10,000
• Horse #3: $8,000
• Horse #4: $12,000
• Horse #5: $5,000

First, we calculate the takeout: $50,000 * 0.17 = $8,500. This leaves $41,500 in the pool for payouts.*

Now, let's say Horse #4 wins the race. The payout is calculated as follows:

$41,500 (remaining pool) / $12,000 (wagers on Horse #4) = $3.458

This means that for every $1 wagered on Horse #4, the payout is approximately $3.46. A $2 win ticket would return $6.92. The odds on Horse #4 would be approximately 2.5-to-1.

Why It Matters

Pari-mutuel betting is significant for several reasons. First, it creates a transparent and fair betting environment. Since the odds are determined by the bettors themselves, there is no incentive for the track to favor one outcome over another. The track's profit is guaranteed through the takeout, regardless of which horse wins.

Second, the pari-mutuel system offers a unique strategic challenge for bettors. Success in pari-mutuel betting is not just about picking the winner; it's about finding "value." A value bet is one where the potential payout is greater than the horse's actual chances of winning. This requires a bettor to have an opinion that differs from the general consensus of the betting public.

Finally, pari-mutuel betting fosters a sense of community among bettors. Since they are all betting against each other, there is a shared experience of watching the odds change and seeing how the collective opinion of the crowd evolves. This social dynamic is a key part of the appeal of a day at the racetrack.

In conclusion, pari-mutuel betting is a dynamic and engaging system that has stood the test of time. Its principles of pooled betting and floating odds create a unique and challenging experience for gamblers, making it a cornerstone of the horse racing world and other related sports.