Parimutuel betting is a term that many might not be all that familiar with, but the concept is one that is familiar to a lot of bettors. It works by simply betting into a pool, rather than with a bookmaker or peer-2-peer. An example might be something like the Tote, which requires you to enter your stake, and then a dividend is distributed based on the amount of money wagered in that pool.
The history of this type of betting dates back to 1867 when it was invented by Catalan, Joseph Oller. From there it has seen a number of variations over the years but the main concept of betting into a ‘pool’ has always been apparent. Some notable inclusions of the system were in 1913 when the first automatic totaliser was installed in New Zealand before then becoming widespread around the world.
The UK Tote was set up in 1928 and was first used in July 1929 in a meeting at Carlisle.
How Does Parimutuel Betting Work?
The best way to explain how parimutual-betting works is by running you through a quick example. For this example we will be using decimal odds, but this can easily be converted into fractions if you so wish.
We are going to use a horse race for the example and with it there are 8 runners in total for the race. The table bellows shows the number of the horse and then the amount that has been wagered on each horse.
From this we can see that the total amount of money wagered on the event is £1,000. We are assuming all bets are made in pounds though the principle is the same for all currencies. We then assume that no more bets have been taken for this race and that the final result is winning horse number 6. Next step is work out how much money a punter would get for backing this result.
The next thing that needs to happen is the commission from the bookmaker or pool needs to be taken off from the overall amount wagered. For ease we are going to call this at 10% but this number can range anywhere between 5% and 20% depending on where you bet. After this has been removed the total amount left in the pool is that of £900.
Commission: £1000 x 0.10 (10%) = £100, £900 to be paid out
To work out the amount that needs to paid out we simply divide the amount in the pot by the amount that has been wagered.
Dividend: £900 / £210 = 4.28 = £4.28 per £1 wagered
As we are using decimals for this bet the stake is included in the return. But, if we were to work out the odds in fractions then you simply remove the stake from the overall amount, creating 3.28/1.
Depending on where you place these types of bets, the odds may be rounded down. For example, in the US the odds will be round to nearest 10c, meaning that any dividend not covered will then go to the bookmaker.
You will be able to see a rough guide of the odds that you will get before a race starts. But, the final dividend cannot be calculated until the final bets have ben taken, the market closes and the race is then won.
Pros and Cons
The pros and cons for this type of betting tie into one. This is a result of the fact that when betting with a parimutual format the odds that you can get are often higher than if you went with a bookmaker. But, as you can’t guarantee the price that you are getting, you run the risk that these could indeed be lower.
If often comes down to the amount in the pool. If large amounts of bets have been taken then you will find that the odds that you get are much more in line with ‘industry standard’. But, the lesser wagered on markets can lead for much bigger discrepancies meaning that these can often leave to a much more erratic pricing, as mentioned above.