Bill Benter and Jon Price are known to have made millions from the race tracks in their lifetimes. Pari mutuel betting is a form of betting primarily used in gambling on horse racing, jai alai, greyhound racing, and any sporting event where the participants finish in a ranked order from first place to last place. Unlike fixed-odds gambling where the final payout is determined when the bettor places their wager, in pari mutuel betting the payout isn’t determined until the betting pool is closed.
To better understand this we can use the hypothetical example that there are 4 contestants or horses entering a race. $20 is wagered on horse #1, $50 is wagered on horse #2, $30 is wagered on horse #3, and 70$ is wagered on horse #4. So combined, the pool of money wagered on the event is $170.
The betting pool is closed as soon as the race starts and once the race’s outcome is decided then the payout is calculated. So for this example, horse #2 won the race with a total of $50 wagered on it. Before the bettors can receive their take, first the sportsbook or racetrack where the wager is placed will tax the wagers to collect its vigor (the tax or “house-take” the book receives for offering the wager), which is usually anywhere around 10%-15%. So with a modest 10% vigor deducted from the $170 wagered, that then leaves a total of $153 to be split up among all of the bettors who wagered on the winner: horse #2. So in other terms: $153 / $50 = $3.06 for each $1 wagered on horse #2.
Prior to the race, the sportsbook or racetrack will usually provide approximate odds or payout for the various given outcomes if no more bets are accepted at that time. So using that same example prior, the approximate payouts may read something like: Horse #1 7:1 odds, Horse #2 3:1 odds, Horse #3 2.5:1, and Horse #4 2:1.
In real life examples of pari mutuel betting the betting pool can often exceed millions of dollars wagered on the various horses in the race and involves very complex calculations to determine both the approximate odds before a race, as well as the ultimate payout after the race has concluded. Many times, the amounts paid out and the odds set before the race are rounded down to a denomination interval, this loss in the rounding is usually known as “breakage,” and is kept by the sportsbook or racetrack as apart of their commission for offering the wager.
In horse races or other pari mutuel betting where the overwhelming favorite wins the event, the pari mutuel calculated payout may call for a very small payout to be paid to the winning bettors, but many countries such as the U.S. the legal regulation states that the sportsbook or racetrack is required to make a larger payout to the winner. This occurrence is usually referred to as a “minus pool.”
Unlike most forms of casino gambling, in this pari mutuel gambling the bettor is wagering against other gamblers in the betting pool, instead of against the house. With this arrangement, it’s impossible for the house to lose. After the sportsbook or racetrack offering the pari mutuel betting pool makes their payout, they still collect a hefty vigor from their 10%-15% tax of the money collected from bettors. The mainstream betting market has been undercut somewhat in recent decades by off-track bookmakers who offer lower taxes and commissions for placing pari mutuel wagers, but these books are illegal in most countries, including the U.S.
In addition to wagering on the horse you expect to win the race, in pari mutuel betting you’re also able to wager on what place a horse will come in, or even if the horse will finish within a certain range, for example: For a horse to “place,” it must finish either in first or second place. And for a horse to “show,” it must finish the race in the top 3 positions.
There are many facets to pari mutuel betting that a bettor can employ to their advantage and to hedge their wagers. It’s an important tool to understand for anyone who consistently wagers on horse racing or other racing-type sports and non racing sporting events that you can bet on.