What is Pari-mutuel Betting?

Pari-mutuel betting is a different form of betting which is used in only a few sports. In most sports, you simply head over a bookmaker and place your wagers at fixed odds.  But, with pari-mutuel betting, instead of working with fixed odds at a bookmaker, you're playing against other bettors with flexible odds.  The pari-mutuel system is also known as pool betting.  A pool is created by all the wagers placed by anyone on the same event (i.e., the Kentucky Derby), and on the same wager type (i.e., a Win bet).  At the end of the event, the prize is shared among all the winning tickets, minus a small deduction by the house as a commission.

The beauty of pari-mutuel wagering is the fact that it's completely legal in basically any part of the world.  Instead of having a central party like a sportsbook which hosts the money, you have a bunch of bettors who take their chances upon each other.  Thus, the pari-mutuel system is common all across the world.  Although, in theory, it's possible to implement in any sport, the pari-mutuel system is often only used in horse racing, greyhound racing and jai alai.  Anyone who has ever been to the racetracks will probably remember the giant tote boards displaying the odds and the total amount of bet by all bettors at the race tracks.

In this betting guide, we'll take you through everything pari-mutuel betting has to offer.  We'll dive into the history, the different types of bets, and how to form your pari-mutuel betting strategy.  Oh, and we'll conclude with a recommendation on where you can best place your pari-mutuel wagers.

History of pari-mutuel wagering

​Way before bookmakers and sportsbooks came into play, bettors would only wager against each other.  It all started back when friends and acquaintances would make small wagers on some small events….perhaps who had better aim in shooting a pheasant.  With sports evolving from recreational to professional, and events growing in size, betting systems evolved as well. Whereas horse racing dates back to ancient times with Romans and the Chinese empire, the pari-mutuel system came many years later.

It wasn't until Joseph Oller, a Spanish entrepreneur who was fed up with bookmakers taking large commissions, started to consider ways to innovate the betting system.  His solution was the pari-mutuel system.  Coming from the French phrase ‘pari mutuel,’ which means mutual betting, the term was born.  Oller traversed through France to implement his new betting system at race tracks.  After facing a small setback by being charged with illegal gambling practices, Oller finally achieved his goal when fixed-odds bookmaking became illegal in France.

Pari-mutuel betting took a whole new shift when the totalisator, also known as the pari-mutuel machine, was invented.  Instead of making all the calculations manually, the totalisator would take care of the difficult mathematics.  Thus, the tote board became a thing, and soon the new betting system was adopted in places like Hong-Kong and the United States.

Getting started with pari-mutuel wagering

When you want to start in horse racing, you need to understand the betting system first. Usually, the novice bettors who wager a couple of bucks on their favorite horse have no idea how everything is calculated.  The mathematics behind the entire system can get quite complicated, but you don't need to understand every aspect.  To get started with the pari-mutuel betting system, you need to understand the basics of horse race betting. That means the different kinds of bet types and how to calculate your payout.  Allow us to guide you through!

Different types of pari-mutuel bets

As a novice bettor, you should know the distinction between straight bets and exotic bets. Straight bets are bets on a single race, while exotic bets can be on multiple races.  When handicapping horse races, you have many options that go way further than just picking the winning horse.  When you're at the horse racing tracks, you'll probably get one of the betting slips filled with various terms that you might not understand at first.  However, once you're aware of the most common bet types in horse racing, it'll be a lot easier to understand the way pari-mutuels work.  You don't need to know what a daily double is at first, but the straight bets and the most common exotic bets are basic knowledge in pari-mutuels.

Simple - pick the winning horse.  All you need to do is pick the winning horse, and you walk away with a payout.  It's hard to pick the right horse, of course, so the payout here can be quite rewarding.

The place bet is slightly different from the win bet.  Instead of picking the horse that finishes in first place, you pick a horse which ends in either first or second place.  That means if your winning horse is in the top-two finishers, you have a winning bet.

The show bet is a little easier than the place bet.  You choose a horse to finish among the top three to land a payout.

Now, let’s look at the more exotic bets.  Instead of betting on one single horse race, you're picking multiple horses, possibly in various races.  It requires more research than the straight bets, but it's also the place where you can find really good value.  For example, with an exacta wager, you're picking two horses to end up as the top two finishers.  Instead of choosing the winning horse, you pick two horses for spots number one and two.

One thing that must not be forgotten is that you need to predict the precise order here.  You only walk away with a winning ticket when you pick the horse in the first spot and the second spot in the correct order; any other outcome, and you'll be left empty-handed.

The quinella wager is easy to explain once you have the hang of the exacta bet.  The exacta bet is about picking the top two finishers in the correct order, while the quinella bet is about picking the top two finishers in any order.  That means you just pick two horses, and you win as long as the top two.

The trifecta is very difficult to predict.  You need to pick the top-three finishers for a single horse race.  That means you correctly pick the first place horse, the one in second place, and the third finisher in the correct order.  Any other outcome, and you lose.  Since the chances are minimal that you'll be successful, the payouts for trifectas are lucrative.

Anyone who loves risks will take a shine to the superfecta bet.  It's the extra step from a trifecta bet.  Where the trifecta bet makes you pick the top-three horses in the exact order, the superfecta adds another horse to the line.  You need to pick the top four finishers in the correct order to land a payout.  Again, the chances are small, but the rewards are astronomical!

Calculate your payout with a pari-mutuel bet

To properly understand the pari-mutuel betting system, we have to explain how your payout is calculated.  When you arrive at the race tracks, you'll see some screens displaying the current odds and the total amount bet.  You should know that the odds you see on the tote board are the probable odds before all the money is in.  They're still subject to change since bettors can still place their wagers.  For any wager type, whether it’s a win bet or a quinella, there's an individual betting pool.  All of this money adds up, and you have one giant pot of money.  The moment the betting lines close, you will receive the final odds -- also known as the payoff odds.  At that moment, all winning bettors will share the prize in the prize pool according to these odds.  We'll share an example to illustrate how it works precisely.

Imagine you're at the Kentucky Derby, one of the most important horse races in the world. There are over 150,000 bettors in attendance, all eager to place some wagers that day.  Of all attendees, 80,000 bettors decide to place a win bet on their favorite horse, and they all decide to bet the same bet size of $5.  That means your total prize pool would become $400,000. When the race concludes, horse number 6 finishes first.  Four thousand bettors were right and went with horse number 6.  That will bring the following formula to calculate your payout:

This shows the way the pari-mutuel system works.  Of course, we’re leaving out the commission taken by the track.  Thus, the payoff odds will be a little less than displayed in our calculation since the track takes a piece of the pie to cover its costs and government taxes.  Thus, the payout will be slightly less than $100, but you at least can now understand how the payout is calculated.

How to win at pari-mutuel betting

​The one question everyone always asks is, how do I win?  It doesn't matter what kind of sport you're betting on -- whether it’s the NFL or Jai Alai -- you want to know how to land that winning ticket.  In horse racing, here are a couple of tips we can provide.

That's all there is to pari-mutuel betting.  It's nothing complicated, and just requires some basic knowledge and a little experience.  From the moment you achieve your first winning bet, and receive the payout, you’ll be on your road to riches!