Parimutuel Betting: What is it and Does it Offer Value?

Many relative novices aren’t aware that there are alternatives to placing back bets against the bookie. In addition to this, you can wager on betting exchanges where you bet against an outcome.

Also known as tote or pool betting, parimutuel betting is one of the more interesting ways to gamble without involving a bookie. It is mainly used in horse racing, and involves you either taking on or siding with the public when betting on a horse. It is also a betting system where the money wagered by punters goes into a single pool, with the winners paid from the pool.

A Brief History of Parimutuel Betting

While horse racing gambling dates back centuries, pari-mutuel betting wasn’t developed until 1867. The consensus is that a Parisian businessman named Joseph Oiler created it. Parimutuel betting quickly became popular, so much so that France created a national system with branches located off racecourses in 1891.

George Julius, an Australian engineer, invented the totalizer machine in 1913 and helped pari-mutuel betting expand globally. The machine’s output was shown on a tote board, enabling faster calculations. Indeed, this machine helped keep the sport alive in the United States during the temperance movement by ensuring racing stayed legal in certain locations. This is because bettors could get involved in the action without using a bookie.

The Tote, founded in England in 1928, helped bring parimutuel betting to British punters. Today, the Tote remains the world’s biggest pool betting operator and has retail outlets in almost every UK racecourse.

The process of pari-mutuel betting enjoyed another boost in 1931 with the creation of the daily double, the first of a series of “exotic” wagers. Rather than being restricted to a handful of options, bettors can now dream big and potentially win a large sum of money from a small wager.

Today, you have the opportunity to try a pari-mutuel betting strategy on racetracks all over the world.

What Is Pari-Mutuel Betting?

It is a very different form of betting from the standard fixed odds betting most people are used to. This is because it is similar to a stock transaction, as you’re technically buying a share in a horse’s performance when you place a bet. The money wagered by everyone goes into a common pool, and the cash from it is used to pay out winners.

While there is no bookie involvement, the track takes a commission. For example, the Laurel Park racetrack outlines how it splits the parimutuel money. Overall, the public receives 79% of the pool money, with Laurel Park taking 8.79%. Another 9.04% goes to purses, while a handful of other entities within Maryland receive the remaining few percent.

Unlike fixed odds betting, where you know the price, you don’t know the payout until the betting line closes. Payouts depend on how many people bet on an event and how many chose the winner. You could get a much higher or much lower payout than with fixed odds.

You may see the current odds on a screen beside the pari-mutuel betting operator, but those prices continue to change as more wagers are placed.

How Pari-Mutuel Betting Works

You place your wager as you would when using a crypto sportsbook. However, unlike standard betting, you have no idea what odds you will get when you use a pari-mutuel operator.

All the money gets added up, and a certain percentage goes to the track. The public receives what’s left, which is distributed amongst those who made a winning selection. Each winner receives a payout based on how much they risked.

On the surface, a parimutuel betting system may seem complex, but experienced bettors will easily understand the idea. Below, I have included two examples of how it works; one is straightforward, and the other is slightly more complicated with extra mathematics!

Example #1

Suppose there’s a race at Gulfstream involving six runners. You decide to bet $20 on horse #4. It is a low-grade race with relatively little public interest, meaning the pari-mutuel total is rather low. Here is how much was bet on each horse in total:

• Horse #1: $140
• Horse #2: $230
• Horse #3: $100
• Horse #4: $500
• Horse #5: $270
• Horse #6: $180

The total wagered on this race is $1,420, minus 20%, which the track takes and distributes accordingly. Therefore, the total prize pool is $1,136. Next, the pari-mutuel operator divides this sum by the amount wagered on each horse to provide the potential payout for each one:

• Horse #1: $8.11
• Horse #2: $4.94
• Horse #3: $11.36
• Horse #4: $2.27
• Horse #5: $4.21
• Horse #6: $6.31

The above shows how much you would win per $1 staked if you choose the winning horse. In this example, you selected the most favored horse, so your effective winning odds are 2.27 (the total prize pool of $1,136 divided by the $500 bet on horse #4). Since you staked $20, you receive $45.40 if your bet wins.

Example #2

This slightly longer example highlights the changing payouts you can face, particularly in bigger races.

It is a 9-runner race filled with high-quality horses, and about an hour before the race begins, the public has placed $100,000 in the pool. Therefore, there is $80,000 left for punters once the 20% commission is removed.

This is how the money staked per horse and payout look at that point:

You wagered $100 on #1 and feel good about the situation, since the payout is better than the 4.00 odds available at the bookmakers. However, a substantial number of people have the same thought as you and begin betting heavily on horse #1. By the time the pool has stopped taking bets, it has $500,000, with $400,000 ready to be divided amongst bettors.

Unfortunately for you, here is the situation by race time:

Now, instead of getting a $5.71 payout if horse #1 wins, you receive $3.33, which means a return of $333 rather than $571. To make matters worse, the horse’s odds drifted slightly to 4.20 at the bookies!

Types of Parimutuel Bets

Apart from the straight win bet, you can also bet on:

• Place: A horse to finish first or second
• Show: A horse to finish in the top three places
• Each-Way: A bet on a horse to win AND a bet on the horse to place
• Daily Double: Choose the winners of two consecutive races
• Daily Treble: Choose the winners of three consecutive races
• Exacta: Select the first two horses to finish in the correct order; for instance, horse #1 to win and horse #4 to finish second
• Quinella: Pick the first two horses to finish in any order
• Trifecta: Choose the first three horses to finish in the right order
• Superfecta: Select the first four horses to finish in the correct order
• Pick Six: Select the winners of six consecutive races, usually the last six races of the day

 The Benefits of Using a Pari-Mutuel Betting System

• More Options: It is legal in many locations where other forms of gambling are legal. Also, it is generally well-regulated, so bettors don’t have to worry about being ripped off.
• Potential Big Wins: You could theoretically win more than with fixed odds if you know what you’re doing. It is definitely a valid option for skilled contrarian bettors who know when a horse is overpriced in pool betting.
• Suitable for Casual Bettors: It is a fun wager for the non-serious bettor.

The Downsides of a Pari-Mutuel Betting Strategy

• The Value Trap: You have no idea if you’re getting value because you don’t know the payout when you place your bet.
• A Relative Lack of Availability: It is limited to horse racing and greyhound racing, and there are limited online options. In general, you need to attend a race meeting at a track to choose pari-mutuel betting.
• Limited Betting Options: Although several pari-mutuel bets exist, punters have significantly more choices with crypto gambling sites.

Can I Get Value from Parimutuel Betting?

The answer changes from yes to no from one race to the next. You won’t find out the possible payouts until betting closes. In 2019, the Thoroughbred Idea Foundation published an article on weird pari-mutuel payouts and the need for greater transparency.

It highlighted a strange occurrence in the 2019 Derby, which Country House wonat odds of 66.00. Yet, even though the favorite came fourth and the second-placed horse had win odds of 15.00, the Superfecta returned $51,400.10, a lower-than-expected amount. In the 2019 Preakness Stakes, the payout was slightly higher at $51,924, although the third favorite won at odds of 6.10, and the fifth favorite finished third at odds of 7.90.

The article argued that while curious payouts can’t be explained by win odds alone, there isn’t nearly enough transparency in pool betting. Certainly, pari-mutuel payouts aren’t always well explained, and bettors have a right to know why a payout is significantly lower (or higher) than expected.

One possible way to get value is to determine whether a high percentage of bets are going on any given horse. There are a few sites offering charts that show this information. In theory, assuming those involved in the pool bet along the lines of the rest of the public, looking for a horse with a chance of winning that isn’t well-backed could result in you earning more from the pool than the bookie.

Also, experienced gamblers believe that only suckers bet in a pool early. It is better to wait until as close to the race as possible before placing your bets. Doing so lets you get as much information on the likely payout as possible, as the pool operator should show the current payouts in real time.  

If you have access to the pari-mutuel information close to the race’s time, compare the odds on your fancy to what is available with online bookies. If the gap is large enough in the pool’s favor, it might be worthwhile to place your bet a minute or two before the event begins.  

Should I Try Pari-Mutuel Betting?

It is worth trying if you visit a racetrack and want some fun. You could get great value if your knowledge tells you that a horse will probably be underbet in a pool. Also, if you live in a jurisdiction that outlaws gambling, you may still get to legally use parimutuel betting.

However, it is not for serious bettors, because there is no way of knowing how often you’ll receive value for your wager. You don’t know the payout when you place your bet, which will likely change drastically as race time approaches. Therefore, if you want consistent value from your wagers, it is best to line-shop on the best crypto sportsbooks.