Tote or Pari-Mutuel Betting

Author: Sylvia Garcia

This pari-mutuel system is used in placing wagers on horse racing, greyhound racing, jai alai, and sporting events of relatively short duration of which participants finish in a ranked order. A modified version is even used in some lottery games.

It differs from fixed-odds betting in that the final payout is not determined until the pool is closed whereas in fixed odds betting the payout is determined at the time the wager is placed. This type of betting is usually state-regulated and is offered in many places where gambling is otherwise illegal. Pari-mutuel gambling is often also offered at “off-track” facilities, where players may bet on events without actually being present to observe them in person.

Here is an example of how pari-mutuel betting works…consider an event that has eight possible outcomes, in a country that uses decimal currency such as US dollars.

$30.00
$70.00
$12.00
$55.00
$110.00
$47.00
$150.00
$40.00

In the example above, the total pool of money on the event Is $514. Once the event starts, no more wagers are accepted. If the event is decided and the winning outcome is determined to be say, Outcome 4, with $55 dollars wagered the payout is now calculated. First the commission or take for the wagering company is deducted from the pool. If the commission rate is 14.25% the calculation is $514 x (1 – 0.1425) = $440.76. The remaining amount in the pool is now distributed to those who wagered on Outcome 4: $440.76/$55 = $8 per $1 wagered. This payout includes the $1 wagered plus an additional $7 profit. Thus the odds on Outcome 4 are 7-to-1 (or, if expressed in decimal odds, 8.01).

In real-life examples of horse racing, the pool size often extends into millions of dollars with many different types of outcomes (winning horses) and complex commission calculations. Sometimes the payouts are rounded out to a denomination interval. In the US and Australia, 10 cent intervals are used. The rounding loss is sometimes known as breakage and is retained by the betting agency as part of the commission.

The description above of the mechanics of pari-mutuel betting would suggest that it is impossible for the wagering company (or “house”) to lose money because the commission is deducted before the payouts are calculated. However, in rare circumstances it is possible for the house to lose money on an event. This can occur when there are legal requirements for minimum winning payouts (for example, if there is a legal requirement to pay at least $1.10 on a winning one-dollar wager). If this minimum legal winning payout exceeds the payout computed by the standard pari-mutuel calculations by a sufficient amount, the house could lose money on this set of wagers.

Unlike many other forms of gambling, in pari-mutuel betting the gambler bets against other gamblers, as opposed to betting against the house. It is possible for a skilled player to win money in the long run at this type of gambling, but overcoming the deficit produced by taxes, the facility’s take and the breakage is a difficult task to accomplish. Few people are successful at overcoming these odds.