Parimutuel betting

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Parimutuel betting (from the French language, Pari Mutuel or mutual betting) is a betting system in which all bets of a particular type are placed together in a pool; taxes and the "house-take" or "vig" are removed, and payoff odds are calculated by sharing the pool among all winning bets. In some countries it is known as the Tote after the totalisator which calculates and displays bets already made.

The parimutuel system is used in gambling on horse racing, greyhound racing, jai alai, and all sporting events of relatively short duration in which participants finish in a ranked order. A modified parimutuel system is also used in some lottery games.

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Definition

Parimutuel betting differs from fixed-odds betting in that the final payout is not determined until the pool is closed – in fixed odds betting, the payout is agreed at the time the bet is sold.

Parimutuel gambling is frequently state-regulated, and offered in many places where gambling is otherwise illegal. Parimutuel gambling is often also offered at "off track" facilities, where players may bet on the events without actually being present to observe them in person.

Example of parimutuel betting

Consider a hypothetical event which has 8 possible outcomes, in a country using a decimal currency such as dollars. Each outcome has a certain amount of money wagered:

Thus the total pool of money on the event is \$514.00. Following the start of the event, no more wagers are accepted. The event is decided and the winning outcome is determined to be Outcome 4 with \$55.00 wagered. The payout is now calculated. First the commission or take for the wagering company is deducted from the pool, for example with a commission rate of 14.25% the calculation is: \$514 × (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, expressed as decimal odds, 8).