Parimutuel Betting - What is Parimutuel Betting & How It Works

Parimutuel betting is one of those terms everyone seems to have heard of but very few people understand. Also known as tote betting in the UK, parimtuel betting is synonymous with wagering on greyhound and horse racing.

In simple terms, parimutuel betting describes a pool wagering system. Payouts are determined by the amount of money staked on each potential outcome. But how exactly does parimutuel betting work? What are the pros and cons of this system?

What is Parimutuel Betting?

When engaging in parimutel betting, all wagers on a particular race or event are collected together in a pool. This means that you’ll be wagering directly against fellow bettors within the pool, rather than having a traditional ‘back’ bet laid by sportsbooks at fixed odds (which is how sports betting usually works).

As you won’t be wagering at fixed odds, you won’t know your wager’s final price or return. This is one of the most intriguing aspects of parimutuel betting. The eventual payout you receive could range anywhere from less than your original stake to an astronomical return.

Once all bets have been placed, taxes and the sportsbook’s commission (or vigorish) are deducted from the total. Subsequently, the final odds and payouts are determined by dividing the total value of the pool by the amount staked on each individual horse, and we’ll explore this in a little more detail below.

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How Does Parimutuel Betting Work?

As parimutuel odds aren’t fixed, you’ll have no idea about your potential payout until the event has finished. But how exactly are dividends worked out and how do sportsbooks arrive at the eventual odds?

Let’s say that you bet on a popular horse race, such as the Kentucky Derby. In this case, a parimutuel pool collates a total of $100,000 across the five favorite runners, while the total stake on each horse to win equates to $20,000. In this example, the pool is completely even and creates an equal payout.

Payouts are subsequently calculated by dividing the total value of the pool but the amount wagered on each runner (or outcome). In this case, we’ll divide $100,000 by $20,000, creating an odds value of 5.00 (or +400 when using the American format) that’s applied to each horse.

This means you’ll bank a return of $5.00 for every $1 wagered successfully, inclusive of your stake amount. So, if you wager $100 on the winning runner, you’ll receive $500 in total and $400 in pure profit. As usual, you won’t receive any kind of payout if you pick the wrong horse.

In the above example, we’ve assumed that all the money collated by a sportsbook would be payable to winning bettors. In the real world, however, an online sportsbook would apply a 10% – 15% vigorish or commission on the total take, with the remaining pooled funds being distributed among winners.

How are Parimutuel Odds Calculated?

Not seeing the odds before an event starts means that parimutuel betting is not for the faint-hearted. But the practice provides a clear deviation point from fixed odds wagering. If you see betting lines ahead of an event, these provide a basic guide price based on expected wagering volumes.

When you place a fixed odds bet, you’ll be able to analyze the odds and calculate the implied probability of outcomes. This can help to inform your stake and estimate your return. But, you’re afforded no such advantages when engaging in parimutuel betting.

Remember, there are two primary factors that help sportsbooks to calculate parimutuel odds. These include:

The total amount of money staked within the pool
The total amount of money staked on each potential outcome

Now, let’s look at how odds are calculated using the practical example of the 2024 Kentucky Derby. Let’s say that $100,000 is wagered on the win market in this race, with the sportsbook in question applying a 10% vigorish to leave a total pool of $90,000. All bets are placed on the five ante post favorites to win as follows, minus the deducted juice and taxes.

Sierra Leone – $50,000
Forever Young – $15,000
Timberlake – $10,000
Track Phantom – $10,000
Fierceness – $5,000

Knowing the cumulative size of the pool and the amount staked on each runner, we simply need to divide these numbers to create odds and potential payouts. These calculations will yield the following results:

Sierra Leone – $90,000 / $50,000 = 1.80 (-125)
Forever Young – $90,000 / $15,000 = 6.00 (+500)
Timberlake – $90,000 / $10,000 = 9.00 (+800)
Track Phantom – $90,000 / $10,000 = 9.00 (+800)
Fierceness – $90,000 / $5,000 = 18.00 (+1700)

Based on betting volumes, Sierra Leone would be the short price favorite ahead of the race. The starting odds will also be -125, so you’ll need to wager $125 to bank a profit of $100. Effectively, you’ll recoup $1.80 for every $1 wagered successfully, so only a significant stake would unlock a sizable parimutuel return.

Conversely, wagering $100 successfully on the least popular runner (Fierceness) would return an impressive $1,700. So, you’ll bank approximately $18.00 for every $1 staked. Congratulations! You’re creating a big payout in the unlikely event of your runner prevailing.

The History of Parimutuel Betting

The history of parimutuel betting can be traced back to France in 1870. Local entrepreneur Pierre Oller introduced a new and collaborative method of wagering that changed everything. The world’s first parimutuel betting systems were launched at French racetracks in 1891 before crossing over the Atlantic to the US towards the end of the 19th century. New York state then legalized parimutuel betting in 1913.

In the 1920s, a device called the ‘totalizator’ was designed to help issue and record parimutuel bet slips in New Zealand. This helped to encourage a broader array of exotic parimutuel bets to be placed, including daily doubles, exactas and quinellas (but we’ll discuss these in more detail below).

By 1940, the ‘Parimutuel Revenue Law’ was enacted in NYC, while the State Racing Commission was subsequently empowered to license parimutuel betting on horse races. This created a template for other jurisdictions to follow, with a number of US states having made parimutuel betting a key feature of their online offerings.

Types of Parimutuel Bets

As we’ve touched on, Parimutuel betting has grown in popularity over the years, introducing a growing number of exotic bets since the development of mechanical and computerized machines. Here’s a summary of the most popular parimutuel bets and wager types.

Win Bets – Win bets are the most popular type of parimutuel wager, as they enable you to back the winner of a particular race or event. This type of bet can unlock variable returns depending on the size of your pool and the amount staked on each runner.
Place Bets – With a place bet, you’ll wager on a runner or participant to finish within a certain number of places. In horse racing, this will usually include the top two, three, or four places, depending on the number of runners. You can also engage in each-way parimutuel wagering, which sees you split your stake amount between win and place bets and potentially receive a payout that’s around a quarter of the final odds.
Show Wagers – The show betting market is also synonymous with horse racing, and requires you to back a runner to finish either first, second or third. You’ll receive a similar payout regardless of where your pick finishes within these places.
Across the Board – This complex wager type features three bet types: namely win, place and show. If your pick wins, you’ll claim all three payouts from the relevant pools in the classic parimutuel system. If your selection places second it will win the show and place wagers, while a third place finish will trigger a share of the show bet payout.
Exacta Bets – Exacta bets carry increased complexity and risk, as you’ll have to select two runners that will finish first and second in a single race. Interestingly, you’ll also have to predict the correct order that they finish, otherwise you won’t be able to claim any kind of return.
Quinella Bets – These wagers are similar to an exacta bet, but while you’ll still pick two runners to finish first and second, there’s no requirement to get the order exactly right. This equates to a single wager with two potentially different payouts, while a winning quinella can actually pay more than an exacta in a parimutuel system (depending on your picks).
Trifecta Bets – As the name suggests, this parimutuel bet asks you to pick three horses that will place first, second and third in a single race. You’ll also have to predict the exact order in which they finish, while it’s one of the most difficult bets to place successfully either on or offline.
Superfecta Bets – We’ll close with the most complex and difficult wager type, as a superfecta bet requires you to correctly predict the identity of the first, second, third and fourth finishers in a race. Once again, you’ll have to correctly predict the order in which they’ll finish, which is a considerably difficult task.

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Pros & Cons of Parimutuel Betting

While we’ve described the functionality of the parimutuel betting system and how parimutuel payouts are structured, you may still be unsure as to whether this type of wagering is right for you. So, we’ve prepared some detailed pros and cons of this practice to help you make an informed decision!

Pros:

Access longer prices when compared to fixed odds (especially when backing outside picks)
Benefit from enhanced betting lines as you’re not placing a traditional ‘back’ wager or competing directly against sportsbooks
Suits experienced high rollers who are able to wager higher stakes in pursuit of sizeable returns

Cons:

The vigorish applied by operators and sportsbooks can sometimes exceed 15% and is often higher when compared with fixed odds wagering
You won’t be able to compare odds or use this data to inform your selections with parimutuel betting, making it hard to create value with specific bet types too

Parimutuel Betting Strategy

If you’re going to make a successful fist of parimutuel betting, you’ll need to get strategic and embrace different techniques that may improve your chances of winning. So, here are some tips to help you create a parimutuel betting strategy.

Target Bookies with Minimal Commission Fees: To begin with, let’s target one of the potential cons associated with parimutuel betting. More specifically, it’s not unknown for sportsbooks to apply a vigorish of between 10% and 30% when establishing parimutuel pools. You can immediately boost your potential returns and odds by targeting brands that offer a lower rate of commission.
Use Fixed Odds Betting Markets to Inform Your Selections: While you won’t be able to view the odds before the start of a parimutuel betting event, you can still use fixed odds sites to gauge value and calculate the implied probability of each runner winning. This means that you can tailor your selections to suit the size of your bankroll and appetite for risk, while relying on informative datasets. In general terms, prioritizing short-price favorites may unlock slightly higher value than you would find at fixed-odds sportsbooks.
Focus on Win, Show and Place Wagers: If you’re familiar with fixed odds betting but new to parimutuel systems, it’s important to simplify your strategy and use exotic wager types sparingly. Instead, prioritize win, show, and place wagers where possible, which can contribute to a balanced approach that helps optimize returns and minimize your risk of loss. Inform your selections based on factors such as form and fixed odds market analysis. Remember that win bets deliver bigger payouts and show or place wagers increase your chances of securing a return.

Parimutuel Betting by Sport

Another key aspect of your parimutuel betting strategy will be the sport that you intend to wager on. While this type of betting is synonymous with horse and greyhound racing, it can also be used when wagering on golf. Here’s a breakdown of how it works in relation to different sports.

Horse Racing

Parimutuel betting is legal in 43 US states in one form or another, while it’s most commonly used to wager on horse racing. In fact, most US-based sportsbooks feature dedicated racebook verticals, which often prioritize parimutuel betting and structures over fixed-odds markets.

Pools will be established in relation to specific events, with so-called “morning lines” published by operators. These lines share typical racecard information and an estimated guide price for each runner. Key and familiar datasets here will include the trainer and jockey combination (as some pairs perform better at specific tracks), recent form and any weight that will be carried by a runner in a handicap race.

You can then compare the fixed odds market for the event using comparison sites such as Oddschecker, before completing your analysis and picking your preferred runners and wagers. You’ll then place your bets and commit your stake money to the pool, contributing to a total amount that will dictate your final odds and payout.

Obviously, odds are continually being calculated as bettors place their wagers. Unlike with fixed odds betting, you won’t see this fluctuation or gauge the volume of bets. Instead, you’ll have to wait for the event to start for this information to be published.

Golf

While parimutuel betting is nowhere near as popular or widespread in the sport of golf, its structure lends itself to the discipline and major tournaments such as the Masters and US Open.

For example, up to 160 players often compete in majors of this type and pro events on the PGA Tour, creating ample opportunities for parimutuel betting and far more flexibility in terms of how odds are priced.

But what are the precise benefits of engaging in parimutuel betting in the sport of golf? Well, wagers can be spread across a large number of outcomes and potential winners. This creates a relatively even market that unlocks competitive odds (especially when backing betting underdogs).

Sure, this can also create volatility and mean that final odds (and payouts) can vary wildly within a short period of time. But, once again, fixed odds markets can help you to make informed player selections. Acessing win and place wagers can help you optimize your chances of winning in the process.

Final Thoughts on Parimutuel Betting

So, there you have it: our comprehensive guide to parimutuel betting in the US. This is one of the oldest and most popular betting systems in the world. It remains synonymous with horse racing and unlocks a huge range of wager types.

It’s also relatively easy to understand. Odds and payouts are calculated simply by dividing the total amount staked in a pool by the amount bet on each outcome. There are even some strategies to help you get the most out of parimutuel betting. Such strategies include the analysis of fixed odds markets!

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Responsible Betting

However you choose to engage in parimutuel betting, you’ll need to ensure that you wager responsibly at all times. Remember, there’s no form of wagering that isn’t risky, and parimutuel betting is no exception.

The first step to responsible betting is setting a conservative bankroll. Your bankroll should consist of an amount of money that you can comfortably afford to lose. This should ideally cover a specific period of time, event or race meeting. You can also use customizable deposit limits to help manage your bankroll’s deployment.

Of course, you may still struggle with your betting activity on occasions, or find yourself wagering outside of your means. In this instance, we recommend that you reach out to the National Problem Gambling Helpline. Help is available through their website or by calling 1-800-GAMBLER.

This will provide you with practical support and help you to curtail any compulsive behavior before it becomes too problematic.