The Pari-Mutuel System

Pari-mutuel wagering is a purely mathematical betting system whereby the bets themselves create and change the odds as they are tallied. This means that every dollar wagered affects the final payout on the given proposition. All bets are accumulated in a ‘pool’ of money that is subjected to taxes, track fees, and expenses and is then distributed among those who hold winning tickets according to the amount they bet. The calculation is relatively simple.

This example shows what the winning payouts would be if the total handle on the race were $615 and this was the winner. Three bettors hold winning tickets in the amounts of $2, $10, and $18, making a total of $30 wagered on this entry. With this information it is easy to figure the odds: simply divide the amount bet on the entry by the total handle for the event. In this case the odds are 20.5 to 1. As well, to figure individual pari-mutuel payouts just divide the ticket amount by the total amount wagered on the winning entry and then multiple the result by the total handle for the race. The first bet in the example for $2 is divided by $30 and then multiplied by $615 to determine the payout of $41 (stake included).

It is important to keep in mind that this formula is not exactly how horse races pay out. This formula is only valid for a pure pari-mutuel with no minimum bet limit, that pays to the penny (rather than rounded increments, called breakage), and has no fees (take). Figuring in the take is only one additional step: subtract the correct percentage from the end result, although this number will still be different from actual track results because totalisator machines have breakage and a $2 minimum bet. These basics of pure pari-mutuel are more than enough to understand how the bettors, not the oddsmakers, set the odds in pari-mutuel wagering.