Parimutuel Accounting Defined

The words pari-mutuel (pari-mutuel) and paramutuel (para-mutuel) are used interchangeably. It comes from the French language ‘parimutual,’ which means mutual betting. It is a type of betting system where all bets of a particular type are placed together in a pool, and then taxes and a house “take” or “vig” are removed. Payoff odds are then calculated by sharing the pool among all placed bets. Usually, this system is used in horse and dog race gambling, or any gambling sporting event of relatively short duration in which participants finish in a ranked order.

Pari-mutuel gambling or off track gambling is frequently state regulated, and offered in so many places where gambling is otherwise illegal – that is why it is doing so well in the World Wide Web. Players can bet on the racing events without actually being present to observe them.

Parimutuel betting is very different from fixed odds betting. With the former, the final payout is not determined until the pool is closed; with the latter, the payout is already pre-agreed at the time the bet is sold.

History

It is said that parimutuel system was invented by the Parisian perfume maker named Joseph Oller in 1865. It happened when a bookmaker friend of his asked him to devise a fair system for bettors or players which guarantees a fixed profit for the bookmaker. The large amount of calculation involved in the parimutuel system eventually led to the invention of the tote board or the totalisator.

The very first totalisator was eventually installed in 1913 at the Ellerslie Racecourse in Auckland, New Zealand. The US first adapted the tote boards in 1933 at the race course in Arlington Park near Chicago, Illinois.

Example of Parimutuel Calculation

The best way to show how parimutuel bets are calculated is by staging a theoretical race. Supposing there is a racing event which has eight possible outcomes, namely:

Outcome 1 = $30.00; outcome 2 = $70.00; outcome 3 = $12.00; outcome 4 = $55.00; outcome 5 = $110.00; outcome 6 = $47.00; outcome 7 = $150.00; and the last outcome would be equals to $40.00. Thereby, the total pool of money for this particular even is $514.00.

Outcomes, by the way, are the “variable” name for the participating, and possibly, the winning horses.

As soon as the racing event starts, wagers will no longer be accepted. This particular event is decided and the winning outcome is determined to be outcome 4 with the $55.00 wager. This is when the payout is actually calculated.

Firstly, the “commission” or “take” or “vig” for the wagering company is automatically deducted from the pool. For example, the state issues a commission rate of 14.25%, whereby $514 minus 0.1424 multiplied by $514 is equals to $440.76.

The remaining amount of money in the pool is then distributed to those who wagered on outcome 4, or to those who bet $55.00 on a ticket. The calculation continues with: outcome 4 is $440.76 divided by $55.00, which would be $8.00 per $1.00 wager. So the pay offs is broadcasted as 8 to 1.

More often than not, betting agencies and bookies, at the close of a racing event will provide approximates for what should be paid out for any given outcome. So if we compute the rest of the outcomes, they will show as:

Outcome 1 = ($30.00) $14.69; outcome 2 = ($70.00) $6.30; outcome 3 = ($12.00) $36.73; outcome 4 = ($55.00) $8.00; outcome 5 = ($110.00) $4.00; outcome 6 = ($47.00) $9.38; outcome 7 = ($150.00) $2.94; outcome 8 = ($40.00) $11.02.

The actual pari-mutuel pool size will often extend into millions of dollars, with many different types of outcomes, and will almost always come with their own set of complex commission calculations.

Jimmy Mayon (MBA, BSEE) is a technologist with an enthusiasm for Horse Racing. During the last 25 years he has been managing banking and online transaction processing technologies for private and public sectors. Today he specializes in open source development using Java, PHP, Linux, and MySQL.

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