Pari-mutuel betting is a betting system in which all bets of particular outcomes are placed together in a pool; house rake is removed, and payoff odds are calculated by sharing the pool among all winning bets in proportion to the amount wagered. This system is often used in gambling on sporting events of relatively short duration in which participants finish in a ranked order. It can also be used for bets with one winning outcome among many potential outcomes such as the winner of a golf tournament or a classic yes/no bet such as “Will the Toronto Maple Leafs make the playoffs?” Pari-mutuel betting differs from fixed odd 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 made. Pari-mutuel betting is unique in that gamblers are betting against other gamblers and not the house.
Consider a hypothetical event, which has eight possible outcomes. Each outcome has a certain amount of money wagered:
Thus, the total pool of money on the event is $1028.00. 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 $110.00 wagered. The payout is now calculated. First the commission for the wagering company is deducted from the pool; for example, with CoinRoster’s house rake of 5% the calculation is: $1028 × 0.05 = $51.40. This leaves a remaining amount of $976.60 in the pool. This remaining amount in the pool is now distributed to those who wagered on the winning outcome Outcome 4: $976.60 / $110.00 = 8.87 ≈ $8.87 per $1 wagered. This payout includes the $1 wagered plus an additional $7.87 profit. Thus, the odds on Outcome 4 are 7.87-to-1. Prior to the event, betting agencies will often provide approximates for what will be paid out for a given outcome should no more bets be accepted at the current time.