Pari-MutuelPosted: July 25, 2022
Saratoga and Del Mar seasons are underway, a worthy time to consider pari-mutuel wagering.
While some might think that pari-mutuel wagering has been around ever since organized horse racing started, this is hardly the case. There is a clear history to pari-mutuel wagering, and there is one actual and acknowledged inventor in Joseph Oller. The invention of pari-mutuels was not even Oller’s major contribution to cultural history. He was probably better known as the founder and manager of Moulin Rouge, probably the most famous nightclub of all time.
The pari-mutuel story dates from Paris in 1862. Oller pioneered a sweepstakes game based on horse racing results. This was a system based on total chance. The bettor paid for a chance and was randomly assigned a horse on a given race.
This was however illegal in France. Betting wasn’t illegal, but lotteries were. So:
In place of the system under which the bettors were assigned their designated horse by pure chance, Oller devised a system under which the bettors selected the horses themselves. “By this scheme each investor selected the horse he desired to bet on, and if his favorite proved successful, he became entitled to all the money in the pool, less the commission exacted by Mr. Oller.
Meanwhile, in the US:
Before 1870, the main form of wagering at the American tracks – which were reopening after the Civil War – was the auction pool, also known as the Calcutta pool. Under this system, bettors bid on the right to choose horses in a race. The highest bidder got to pick the horse of his choice, usually the favorite.
In time, an engineer named Harry Straus devised a machine that would issue a printed ticket, and update bettors on the odds.
Straus developed the totalizer – a system of rotary switches and relays based on the principles of automatic dial telephone.
Straus founded a company, American Totalisator, which is now owned by Stronach Group, which owns Santa Anita, Pimlico, Gulfstream, and few other racetracks.
All that from an illuminating article, “Pari-Mutuels: What Do They Mean and What is at Stake in the 21st Century?” by Bennett Liebman in Marquette Sports Law Review, Vol. 27 Issue 1, Fall 2016.
It’s illuminating to know that bettors were once assigned a horse at random. Liebman’s writing on the legal meanings of “pari mutuel” is thrilling intellectual history.
Many state constitutions exempt or have unusual rules for different kinds of wagering like lotteries and “pari mutuel betting.” Struggles over the definitions have meaningful consequences.
Take the case of “historical racing machines.” These are pretty much just slot machines but technically (maybe) their outcomes are generated on the results of horse races, and the betting is arguably “pari mutuel.” Liebman’s article offers good examples of the law being whatever convinces the judge.
Choosing a horse at random may not be a terrible method, especially given that the pari mutuel market as a whole tends to be pretty sharp. Many a study has looked for inefficiencies, and though they exist, I do not know of a study that’s found an enduring profitable angle. Bill Benter’s work took advantage of inefficiencies in Hong Kong racing, combined with sophisticated modeling developed over painful trial and error. Dr. Z might be onto something but who wants to do all that math?
Horse handicapping is more art than science. I’ve found Brad Free’s book to be the most readable and clear-eyed. Steven Crist (whose own memoir Betting On Myself is fantastic) recommends Davidowitz, which is indeed full of insight. My copy of James Quinn’s Complete Handicapper is thoroughly marked up. Tom Ainslie writes with a style that makes the whole game seem amusing, for example his choice use of the word “animal”:
These books I bought at the Gambler’s Book Shop in Las Vegas all brought me some delight and in a limited way insight.
Andy Beyer’s books are all quite fun. Even the heroes of the great 1970s era of horse race betting, when Beyer discovered his E=mc^2 (“six furlongs in 1:13 equals seven furlongs in 1:26 and a fifth”) tell that it’s near impossible to make money these days. Certain trainer patterns can be exploited from time to time. The dominance of Bob Baffert in southern California can’t be ignored as an example.
Remember that the takeout is sometimes as high as 25%, even higher once you factor in rebates given to high rollers. Something like 40% of the money in competition might be from syndicates working with advanced computer modeling. And note, in the case of the Stronach Group, the track owners are themselves invested in one of the syndicates! Should be illegal but isn’t.
Liebman quotes the UK’s Chief Justice Cockburn, making a ruling in 1871:
experience shews that there is nothing about which there is so much uncertainty as the event of a horse race.
But when that rainbow shines over the racetrack, and you’ve got the Form open, and you think Forbidden Kingdom might be for real? Nothing better.