At the beginning, this bookmaking was conducted entirely by individuals, and there was no regulation at all. This lack of regulation brought with it many problems, and in response a man named M. Pierre Oller invented a machine which was able to conduct a sort of auction pool based on the bets being place.
This automated system was much less prone to cheating than the old system, and it quickly gained favor. During the period of time when Mr. Oller's machine was gaining popularity, many of the largest horse races took place in Paris, and for that reason bettors often referred to the races as "mutuels".
Thus the machine M. Pierre Oller invented came to be known as the Pari-mutuel, and pari-mutuel betting is still an integral part of the sport of horse racing today. The pari-mutuel system can seem quite complicated to those not familiar with it, and it is easiest to understand it by example.
For instance if an individual wishes to bet on a particular race, he or she picks the horse they feel will win the race. After the race is over, the winners will receive a share of the total pot, but that pot is not divided equally. All winners will get back the amount they bet, and the rest of the money is pooled and divided up among the winners in units of $2.
For instance, the individual who bet $2 will get one unit, while the winner who bet $50 will receive 25 units. In the pari-mutuel system, the odds will be determined by the percentage of the overall pool that was bet on each horse. These odds are used to create the payoffs in the event the bettor's horse wins the race.
The pari-mutuel system works so well because the outcome of the race is neutral as far as the track is concerned.
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