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An analysis of exotic wagers in a parimutuel setting

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In US horse racing, there is increasing emphasis placed on the creation of exotic wagers - those bets beyond the standard win, place and show. Bets on multiple races that typically do not result in a winner for several days are of particular interest to the industry. The growing carryover pool helps attract people to the racetrack in a way similar to a growing carryover in the lottery attracts more people to participate. This article examines several multiple race bets and provides a framework for their comparative analysis. The results of the analysis will help racetrack management decide if a proposed bet is appropriate for their particular track. This analysis shows a tradeoff between the difficulty of winning the bet versus the amount of the ultimate payoff. If a bet is too easy to win, then the carryover pool will never reach an attractive level. If the bet is too difficult to win, then the bettors will lose interest before the carryover pool is able to grow sufficiently large. The amount of money wagered daily is an important consideration in determining the appropriate type of exotic wager to implement.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840210140137

Affiliations: 1: Information and Operations Management, Mays College of Business, Texas A&M University, College Station, TX 77843-4217, USA 2: School of Management, Arizona State University West, Post Office Box 37199, Phoenix, AZ 85069-7100, USA

Publication date: January 1, 2003

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