Pari mutuel, as you may guess from the terminology, is a French term. It means mutual betting. Pari mutuel is a system whereby bets are taken for an event or game, and those bets are placed in a pool or pot. If taxes are due on those bets, those are removed from the total amount wagered. The house – for example, a casino – will then take its slice of the monies wagered.
The outcome of the event or game is then determined. The remaining amount left in the pool or pot is then distributed equally among all those who were correct with their bet. Say, for example, several people place bets on the outcome of a spin on the roulette wheel. All the bets are taken, the taxes are deducted, and the casino takes its cut of the bets. The roulette wheel is spun to determine where the ball will land.
Now, say the total amount left after taxes and the casino’s cut is $1,200. That much remains in the pot. Two people out of all those who made wagers guessed that the ball would land on number 5. If that is the outcome, those two people will share the pot – i.e. they would receive $600 each. That’s how a pari mutuel basis betting scenario works.