Calcutta (gambling)
Encyclopedia
A Calcutta auction is an open auction
held in conjunction with a golf
tournament, horse race or similar contest with multiple entrants. It is popular in backgammon
, the Melbourne Cup
, and college basketball
pools during March Madness
Bidding for each contestant begins in random order, with only one contestant being bid upon at any time. Accordingly, participants (originally in Calcutta, India, from where this technique was first recorded by the Colonial British
) bid among themselves to "buy" each of the contestants, with each contestant being assigned to the highest bidder. The contestant will then pay out to the owner a predetermined proportion of the pool depending on how it performs in the tournament. While variations in payoff schedules exist, in an NCAA Basketball tournament (64 teams, single elimination) the payoffs could resemble the following schedule: 1 win - 0.25%, 2 wins - 2%, 3 wins - 4%, 4 wins - 8%, 5 wins - 16%, tournament winner with 6 wins - 32%.
An interesting element of Calcutta auctions is in determining an appropriate wager for each contestant, as the payoff will directly hinge on the size of the pot and thereby the size of the bids being placed. Thus the value of each team fluctuates during the course of the betting. For example, even if a bidder knew the Tar Heels
would be the tournament winner and thus pay out 32% of the pool, she would still be unsure of the exact value of the team (unless it was the last team being bid on) since the payout depends on the sum total of all winning bids, i.e. the final size of the pool.
There are two important steps in determining how much we are willing to pay for a team in Calcutta-style pools:
1. Determine what % of the total pot we are willing to pay for a contestant.
2. Convert this % into an actual dollar amount.
This process produces a “fair value” of the team. With this information in hand, you can objectively determine which teams are under-valued (i.e. they are bid below fair value) and attempt to purchase them.
This is similar to parimutuel betting
, in that the winnings are awarded from the total pool of bets, but differs in that only one player can bet on any one contestant. However, a player may purchase as many contestants as they desire.
One variation that has grown as the Calcutta Auction is used more in conjunction with March Madness involves bidding on teams in the reverse order of their seeds instead of random order. As bidding evolves, this aids bidders in estimating the final pot size since the heavily favored teams that command the highest bids are auctioned at the end, thereby limiting the risk on the larger bets.
Auction
An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...
held in conjunction with a golf
Golf
Golf is a precision club and ball sport, in which competing players use many types of clubs to hit balls into a series of holes on a golf course using the fewest number of strokes....
tournament, horse race or similar contest with multiple entrants. It is popular in backgammon
Backgammon
Backgammon is one of the oldest board games for two players. The playing pieces are moved according to the roll of dice, and players win by removing all of their pieces from the board. There are many variants of backgammon, most of which share common traits...
, the Melbourne Cup
Melbourne Cup
The Melbourne Cup is Australia's major Thoroughbred horse race. Marketed as "the race that stops a nation", it is a 3,200 metre race for three-year-olds and over. It is the richest "two-mile" handicap in the world, and one of the richest turf races...
, and college basketball
College basketball
College basketball most often refers to the USA basketball competitive governance structure established by the National Collegiate Athletic Association . Basketball in the NCAA is divided into three divisions: Division I, Division II and Division III....
pools during March Madness
NCAA Men's Division I Basketball Championship
The NCAA Men's Division I Basketball Championship is a single-elimination tournament held each spring in the United States, featuring 68 college basketball teams, to determine the national championship in the top tier of college basketball...
Bidding for each contestant begins in random order, with only one contestant being bid upon at any time. Accordingly, participants (originally in Calcutta, India, from where this technique was first recorded by the Colonial British
British Empire
The British Empire comprised the dominions, colonies, protectorates, mandates and other territories ruled or administered by the United Kingdom. It originated with the overseas colonies and trading posts established by England in the late 16th and early 17th centuries. At its height, it was the...
) bid among themselves to "buy" each of the contestants, with each contestant being assigned to the highest bidder. The contestant will then pay out to the owner a predetermined proportion of the pool depending on how it performs in the tournament. While variations in payoff schedules exist, in an NCAA Basketball tournament (64 teams, single elimination) the payoffs could resemble the following schedule: 1 win - 0.25%, 2 wins - 2%, 3 wins - 4%, 4 wins - 8%, 5 wins - 16%, tournament winner with 6 wins - 32%.
An interesting element of Calcutta auctions is in determining an appropriate wager for each contestant, as the payoff will directly hinge on the size of the pot and thereby the size of the bids being placed. Thus the value of each team fluctuates during the course of the betting. For example, even if a bidder knew the Tar Heels
North Carolina Tar Heels men's basketball
The North Carolina Tar Heels men's basketball program is the intercollegiate men's basketball of the University of North Carolina at Chapel Hill, and is considered one of the most successful programs in NCAA history...
would be the tournament winner and thus pay out 32% of the pool, she would still be unsure of the exact value of the team (unless it was the last team being bid on) since the payout depends on the sum total of all winning bids, i.e. the final size of the pool.
There are two important steps in determining how much we are willing to pay for a team in Calcutta-style pools:
1. Determine what % of the total pot we are willing to pay for a contestant.
2. Convert this % into an actual dollar amount.
This process produces a “fair value” of the team. With this information in hand, you can objectively determine which teams are under-valued (i.e. they are bid below fair value) and attempt to purchase them.
This is similar to parimutuel betting
Parimutuel betting
Parimutuel betting is a betting system in which all bets of a particular type are placed together in a pool; taxes and the "house-take" or "vig" is removed, and payoff odds are calculated by sharing the pool among all winning bets...
, in that the winnings are awarded from the total pool of bets, but differs in that only one player can bet on any one contestant. However, a player may purchase as many contestants as they desire.
One variation that has grown as the Calcutta Auction is used more in conjunction with March Madness involves bidding on teams in the reverse order of their seeds instead of random order. As bidding evolves, this aids bidders in estimating the final pot size since the heavily favored teams that command the highest bids are auctioned at the end, thereby limiting the risk on the larger bets.