Calcutta auction

A Calcutta auction is an open auction held in conjunction with a golf tournament, [ [http://golf.about.com/od/golfterms/g/bldef_calcutta.htm Golf.about.com: Calcutta] ] horse race or similar contest with multiple entrants. It is popular in backgammon and NCAA 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.

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.

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