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A Calcutta auction is an open auction held in conjunction with a golf tournament, [1] horse race or similar contest with multiple entrants. It is popular in backgammon, the Melbourne Cup and college basketball pools during March Madness. [2] A Calcutta auction is a sequential auction in which the bidding for each contestant begins in random order, with bids placed on only one contestant at any time. [3] Accordingly, participants (originally in Calcutta, India, from where the technique was first recorded by the colonial British) bid among themselves to "buy" each of the contestants, with each contestant assigned to the highest bidder. The contestant will then pay to the owner a predetermined proportion of the pool depending on how it performs in the tournament.
While variations in payoff schedules exist, in the NCAA basketball tournament (64 teams, single elimination, maximum six wins) the payoffs could be:
| Wins | Payout |
|---|---|
| 1 | 0.25% |
| 2 | 2% |
| 3 | 4% |
| 4 | 8% |
| 5 | 16% |
| 6 | 32% |
The precise rules of a Calcutta can vary from place to place; many tournament organizers employ software programs that apply odds and determine win-place-show amounts. Among the simplest and most common Calcutta payouts is one in which 70% of the pool is awarded to the holder of the winning player or team and 30% to the holder of the second-place player or team.
An important component of Calcutta auctions is the determination of 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. The value of each team fluctuates during the course of the betting. Even if a bidder knows which player or team will win the tournament, he would still be unsure of the exact value of the team (unless it was the last to receive bids), as the payout depends on the total of all winning bids.
Calcutta auctions are similar to parimutuel betting in that the winnings are awarded from the total pool of bets, but differ in that only one player can bet on any one contestant. However, a player may purchase as many contestants as he desires.
Another typical variation in March Madness Calcutta auctions is the bundling and auctioning of the lowest-seeded teams in each region as a block. For example, the 16th to 13th seeded teams from a region would be bundled, and the winning bidder would own all four teams, recouping his investment if at least one of the four teams wins. Another variation involves auctioning teams in the reverse order of their seeds instead of by random order. As bidding proceeds, bidders may estimate the final pot size as the heavily favored teams that command the highest bids are auctioned at the end, thereby limiting the risk on the larger bets.
A Calcutta golf tournament is a major plot point of the 1967 film Banning.