From Ralph Clark,
Your Guide to Rodeo.
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A. The word 'rodeo', like most of rodeo's other unique terms, was borrowed from the Spanish cowboys or vaqueros. Rodeo is a form of the verb 'rodear', which means 'to surround' or 'round-up'. The word was used to describe the act of gathering cattle before a cattle drive.

Interestingly enough, 'rodeo' was not used to describe cowboy competitions until sometime around 1916. Before then they were known as 'cowboy competitions' or 'cowboy tournaments'.