Net Pool Pricing (NPP) is here to stay in the U. S.   The United States government eliminated the 30% withholding tax on foreign winning pari-mutuel wagers in October 2004, which removed one of the barriers preventing Canada to commingle with U. S. tracks.  However, one of the CPMA (Canadian Pari-Mutuel Agency) requirements for this to occur is to change the U.S. host track's pricing package from Gross Pool Pricing (GPP), also known as Standard Pool Pricing (SPP), to Net Pool Pricing (NPP). This upgrade to NPP enables U.S. and Canadian tracks to deal with foreign tax rates and currency values.

The Pari-Mutuel method of determining payouts in thoroughbred racing in America was first instituted in Florida in 1931 and quickly became the industry standard until the landmark 2004 decision.  Most states with legalized thoroughbred wagering in the U. S. have already switched to NPP because in doing so they allow Canadian bettors to wager directly into U. S. betting pools, increasing handles overnight.  The same principles will allow bettors from other countries to commingle with U. S. tracks, and the reverse is also true.  U. S. bettors can commingle with Woodbine in Canada, for instance.  The whole idea of Net Pool Pricing can be thought of as a tool for Globalization, like it or not.

Everybody who goes to the OTB and bets Belmont Park or Aqueduct these days has to have noticed the message at the bottom of the monitor that reads "THE NYRA USES NET POOL PRICING."  This message alerts bettors that when they make a bet on tracks within the jurisdiction of the NYRA (New York Racing Association) that their bets are part of a commingled pool and their payouts are computed within  the framework of Net Pool Pricing. 

How the heck does NPP work?  Imagine you are making a bet on a horse online from your computer in a betting jurisdiction where the take-out is legally 14%.  And imagine your cousin is making the same bet on the same horse, but from another betting jurisdiction where the take-out is legally 20%.  The bets by you and your cousin end up in separate wagering pools at the host track, and if the horse (that both of you bet) wins, you and your cousin will receive different payouts.  This is where Net Pool Pricing comes in.  It's a way to guarantee that everybody gets the take-out that their jurisdiction requires by law.

A Nuts and Bolts Example:  Before we get into the details of NPP, let's look at the original industry standard, Gross Pool Pricing. 

You get a hot tip on #3 in the feature and lay down $100 on his nose.  The track take-out is 17% for Win, Place, and Show wagers and and Gross Pool Pricing (GPP) is still used.

Here is the one and only Win pool, showing how much money is bet to win on each horse in the race, where a take-out of 17% will be applied to every dollar wagered.

It looks like #3 is getting a lot of action.  Let's see what he pays to win.

In Gross Pool Pricing, we follow a step-by-step procedure.

1.  Total Take-Out =  Total Win Pool  X Take-Out Percent
                              =  $100,000 X .17
                              =  $17,000

2.  Total To Be Returned To Holders Of Winning Tickets  = 
     Total Win Pool - Total Take-Out  =  $100,000 - $17,000 = $83,000    

Running A Business:  $83,000 will be distributed to the holders of  winning tickets.  Why not the whole $100,000?  Because the track would go broke in a couple of weeks if it returned all of the money that was wagered on a race.  The $17,000 take-out helps to pay for purses, operating expenses like air conditioning, water and power, employee salaries and benefits, and federal, state, and municipal excise taxes.  So how is the remaining  $83,000 distributed?  Let's return to our example.

3.  The Return On Each $1 Wagered On The Winner =
     Total To Be Returned To Holders Of Winning Tickets / Total Wagered On Winning Horse

Money Wagered On the Winner:  You bet on the winner, #3, so we insert the $40,000 bet on #3 from the Win Pool.

The Return On Each $1 Wagered On The Winner =
     Total To Be Returned To Holders Of Winning Tickets / Total Wagered On Winning Horse =
     $83,000 / $40,000 = $2.07 (rounded down)

4.  Take Out the "Breakage."  Tracks usually pay out on the dime (New York pays out on the nickel).  So you won't get $2.07 for a $1 bet, but instead you will get $2.00 for a $1 bet.  That other 7 cents on the dollar is called the breakage.  The breakage is quietly pocketed by the track.  If you think it's a rip-off, you're right, particularly in the modern computer age when race tracks could easily pay the true odds right into their customers' online accounts.  Breakage is supposed to be a matter of convenience, so the track is not forced to deal in pennies or nickels.  But in the virtual world, who cares about pennies and nickels? 

5.  Compute the Payout on a $2 Win Bet.  Since the winning payout for a $1 win bet is $2 (your hot tip on #3 paid even money), we just double the figure to get the payout on a $2 win bet on #3, and we get $4.  But remember, you put a hundred on the winner's (#3) nose, so you get $200 back for your $100 bet.  That's even money.  By the way, do you know how much the breakage cost you?  Instead of getting $207 back, you got $200, so it cost you $7.  So instead of making a 107% return on your investment, you made a 100% return. 

If you are mathematically inclined, feel free to follow the above steps for horse #1.  This will yield the payout on a $2 win bet on #1 (should he win instead of #3).  The answer is $16.60.  And, when you perform the computation, you will discover there is no breakage in this particular example.  This wraps up our look at Gross Pool Pricing. 

But it's Net Pool Pricing that we want to know about, so let's set up another example.

A Little More Complicated:  Remember, in Net Pool Pricing more than one Win Pool is going to be commingled (combined).  Each Win Pool has its own Take-Out Percentage, so our Net Pool Pricing example is going to have more steps than our simpler Gross Pool Pricing example did.

Let's use the hypothetical wagers we described at the very beginning of this article.  Imagine you are making a bet on a horse online from your computer in a betting jurisdiction where the take-out is legally 14%.  And imagine your cousin is making the same bet on the same horse, but from another betting jurisdiction where the take-out is legally 20%.  Both of the bets by you and your cousin end up in the same wagering pool, but if the horse (that both of you bet) wins you and your cousin will receive different payouts.  This is where Net Pool Pricing comes in.

There are two Win pools in our example.  Pool A has a 14% take-out and Pool B has a 20% take-out. 

Here is Pool A:

Here is Pool B:

Notice that if we add the money bet in Pool A to the money bet in Pool B we get the same Win Pool as our Gross Pool Pricing example:

This is no accident.  We set up the example this way in order to make a point. This example will illustrate how Net Pool Pricing can alter the winning payoff even if the total dollars bet on a horse does not change. 

For those of you who want to see the payoffs without going through all the steps, click here.  For you serious students of the game, read on.

In Net Pool Pricing, we follow a step-by-step procedure.

1.  Total Take-Out Pool A =  Total Win Pool A  X Take-Out Percent
                                          =  $54,200 X .14
                                          =  $7,588

    Total Take-Out Pool B =  Total Win Pool B  X Take-Out Percent
                                          =  $45,800 X .20
                                          =  $9,160

2.  Total Net Pool A  =  Total Win Pool A - Total Take-Out Pool A
                                  =  $54,200 - $7,588 = $46,612    

    Total Net Pool B  =  Total Win Pool B - Total Take-Out Pool B
                                  =  $45,800 - $9,160 = $36,640

3.  Total Net Pool  =  Total Net Pool A + Total Net Pool B
                              =  $46,612 + $36,640 = $83,252

4.    Net Winnings Pool A = Total Winnings Pool A X Net Factor Pool A
                                        =  $22,000 X 0.86
                                        =  $18,920

The Total Winnings Pool A is the money bet on the winning horse in Pool A:

The Net Factor Pool A = 1.00 - .14 = 0.86, where .14 represents the 14% take-out for Pool A.         

5.    Net Winnings Pool B = Total Winnings Pool B X Net Factor Pool B
                                        =  $18,000 X 0.80
                                        =  $14,400

The Total Winnings Pool B is the money bet on the winning horse in Pool B:

The Net Factor Pool B = 1.00 - .20 = 0.80, where .20 represents the 20% take-out for Pool B.         

6.    Total Net Winnings = Total Net Winnings Pool A + Total Net Winnings Pool B
                                        =  $18,920 + $14,400
                                        =  $33,320

7.    Now that we have Total Net Pool  and Total Net Winnings, we are ready to compute a Net Payout.  First we need the Calculating Pool, which is the net dollars that are returned to holders of winning tickets.

          Calculating Pool = Total Net Pool - Total Net Winnings
                                    =  $83,252 - $33,320
                                    =  $49,932

8.    Unadjusted Net Payout For $1 Wager = Calculating Pool / Total Net Winnings
                                                =  $49,932 / $33,320
                                                =  $1.499

9.    Adjusted Net Payout For $1 Wager = Unadjusted Net Payout For $1 Wager + $1.00
                                                =  $1.499 + $1.00
                                                =  $2.499

10.    Final Payout For $1 Wager Pool A
         = Adjusted Net Payout For $1 Wager X Net Factor Pool A
         =  $2.499 X 0.86
         =  $2.149
      
Since the track keeps the breakage, the actual Final Payout is $2.10 for $1, which is $4.20 for a $2 win bet on #3.

11.    Final Payout For $1 Wager Pool B
         = Adjusted Net Payout For $1 Wager X Net Factor Pool B
         =  $2.499 X 0.80
         =  $1.999
      
Since the track keeps the breakage, the actual Final Payout is $1.90 for $1, which is $3.80 for a $2 win bet on #3.

So there you have it.  Three identical bets and three different payouts:

Remember, you made your bet (in Pool A) with a 14% take-out, and your cousin made his bet (in Pool B) with a 20% take-out, so you would expect to get a better payout than your cousin and you do.  $4.20 is better than $3.80 for the same bet any day.

If we did the calculations for a $2 win on the #1 horse , and if  #1 wins here are the resulting payoffs:

Final Thoughts:  Now if we really wanted to have a headache, we'd look at the calculations that determine the effect of Net Pool Pricing (NPP) on place and show bets.  Generally, NPP effects place and show bets the same as win bets.  There is one dramatic exception.  We know from experience that with Gross Pool Pricing (GPP), when a heavily bet favorite finishes in the money, the place and show prices of the other two in-the-money finishers are often reduced to $2.10 as a direct result.  With NPP, the place and show prices of the two in-the-money finishers other than the favorite are often much more generous.  This is due to the fact that NPP calculates the payout for each horse independently, unlike GPP.

When you make a bet, it helps to know the track take-out.  And in the brave new world of Net Pool Pricing, the same wager made in different racing jurisdictions is often subject to a different track take-out.  Caveat Emptor, " Let The Buyer Beware . . . "

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