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How the poker economy works

scotty77scotty77 Member Posts: 4,970
edited October 2010 in Poker Chat
Just saw this pretty simplified article....courtesy of anksypoker.com  thought that some might find it interesting



Here’s my simplified model of how the poker economy works:

  • The bucket represents the poker room.
  • There are two holes on the bottom.  One hole is the rake and the hole is withdrawals.
  • There’s also a faucet that brings new water into the bucket. That water represents new deposits.

The poker room needs to keep the water level in the bucket stable or rising.  A decreasing water level will eventually spell disaster.

Before we proceed, I want to point a few weaknesses of this model.

  1. The poker economy is actually LOCALIZED.  That means that $100NL could be a very healthy game, but $200NL could be on the verge of collapsing.
  2. This model doesn’t really factor in bankroll management.  A fish that deposits $10,000 and plays $5/$10 NL is one thing.  A fish that deposits $10,000 and plays $0.01/$0.02 is another.  Same kind of thing for withdrawals.  It’s one thing to withdraw your entire roll and stop playing poker, it’s another to be playing $50NL with a $10,000 roll and withdraw $1k.

Let’s consider some scenarios:

Scenario 1
The poker economy is booming. The water is flowing into the bucket faster than it’s leaking out of the holes. The right step for poker rooms is try to open up the rake hole.  They’re leaving money on the table if they don’t.  To open up the rake hole, they can increase the rake structure or they can try to attract players that play a TON of hands.  Back when poker was booming, the poker rooms did just that.  They started to let players play 16 tables at once, gave VIP rewards based on the number of hands played, etc. Many poker rooms probably understand we’re not in this phase anymore, but they’re not adjusting that well.

Scenario 2
The poker economy is declining. The water is flowing out of the bucket faster than it’s flowing out. The right step for poker rooms is to try to increase the flow of water OR decrease the flow of water out of the holes. You can increase the flow of water by marketing, deposit bonuses, etc.   You can decrease the water flowing out of the withdrawal hole by  VIP rewards and limiting withdrawals.  Why are poker rooms not encouraging a guy playing $5/$10 with a $10k bankroll to keep his bankroll on the site? You can also plug up the rake hole.  I know, raising or lowering “prices” is generally a rubbish way to compete against other poker rooms.  But that’s NOT the point of lowering the rake.  You lower the rake to maintain the health of YOUR poker room.  It’s similar to what the U.S. Federal Reserve System does when it lowers the interest rate during a recession.

Scenario 3
The poker economy is stable. The water is flowing into the bucket as fast as it’s flowing out. Poker rooms can try to grow the economy the same way described in Scenario 2.

Now, it’s pretty obvious that Scenario 1 is great for poker players, Scenario 3 is OK, and Scenario 2 is disastrous. If I were to guess the state of the poker economy, I’d guess we were in Scenario 2.   So why don’t I see any incentives to limit withdrawals? Why don’t I see more deposit bonuses? Why are poker rooms not lowering rake?  Are poker rooms too focused on new customer acquisition when they can take easy, immediate steps to better the poker economy?

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Comments

  • Rubes375Rubes375 Member Posts: 61
    edited October 2010
    Nice article, interesting stuff, seen a few threads like this on 2+2 

    I play another well known site primarily. They have rake back and great bonus deals which keeps me on there with my main roll.

    Is sky looking into any decent bonus or reward systems?
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  • pr1nnyraidpr1nnyraid Member Posts: 495
    edited October 2010
    yep poker is in a scary place, low traffic, soon it will be like a baron desert wasteland with any dead money scarce. i can picture the tumbleweeds in the wind as scotty77 scavenges round for meat like a hiyina..

    make the most of now,
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  • Tikay10Tikay10 Member, Administrator, Moderator Posts: 169,987
    edited October 2010

    Fascinating article, Ryan.

    You may be aware that until earlier this year, I owned 25% of an Online Room, which was on the i-Poker network. They had their own way of addressing this - they "discourage" winning players.

    We had (in poker terms) a very mature & sophisticated Client Book, with some awesomely good players, including several WSOP Bracelet Winners, GUKPT winners, EPT Winners, & huge Online winners like James Dempsey (who owned most of the rest of the Site) Chris Moorman, etc.

    When I say "discourage" winning players, they took it to extremes. Because our book of players consistently won, they froze the Accounts of the biggest winners, (they could not even withdraw their balances until we paid a fine which equalled 30% of their "excess" winnings!) and the next month, they closed us down completely. Just like that. So we wrote to all of our Clients, & told them to withdraw their Funds, as we had been forced to close. So they all withdrew, & we got charged a fee for every withdrawal. Really, you cannot make this stuff up.

    Some of those sites & networks out there are nothing short of scandalous as to their financial  integrity.

    Poker players being what they are, they keep the blinkers on, & chase bigger & better rakeback from more & more oddball rooms. If they did but know.

    Sky Poker is far from perfect, but Customer Feedback tell us that a big part of our player loyalty is because players feel we can be trusted.

    I would not trust more than a handful of Online Rooms, worldwide.
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  • Tikay10Tikay10 Member, Administrator, Moderator Posts: 169,987
    edited October 2010
    In Response to Re: How the poker economy works:
    yep poker is in a scary place, low traffic, soon it will be like a baron desert wasteland with any dead money scarce. i can picture the tumbleweeds in the wind as scotty77 scavenges round for meat like a hiyina.. make the most of now,
    Posted by hotpotato
    Not here.

    Sky Poker traffic continues to show strong growth, both v Forecast, & y-o-y. Maybe thats because the Business Model here is unique. ;)
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  • scotty77scotty77 Member Posts: 4,970
    edited October 2010
    In Response to Re: How the poker economy works:
    yep poker is in a scary place, low traffic, soon it will be like a baron desert wasteland with any dead money scarce. i can picture the tumbleweeds in the wind as scotty77 scavenges round for meat like a hiyina.. make the most of now,
    Posted by hotpotato
    i doubt this tbf.

    the big sites will always have massive user bases, and thus loads of fish.

    the smaller sites/a lot of the network skins will disappear tho.  as TK said a lot of them are very untrustworthy and you should be careful with keeping large amounts of money on them.

    i feel safe knowing that Sky is its own site and not piggybacking off another. 
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  • Tikay10Tikay10 Member, Administrator, Moderator Posts: 169,987
    edited October 2010
    In Response to Re: How the poker economy works:
    In Response to Re: How the poker economy works : i doubt this tbf. the big sites will always have massive user bases, and thus loads of fish. the smaller sites/a lot of the network skins will disappear tho.  as TK said a lot of them are very untrustworthy and you should be careful with keeping large amounts of money on them. i feel safe knowing that Sky is its own site and not piggybacking off another. 
    Posted by scotty77
    100% correct. The networks are already hurting. Think about it, they have to spread their gross profit two ways - the Network, & the Skin. As margins come under pressure, the unsustainable rakeback models will come home to roost.

    Oh my oh my, there is gonna be some pain out there, & a lot of players are going to get their fingers burnt. Nothing is more certain.  
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  • pr1nnyraidpr1nnyraid Member Posts: 495
    edited October 2010
    yea i actually feel like sky has proved its sustainability.. i was kind of playing on the tone of the article, i find dani stern is pretty depressing (i dont kno if he had anything to do with this article). that reply was more suited to some sites i have played on, where the games barely run any more and its just regulars going bust or leaving.

    sky is definately a proactive site, and no other sites can u feel that you could influence business decisions, whereas with sky i get the impression they sit down and discuss what moves to make (with attention paid to community suggestions).

    I also think it will be fine in the years to come, poker will always survive, there may be waves of affluence and
    waves of poverty within the poker economy, but ppl will continue to play.
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  • scotty77scotty77 Member Posts: 4,970
    edited October 2010
    Oh my oh my, there is gonna be some pain out there, & a lot of players are going to get their fingers burnt. Nothing is more certain. 

    totally agree.  the good thing is that i doubt many casual/recreational players will be the ones who are hit.  the rooms/skins that are at risk are those who have grabbed a skin and gone hunting for grinders offering massive deals.  without naming names there are so many sites out there who's site branding is really weird and they have so little chance of getting casual players as even if i typed in 'poker room' into google they wouldn't make it in the top 4/5 pages. so yeah bonus hooooos will suffer the most, so i don't think that it will do much to damage the reputation of online poker.

    i did read at the time about the issues that you had with your room/network.  while their behaviour was disgusting i can see why they did it from a business point of view.  the big boys on the network spent shedloads on marketing in getting casual players on the site wheras your site was aimed for very good players and the liquidity suffered.
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  • OMahonyOOMahonyO Member Posts: 1,883
    edited October 2010
    In Response to How the poker economy works:
    Just saw this pretty simplified article....courtesy of anksypoker.com  thought that some might find it interesting Here’s my simplified model of how the poker economy works: The bucket represents the poker room. There are two holes on the bottom.  One hole is the rake and the hole is withdrawals. There’s also a faucet that brings new water into the bucket. That water represents new deposits. The poker room needs to keep the water level in the bucket stable or rising.  A decreasing water level will eventually spell disaster. Before we proceed, I want to point a few weaknesses of this model. The poker economy is actually LOCALIZED .  That means that $100NL could be a very healthy game, but $200NL could be on the verge of collapsing. This model doesn’t really factor in bankroll management.  A fish that deposits $10,000 and plays $5/$10 NL is one thing.  A fish that deposits $10,000 and plays $0.01/$0.02 is another.  Same kind of thing for withdrawals.  It’s one thing to withdraw your entire roll and stop playing poker, it’s another to be playing $50NL with a $10,000 roll and withdraw $1k. Let’s consider some scenarios: Scenario 1 The poker economy is booming. The water is flowing into the bucket faster than it’s leaking out of the holes. The right step for poker rooms is try to open up the rake hole.  They’re leaving money on the table if they don’t.  To open up the rake hole, they can increase the rake structure or they can try to attract players that play a TON of hands.  Back when poker was booming, the poker rooms did just that.  They started to let players play 16 tables at once, gave VIP rewards based on the number of hands played, etc. Many poker rooms probably understand we’re not in this phase anymore, but they’re not adjusting that well. Scenario 2 The poker economy is declining. The water is flowing out of the bucket faster than it’s flowing out. The right step for poker rooms is to try to increase the flow of water OR decrease the flow of water out of the holes. You can increase the flow of water by marketing, deposit bonuses, etc.   You can decrease the water flowing out of the withdrawal hole by  VIP rewards and limiting withdrawals.   Why are poker rooms not encouraging a guy playing $5/$10 with a $10k bankroll to keep his bankroll on the site? You can also plug up the rake hole.  I know, raising or lowering “prices” is generally a rubbish way to compete against other poker rooms.  But that’s NOT the point of lowering the rake.  You lower the rake to maintain the health of YOUR poker room.  It’s similar to what the U.S. Federal Reserve System does when it lowers the interest rate during a recession. Scenario 3 The poker economy is stable. The water is flowing into the bucket as fast as it’s flowing out. Poker rooms can try to grow the economy the same way described in Scenario 2. Now, it’s pretty obvious that Scenario 1 is great for poker players, Scenario 3 is OK, and Scenario 2 is disastrous. If I were to guess the state of the poker economy, I’d guess we were in Scenario 2.   So why don’t I see any incentives to limit withdrawals? Why don’t I see more deposit bonuses? Why are poker rooms not lowering rake?  Are poker rooms too focused on new customer acquisition when they can take easy, immediate steps to better the poker economy?
    Posted by scotty77

    Nice article,

    I have often wondered about the ways poker rooms encourage ppl to keep a decent roll on their site.
    Why cant they maybe offer interest payments on a players br, the bigger the roll the bigger the payments.  Like a secondary rb.

    The payments would more than likely not be as much as a player would get by withdrawing and putting their money in a seperate bank account, but it may deter some players.

    In todays climate with interest rates at rock bottom, I doubt its even an issue, but before the crash I dont think it was ever done.

    The amounts would probably miniscule either way to be fair so I probs dont know what Im talking about.
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  • pr1nnyraidpr1nnyraid Member Posts: 495
    edited October 2010
    In Response to Re: How the poker economy works:
    In Response to How the poker economy works : Why cant they maybe offer interest payments on a players br, the bigger the roll the bigger the payments.  Like a secondary rb. Posted by OMahonyO
    think ub offer this, for players with enough rai$e points.. think it is 5% interest. but ppl have serious trust issues with cereus & ub, so i wudnt recommend.
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  • KKarlos93KKarlos93 Member Posts: 90
    edited October 2010
    In Response to Re: How the poker economy works:
    In Response to Re: How the poker economy works : think ub offer this, for players with enough rai$e points.. think it is 5% interest. but ppl have serious trust issues with cereus & ub, so i wudnt recommend.
    Posted by hotpotato
    Full Tilt offer 27% rakeback through most of the rakeback sites, cant see them in trouble anytime soon even at quiet  times i have seen 30,000 players on there

    I feel for you TK a few of the ipoker skins have had this happen in recent times, even titan poker had to force loads of their top players to close their accounts and go elsewhere, not fair on the players is it and without players they have no business, i dont expect ipoker to last forever tbh

    I have a question, on sky poker there are a handfull of players who make heafty profits and I wouldnt expect them to leave those funds in their sky account, how many players build up bank rolls then get crushed by the sky high rollers for the bucket (in the above example) to stay full?
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  • Tikay10Tikay10 Member, Administrator, Moderator Posts: 169,987
    edited October 2010
    In Response to Re: How the poker economy works:
    In Response to Re: How the poker economy works : Full Tilt offer 27% rakeback through most of the rakeback sites, cant see them in trouble anytime soon even at quiet  times i have seen 30,000 players on there I feel for you TK a few of the ipoker skins have had this happen in recent times, even titan poker had to force loads of their top players to close their accounts and go elsewhere, not fair on the players is it and without players they have no business, i dont expect ipoker to last forever tbh I have a question, on sky poker there are a handfull of players who make heafty profits and I wouldnt expect them to leave those funds in their sky account, how many players build up bank rolls then get crushed by the sky high rollers for the bucket (in the above example) to stay full?
    Posted by KKarlos93
    To clarify, Tilt, 'Stars, Party, will be just fine, though Party are suffering more than the other two. But players are safe there, for sure.

    Players money is 100% safe with Laddies, too, (the Parent company is a UK-domiciled PLC) although only as long as Laddies own the Room, which I don't expect to be for much longer, as traffic there is reportedly in a tailspin, & it has been said to be heading south for 3 years or more now.

    The Titan example you quote is a direct copy of what happened to "my" place, next door. It just happened we were the first to suffer, but the other i-Poker skins are all getting the same brutal treatment now. It's not sustainable.

    I cannot answer your third question, as I just don't know. But the Sky Bet Group (Poker, Bingo, Vegas, & Bingo, + Oddschecker, which is slightly different) all operate a "common wallet", & there is enormous player-migration between them. Which is a great thing, as it creates a much larger pool of liquidity. 

    These views are my personal views, bye the bye, & may not necessarily represent those of Sky Bet. So the libel action comes to me, not the Company. ;)
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  • ajs4385ajs4385 Member Posts: 455
    edited October 2010
    Scotty this is by far the best post on this forum, enjoyed reading it.
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  • Tikay10Tikay10 Member, Administrator, Moderator Posts: 169,987
    edited October 2010
    In Response to Re: How the poker economy works:
    Scotty this is by far the best post on this forum, enjoyed reading it.
    Posted by ajs4385
    Yup Aiden, +1 to that.

    It'd be lovely to get more of that sort of stuff, & debates like this, going.
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  • BrownnDogBrownnDog Member Posts: 729
    edited October 2010
    +2 Nice article. I often wonder about how sustainable the poker economy is post poker boom, during recession, with average skill level dramatically increasing etc...
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  • lozgolozgo Member Posts: 1,124
    edited October 2010
    Excelent post. Learn something new every day. Thank you.
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  • scotty77scotty77 Member Posts: 4,970
    edited October 2010
    In Response to Re: How the poker economy works:
    +2 Nice article. I often wonder about how sustainable the poker economy is post poker boom, during recession, with average skill level dramatically increasing etc...
    Posted by BrownnDog
    players like you can always earn money from it tho.  just have to constantly adapt/look for new games.

    or just grind live cash if online gets too hard.  that will always be hilarious.
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  • Tikay10Tikay10 Member, Administrator, Moderator Posts: 169,987
    edited October 2010
    In Response to Re: How the poker economy works:
    +2 Nice article. I often wonder about how sustainable the poker economy is post poker boom, during recession, with average skill level dramatically increasing etc...
    Posted by BrownnDog
    It IS sustainable, very much so, increased leisure time, better products, rising disposable income, & that dreadful thing called "credit" which is disgustingly easy to obtain, all feed it.

    But the market is very fragmented right now, & it needs to consolidate. And it will, it's started already. The strong will get stronger, but it's gg the marginals.

    The clues are there for all to see. When you see Rakeback Offers going, 40%, 45%, 50%, 55%, and Deposit Bonuses of 400%, 500%, 1,000%, da de da, that's all the clues you need. I wiould not risk a penny of my money on those fly-by-night sites, & I'm constantly amazed at how trusting poker players are. But I have no sympathy for them either. caveat emptor  
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  • beanehbeaneh Member Posts: 4,079
    edited October 2010
    In Response to Re: How the poker economy works:
    In Response to Re: How the poker economy works : think ub offer this, for players with enough rai$e points.. think it is 5% interest. but ppl have serious trust issues with cereus & ub, so i wudnt recommend.
    Posted by hotpotato

    people who dont distrust UB/AP are morans. more revelations came about recently about only just discovered and discussed cheating ON TOP OF WHAT HAS ALREADY RUINED THEIR REPUTATION.


    The fact that Hellmuth/Seebok et all still wear ub patches means they should get shafted by massive pieces of metal into their bot-bot. Absolute sc_um prancing around with their patches on. grrrrr


    And the games will always be good as long as brownndog is in them! :p
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  • ACESOVER8sACESOVER8s Member Posts: 1,307
    edited October 2010
    In Response to Re: How the poker economy works:
    In Response to Re: How the poker economy works : people who dont distrust UB/AP are morans. more revelations came about recently about only just discovered and discussed cheating ON TOP OF WHAT HAS ALREADY RUINED THEIR REPUTATION. The fact that Hellmuth/Seebok et all still wear ub patches means they should get shafted by massive pieces of metal into their bot-bot. Absolute sc_um prancing around with their patches on. grrrrr And the games will always be good as long as brownndog is in them! :p
    Posted by beaneh
    My fave quote of the day, this actually made me Laugh Out Loud and caused most of my office to turn and stare at me :) Cheers for the Chuckles

    And as for the subject matter I could not agree more. How anyone can trust the site after the last revelations is beyond me. I can see no reason why Hellmuth would put his name to it other than the large cash incentives but couldn't he get that with another site??? mind you if any pro is going to associate with such a site then Hellmuth and his diminishing poker reputaion is probably the best suited
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