No Fight At All

I was reading a post on SpartanFox by Mark Gahagan which was pretty good but it had one big item that I disagree with. Gahagan discusses the war against better players that some sites are waging but I think he’s making a mistake including PokerStars into the bunch.

First off, the other two rooms that Gahagan mentions have specifically made rules that either penalize better players or representatives of the room have come out against better poker players. PokerStars has done neither.

PokerStars’ recent rake changes and changes to the VPP model don’t really target better players. They impact better players but both moves serve the purpose of increasing the amount of money PokerStars gets to keep.

The weighted contributed method is the most fair way to allocate rake and points. The fact that many poker rooms used the dealt method was a function of laziness, ignorance, and copycatting. From a programming point of view, it’s much easier to divide the total amount of rake collected by the number of players dealt into the hand rather than try to figure out how much each player contributed to the rake.

Then sites started creating bonuses and loyalty programs (a misnomer if there ever was one) which piggybacked on the dealt method. It was very easy to explain to people that for every $1 in rake they would get X number of points or that for every $X generated in rake the player would clear $Y of his bonus. Trying to explain these concepts based on weighted contribution method would be far too complex for most players. This is especially true where the industry was 5 or 10 years ago in terms of how savvy player’s were at the time about bonuses and such.

Changing the model used today is more likely to be about profitability than it is about penalizing high raking players. If I can award more points to a player never likely to accumulate enough points to cash them in versus awarding them to a player who always cashes them in, I can make more money. They’re only targeting higher raking players in the sense that they wish to eliminate some of the overhead associated with those players.

Gahagan comments:

Which, is a shame, because it ignores a key reason video game and online poker companies alike do things like this: they are trying to make money, and its better to appeal to the 99% than the 1% (to abuse a OWS cliche).

However, this is a little backwards. Most players in the 99% have no idea how much they’re being charged in rake nor do they even understand the difference between weighted and dealt. A change like this isn’t intended to appeal to the 99%. It’s intended to bring in additional profits while pissing off the smallest group of people.

I would hazard a guess that the best the team going to Isle of Man from 2+2 will get is Stars *might* make tweaks to the number of hands needed to achieve a certain status or sweeten the rewards for hitting various levels. I doubt they’re going to go back to a dealt model because they’re going to make so much more money on all of the players who never accumulate enough points to cash them out. They can eventually close the accounts and expire the points nonredeemable which is cash in their pocket.

The other part of having outstanding points balances is that they have to be accounted for. They’re liabilities on your books. If you have $100,000,000 in the bank and $100,000,000 worth of outstanding points, your net worth is zero from an accounting standpoint. Even if most players never redeem their points you still have to put the potential liability in your financials which might raise eyebrows if you’re looking to go public, trying to structure a buyout, or looking for a bank loan.

The bottom line is that the business is getting tougher. Player acquisition costs are going up and the average lifetime value per player is dropping. Poker rooms, large and small, are being hit by this maturing of the market and they’re looking to dig themselves out of the holes they dug themselves earlier in the industry life cycle.

I think Gahagan is dead on regarding Everleaf and Bodog (and I can name at least one I think he missed) but I think he may be overshooting with lumping Stars in the same boat.

What do you think? Is Stars targeting high raking/winning players or are they trying to squeeze some extra profit out of the games?

Bill Rini
Bill Rini is currently the Head of Online Poker for WSOP. He has been working in the online poker industry since 2004 and has held management roles at Full Tilt Poker and PartyPoker.

2 thoughts on “No Fight At All”

  1. You ask what I think? Impossible to really answer. I’d want a percentage to total revenue for the various classes of player. Most think that the lower end are penalized by the rake more than upper limit players. Seems a given.

    As you describe it, it is another money grab. That is from an industry that is already a cash cow. From the players view throw in monopolistic practices or price fixing, your choice.

    Recreational players come and go without buying a vowel. But, the lower end does have the hardcore who understand rake and effect. And, they are the ones who’ll notice the comps have shrunk. If you can define their percentage to overall profit and if that is significant then retention will be affected. Of course their bet is that the loss will be offset by the profit.

    I doubt most of us would put the sites bottom line ahead of theirs. Leaving may not be an option and it looks like the casino side that will enter the market will be happy enhancing bottom lines as much or more than the existing operators. But, a lower rake operation can now do that against the established with greater success because the spread to the higher overall rake is increased.

    It is the type of short term view that can haunt all kinds of businesses. Fulfills stock market demands. Long term makes for a crap shoot.

    Loyalty, schmolity — that’s a joke on both sides of the felt and now worse and that too on both sides of the felt.

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