How does staking work?
When JJ Hazan bravely stood up in the Dragon’s Den last year to try to get funding for a series of tournaments we saw a glimpse of a rare phenomenon: what the world outside our little niche really thinks about whether poker is a “good bet” or not.
Most of us bridge this gap regularly. Whether it is explaining to people how it’s possible to make a living from the game, or why it’s such an obsession for certain people, or assenting with people who ask “that Vicky Coren, she plays poker doesn’t she?”, it’s always astounding to talk to a civilian and remember how little they really get about poker.
Within the poker world, we may have argued about whether JJ was worth staking, or how the Dragons would react, but the very existence of staking as a phenomenon was taken for granted. As the Dragons tumbled out of the race to stake JJ, we were reminded of just how much cynicism and misunderstanding there is of our game. Whether JJ was a good bet or not, they failed to realise that this was a business proposition like any other they see every day.
So what is staking in poker really about? Is it profitable for both backer and player? Is someone being ripped off? Why would players need staking at all if they are money making players, and therefore worthy of sponsorship?
I first started asking myself these questions when I saw a thread on the Hendon Mob Forum started by Simon “Aces” Trumper looking to sell pieces of his action for the $10k PLO WSOP event of 2009. I’ve played PLO with him and he seems a solid, albeit “old school” PLO player, who it must be said has an enviable tournament record at this particular variant. Two things struck me about the thread: first, how quickly he managed to sell the 70% of himself that he had on offer; and second, how he managed to sell it at a 30% premium.
Not only were all these backers prepared to part with cash ($130 to buy 1% of his action) to buy a piece of another player at the WSOP, but they were that sure of their investment that they were prepared to pay 30% over the odds for it. Without any disrespect to Simon Trumper, can anyone claim to have an ROI of significantly over 30% in that particular event? Surely all the best Omaha players in the world will be there? Given how much variance there is in the game, how on Earth can you assess what the ROI of a given player in a given event is?
I decided to put that question to the very same forum members who had backed “Aces”. Evidently it was a moot subject, as the replies ranged from requests for some research into the mathematics of staking to out and out dismissal of the whole process as a “rip-off”.
A couple of forum posters, “PizzicatoXev” and “mddgfc”, were players who had been staked plenty of times and pointed me in the direction of two of the most popular sites for online staking: parttimepoker.com and pokerbytrade.com. The sites themselves are an education. You might think that these are forums for players who have solid poker skills but haven’t got the bankroll to go for the big time, yet many of these players are looking for staking for a series of $11 SNGs or possibly lower. Isn’t this madness? Who on Earth needs to be staked at levels like that?
The answer, apparently, is quite a few people. And if that’s the case, and they are money-making players, and good for repaying their backers when they win, then why wouldn’t there be people to back them?
According to “mddgfc” plenty of players need backing even if they are profiting from the game. “Many players have other leaks such as sports betting,” he claims, “and personally speaking, I find it gives me a lot more motivation and focus when I know others are relying on me.” PizzicatoXev agrees: “it forces me to exercise proper bankroll management where in the past I may have decided to take shots or play games I am minus EV in”. He also notes that when you are playing games with high variance, having a backer can remove the anxieties about having to drop down a level or going bust.
The websites themselves are quite elegant affairs that bring to mind Bloomberg or ftse.com. As a backer, you can post requests for “horses” (players looking for backing), say what you’re putting up, for which kind of events and what sort of criteria you expect. Prospective horses then pitch for the staking, with sharkscope tables, tracking graphs and Hendon mob profiles acting a like mini CVs. Likewise, horses can look for backers by posting requests for staking for a certain number of tournaments (offering, for example, backers to buy a piece of their action for all the Sunday majors), for a certain gross investment at whatever premium they feel comfortable asking for.
As regards reliability and repayment of backers, the system is not dissimilar to ebay or some such other reputation-building website. The website itself takes a fee for allowing you to post your staking requests, but beyond that, backer and horse have to work out their finances between them (often done by transfers between online poker accounts).
There are, broadly, two systems in staking. The first is simply to sell a piece of your action in a tournament or set of tournaments. This can either be done at break even or for a premium. Imagine the horse asks for a 30% premium (as in the “Aces” example above). For example, if the backer buys 10% of the horse’s action in a £1k event, he’ll pay him £130 and get 10% of anything that horse wins.
The second option is “make up”, also known as “cake”. Under this system, the backer buys the horse into the event and if the horse wins, the backer gets the original buy in back first, and any remaining profit gets split (usually at 50/50) between backer and horse. Interestingly, the amount the backer stakes the horse (which is the “make up” or “cake”) accrues over the number of tournaments played. Thus, if the backer has entered the horse into, say, six £1k tournaments and the horse has not cashed, the make up would be at £6k. Imagine the horse then cashes for £47k in his seventh tournament, he would owe his backer the £7k of make up, leaving £40k between them, which split at 50/50 means £20k each. As you can imagine, there is plenty of scope for running up big debts here and the horse having some quite underwhelming payouts after a reasonable win if they have big make up bills, more of which later.
Backers can sometimes also provide coaching. Often the backer is a more experienced poker player who sees potential in a green or relatively poorly bankrolled player. After all, if your backer is a poker player themselves, it makes sense for them to maximise their investment by helping you improve your poker skills. There are few people on the planet who know more about this than Neil Channing, so it was to him that I turned to next.
Channing actually started off as a bookie, owning a few pitches on race courses and attempting to second guess the market by laying favourites when they appeared to be drifting. This was in the days before internet and mobile phone betting when markets were not so efficient. The practice gave him a solid grounding in eyeing up the odds and understanding whether something had a fair price attached to it.
At the time, he was playing the £10/£20 PLO game at the Vic with the likes of Willie Tann, Stavros and Gary Jones. Even though he usually sat down with £6k, he was shortstacked in that game. A much smaller and close-knit community back then, swapping percentages in tournaments was the norm, especially when on the road.
“You would always swap with mates – especially if you were driving up to a tournament some distance away,” he says. “It would help if you busted out early but your mate was still in, it gave you some ongoing interest in the tournament.” In the early days he would swap percentages with friends such as Keith Hawkins and Vicky Coren (in fact he had 4% of Coren when she won the EPT – good for about £18k!).
“Over time, I noticed that more players with higher profiles were asking to swap percentages with me. I was flattered when Micky Wernick asked me, because he was one of the highest rated players in Europe at the time”. In fact the list of players Channing swapped percentages with reads like a roll call of the big names in the live poker scene: Alan Vinson, Jeff Duvall, John Kabbaj, Marty Smyth.
He rarely swapped more than 20% of himself out, and never swapped more than 4% with any one individual. In general, he would aim to own about 70% of himself, swapping around 20% and selling a further 10%. One quite comical exception was a Bellagio $15k in 2005 where he sold $15.6k of himself – thereby making a $600 profit, and still managed to play for 24% of himself!
Over time, the bookie in him started seeing patterns. “You’d notice that 2% of this guy is not worth so much as 2% of another guy,” he recalls. “Someone would approach you to swap percentages, and you’d think to yourself: actually, I saw you drinking in the bar last night, I think I’ll pass.”
At the time, there were a few backers in the States who were using the make up system, such as Phil Hellmuth. He tried this first with was “River” Dave Penly, and later on, Sunny Chattha. While the mathematics of which system is better is not obvious, Penly concluded that for high variance tournaments, make up is better for the players being backed, and smaller fields lower variance tournaments are better for the backer. In the latter, the horse is never going to run up a big make up.
“It’s like a credit card deal,” asserts Channing. “They are spending money that they can’t afford to spend now in order to play. Their premium is the make up and they pay when they win. Similarly my risk as the backer is the equivalent of someone defaulting on their loan – if they never have a big win, or walk away before they do, I lose the value of the make up.”
I have to say, I’m staggered at the looseness of the arrangement. These guys can have five figures in make up, which is tantamount to debt, and be able to walk away from it if they want. According to Channing, this wasn’t much of a problem because at the time, no one else was backing them, so if they walked away from him, there would be nowhere else to go. It’s actually worse if he gives up on them, because of course, he would forego the make up. A couple of times he did this when the make up was at a staggering £25k.
By 2008, Neil was backing about 15 people who had a average make up bill of around 9k. The gross make up bill was usually around £150k-200k. Quite a chilling thought for most of us. And these weren’t unknowns either. In his time, Channing has backed Dave Colclough, Surinder Sunar, Sunny Chattha, Praz Bansi and Jeff Kimber amongst others. That’s before we get to the more well known examples of Marty Smyth and James Akenhead. Channing famously had 50% of Akenhead for his $520k near miss at a $1500 bracelet in 2008, and again had 25% of him at the WSOP ME last year – which grossed Akenhead over $1.3 million. Couple this with 22% of Marty’s bracelet winning $10k PLO cash in 2008 (for another $220k) and we’re talking about quite a successful staking career.
“Obviously, you throw a lot of darts at the board to get a few bullseyes,” he notes. “There were six month periods where I was putting eight people into every GUKPT main event every month, that’s £30k per month just on putting people into tournaments.”
So it is not without its strains, both for backer and horse. One of his players won a £500 PLO tournament for £32k, but because of his daunting make up bill, ended up with only £800. “You’re seen to be quite ruthless as a result – that’s why Phil Ivey gave up backing,” he claims. “It’s no problem when someone wins big and they have twenty grand in make up. It’s when they have twenty grand in make up and they win four grand. Then they put the puppy dog eyes on and say ‘I’ve got the MOT this week and I need to give the missus £600 for a new washing machine’. That’s not the way it works,” he would retort. “I didn’t only put you in for half the buy in last month in Walsall when you were playing shit!”
The mind boggles at the admin and stress involved. Channing would often be seen in the Vic with his sheet of A4, noting down the various debts and pieces of action. One year he had 34 different pieces of people in the GUKPT main event, and no fewer than twelve of them cashed – but unfortunately there were no major cashes.
As the backing got more stressful, so more people were asking him for various other “services”. Certain players were sick gamblers who just needed a bit of money management. Others were young guns who were looking for a bit of coaching. All of which crystallised into the idea of starting Black Belt Poker. This is Channing’s own poker site which gives tuition and staking in live tournaments as rewards for progressing through the various levels of its loyalty program. When Black Belt started, Channing retired from backing players outside of the envelope of Black Belt Poker.
This is an altogether different proposition from the staking sites mentioned above. I ask what Neil thinks of those sites. “It’s all part of the buy now, pay later culture,” he says, sharing my surprise that people would ask to be staked for such low buy in tournaments as $11 SNGs. “My advice is don’t sell tiny chunks to lots of different people. Afterwards you have to go back and reimburse this one through paypal . . . that one by transferring money on ‘Stars . . . it’s such a pain in the arse.”
Of course, the experiences of the likes of PizzicatoXev paint a different story, but that may be because he has only one backer. That does seem more sensible for lower stakes. And if “mddgfc” can cobble together $3500 for a run at all of the Sunday Majors, and make his backers happy, then who can knock that?
Disturbingly, staking brings to mind a kind of syndicate of good players spreading their risk amongst themselves. It’s almost as if all the “old” gamblers at the GUKPT have bought pieces of each other, and one way or another, the fish will get gutted and served up as a collective dinner. The huge volatility that there is in poker is well touted, yet staking, swapping, buying and selling percentages is a tonic against that.
That is, of course, providing that the syndicate is money-making in the long run. Looking at Channing’s roster of players, it’s easy to believe that it was. Whether ROIs are as high in the modern poker climate as they used to be, I’m not so sure. To that end, I’m surprised at how easily people will part with their money to buy a stake in other players at a 30% premium (this is still going at parttimepoker.com). For that reason, perhaps staking is better viewed as the syndication of risk rather than as a wise investment bought at a premium.
Box for terminology
BAP – Buy a Piece, i.e. where small percentages of a player are available to buy, rather than with make up, where the backer usually covers the entire buy in.
Action – same as equity. Selling “action” means selling a certain percentage of yourself in a tournament. If a backer buys 10% of your action, you will have to pay them 10% of your winnings.
Premium – the amount over the odds a horse will sell his action. If you sold your action at a 50% premium, you might sell 10% of yourself in a £1k tournament for £150.
Horse – a player looking for backing
Cake or Make up – the amount a horse has accrued which is owing to the backer in previous tournament buy ins, which needs to be repaid before splitting the subsequent profits.
ROI – Return on Investment. The amount a player will make on average per tournament, expressed in terms of the average profit (after deducting the buy in and juice) as a percentage of the buy in.
Juice – the tournament fee (usually another 9-10% of the tournament buy in)
This article first appeared in Bluff Europe magazine.