August cover feature: The Rakeback Rumble 12/08/2009
A DISEASE, THEFT, evil… strong words to describe something as benign as using cashback to reward your most loyal and valuable customers. So why all this hostility towards rakeback? After all, every poker room offers some form of cashback to its most valuable players, the 10% who provide 80% of gross rake, whether by rakeback or points-based VIP/loyalty schemes.
The answer is the negative effects rakeback can unleash on poker rooms and networks if they don’t cap and control it properly. Rakeback involves poker rooms competing with each other and other networks purely on the percentage rake they are giving back to a group of high-raking players (“whales”), often via a rakeback affiliate. These hand most of the lifetime revenue share they receive from the room to the player in the form of rakeback, keeping a cut back for themselves. Under constant pressure to give away more revenue share to players and also to the affiliates looking to maximise offers to players but also clear a profit for themselves, rooms have to keep slashing their margins to put better deals on the table.
This inter-affiliate competition doesn't just make it increasingly difficult to hold onto players. It also progressively shrinks the money left in poker rooms' marketing budgets for recruiting recreational, depositing players (“fish”), and starves rooms and networks of the liquidity they need to grow in a sustainable manner.
This is why Mansion’s customer and retention manager, Ariel Reem, whose room used to be on Ongame when it allowed rakeback, calls it “a disease that kills the margins for everyone”. And as we saw with the Empire Online skins after Party cut them off from its network in late 2005, and the serious players acquired by Empire’s rakeback-led marketing machine had nowhere left to play on, poker rooms simply die without a steady supply of new gamblers and fresh money.
Dominik Kofert, chief executive of giant poker affiliate and community site PokerStrategy.com (not be confused with Poker-Strategy.org), stresses that poker sites should be careful to avoid direct and indirect cannibalisation of their traffic and focus on building a sustainable poker ecosystem. “PokerStars are kings at that. They don’t offer rakeback via affiliates, they don’t allow cannibalisation, they don’t have a network. That’s why they’re ahead of Full Tilt.”
But while the likes of Full Tilt and PKR stand as proof that standalone rooms can regulate rakeback and strike a balance between keeping high-value players on board without eroding their margins to the extent where they can’t market their poker room to the masses, the record of the networks in this regard is far from convincing.
Networks vs rakeback
Undoubtedly, the sheer number of skins on networks these days (all with their own commercial interests), affiliates working for those skins and the fact that many savvy high-value players opt for under-the-table deals from affiliates, other players and even room managers, presents networks with a serious challenge.
It also makes preventing rakeback activity which breaches network rules and impairs the overall performance of the network very hard to police. Indeed, the chief executive of a network which does allow rakeback, Peter Astrom of Entraction, says the knowledge that rakeback goes on regardless of network policy is the reason behind Entraction allowing it. “Some networks say they don’t have rakeback at all, but that is 100% not the reality. That’s why we allow our partners to offer it as a promotional tool, but they must control it,” Astrom says.
Poker affiliate and blogger Bill Rini, previously room manager for PartyPoker, suggests the spectre of bad publicity and lost revenues acts as a disincentive to networks to impose sanctions, with rare expulsions, such as NoiQ from iPoker, hardly reflective of the underlying level of rogue activity. “If you’re Ongame, and everyone on the network is complaining that one of the other rooms is offering rakeback and stealing players, but they’re doing a tonne of rake, what are you going to do? You can say, ‘We will look into it’, but unless they are so over the top (that it's impossible to ignore), you will not slap their wrist too hard, as you don’t want them going to another network,” Rini says.
Working off tighter margins than traditional affiliates, such as PokerNews, which invests considerable resources in content also aimed at drawing in casual, recreational players, rakeback affiliates are accused of simply moving players between rooms and fuelling cannibalisation of existing network traffic.
But the chief executive of market leader RakeTheRake, Karim Wilkins, insists initiatives such as sponsoring the English Poker Open also draw in casual players. He blames cannibalisation on networks being prepared to take a fee but not to undertake proper due diligence.
“iPoker, Entraction, Boss Media and Microgaming seemingly give an online skin to anyone with a few hundred dollars and a small player database. It’s these that cannibalise existing network traffic by poaching players across for higher rakeback via chat at the tables.”
Astrom at Entraction says all prospective licensees have to provide a financial plan including proof of resources available to spend on marketing activities that would grow liquidity within the network. “We don’t want to have partners who just work with rakeback,” Astrom adds. The Entraction chief also says his network imposes financial penalties on licensees found poaching players across from other skins on the network by offering rakeback at more than the network cap of 30%.
Peter Marcus, chief operating officer of William Hill Online, now on Playtech’s iPoker network, however thinks rakeback in its current incarnation is simply unworkable for networks. “Licensees who just want to give rakeback and not spend money on marketing just isn’t going to work. Networks and licensees have to find ways of rewarding loyalty which don’t encourage people to keep switching rooms or involve stealing each other’s customers. The whole industry has to get together and be quite strict on this.”
Rakeback reborn
But as Keith Freeman, founder of Poker-Strategy.org, the first affiliate to publicly offer a ‘rake rebate’, points out, rakeback in its current form will exist for as long as poker rooms allow revenue share as an affiliate compensation model.
“As long as I’m given a report that shows each player’s individual rake, VIP bonus deductions and so on, I can still attract rakeback players by giving them part of my affiliate payment.”
There are, however, ways for network operators operating a capped and enforced rakeback policy to also incentivise skins and affiliates to bring in depositing, casual players; leading to the sustainable growth of both their rooms and the network.
Kofert at PokerStrategy.com suggests rewarding skins for providing weaker players that run a net loss (by winning far less than they deposit over the course of the month) by paying a percentage of this net loss back to the room. Conversely, skins that provide players who rake a lot but also win a lot would be required to pay back a percentage of this net win back to the network. That would not only reduce the need for skins to engage in margin-shrinking bonus wars over high rakers, it would also make large scale, above-the-line marketing campaigns aimed at drawing in fish profitable for network sites, as well as independent rooms.
New models needed
Kofert suggests rakeback affiliates could be similarly incentivised by letting them keep their revenue share but also compensate the rooms if their players drain too much cash from the system by winning too much. As rakeback players are usually big winners, this will incentivise cannibalistic rakeback affiliates to focus more on generating new customers rather than moving existing players from A to B, in turn leading to the sustainable growth of the poker site.
Highlighting the forms of loyalty incentives other than rakeback aimed at all player levels now available on his site, Wilkins thinks the need for operators to make every penny spent on retention count means the days of affiliates receiving 40% lifetime revenue share for a player clicking a banner on their site will soon be over. “We will see all affiliates being made equal and operating on 5, 10 or 15% margins depending on their volume. The rooms will pay rakeback directly and throw in extra races and freerolls as added incentives,” he says.
Rini agrees: “Rev share is a stupid model. The affiliates will have to accept they are going to get a declining payout the longer the customer plays on the sites.”
Liquidity trumps rakeback
Possible changes to the affiliate revenue share model aside, rakeback’s stranglehold on the industry in the years ahead will also depend on the level of consolidation that takes place. As it is currently confined to the smaller networks, the need for liquidity and product differentiation, as PKR has shown, will become even more important in attracting fresh fish. Whether this means smaller networks won’t survive the next phase of consolidation remains to be seen, but it would be part of the maturing process of the industry were it to happen in the next year or two. And as PokerStars is proving, nothing attracts whales like liquidity. As Rini says: “You saw that when Party was top of the game, it had the ability to say to the high-level players, ‘We offer so many fish, you can’t go anywhere else and make the same kind of money, even if you got rakeback!’”
This feature first appeared in the August edition of eGaming Review.
Posted: 12/08/2009
User comments
Anonymous
luiqidity = more important than rakeback. rakeback destroys the industry
Anonymous
Excellent article, especially in pointing out the archaicness of th Rev share model. The only thing that should be clear is that there should not be even 5, 10 or 15% rev share, because the very same thing would happen again. Rev share is a stupid idea. Affiliate/marketing payments should be restricted to paid advertising and CPA/CPC/CPM models.
Anonymous
Excellent article, especially in pointing out the archaicness of th Rev share model. The only thing that should be clear is that there should not be even 5, 10 or 15% rev share, because the very same thing would happen again. Rev share is a stupid idea. Affiliate/marketing payments should be restricted to paid advertising and CPA/CPC/CPM models.
Anonymous
Great article - well written with some good constructive crtisicm.
Not in agreement about the Rev Share comments though...since the affiliate industry introduced rakeback, affiliates push brands even harder knowing that the more losing players they refer, the more cash they are guaranteed to earn.
Anonymous
This article is both smart and stupid at the same time. As a highraking player AND an affiliate I know that the more rakeback a player recieves the more he will play. I also know that the less RB he recieves the more will the house take and the more the house take less money will be out and high rake my friends, THAT is what drains most cash out. Even thou you can get 70% RB at a few major networks then its still crazy how much rake we pay, especially us FL-players that rake away $40 per hour at 5/10 PER TABLE.
But I do agree that nowadays most people focus on recruiting high volume players (this is 100% what i personally do) and it would be really great if you could incentivize bringing in fish.
Anonymous
could the person who entered the comment which begins "This article is both smart and stupid at the same time" please clarify what on earth he means by "the more will the house take and the more the house take less money will be out and high rake my friends"
Anonymous
Welcome in the real world ! The whole business history is about war price :)
Maybe obvious but it seems some people forgot it :
-the more rakeback I have, the more money I play
-what is a fish ? someone who's losing money. Just because you have rakeback, doesn't mean you're a winning player.
-what "kills the business" is not rakeback, is all these 20BB players (no flop no drop!)and weaktigh-nitty strategies (average potsize killers) learned on "poker schools". That's why I don't play IPoker anymore even with an "under-the-table" rakeback deal.
Anonymous
"affiliates push brands even harder knowing that the more losing players they refer"
That has nothing to do with rakeback. MGR/rakeback poker affiliates like having WINNING players, not losing ones. They want players who are more likely to happily stick around.
The above commenter is wrong on several points:
"-the more rakeback I have, the more money I play"
Absolute nonsense, or at least nonsense to 99.99999% in the world.
"The whole business history is about war price"
Absolutely not. Most poker players play to play POKER. Price war is not in the top 3 reasons most players choose a place to play. In fact, one truism in poker is the best games are at the places with the highest rake (because more players are losing and tilting).
Nitty players don't hurt games because they will be the losers in fast/tight games. The more active players will steal their blinds and make a profit, and the games will move so quickly the rake will be decent for a cardroom.
Anonymous
@ the Anonymous three posts above me:
As a Winning Player you do not pay the rake to play, you pay the rake so the poker room can get fish to your table. And getting fish to your table is extremely expensive marketing-wise. That is why the rake needs to be significant.
Furthermore, the problem is - as the article pointed out - not so much the rakeback. You are right in that rakeback / other monetary incentives make high-rakers rake more. But that can also be achieved with a central rakeback/bonus system.
Examples:
* Full Tilt Poker should have a central 100-200k Rake Race and no affiliate rake races
* iPoker should have a central bonus system and not allow it's skins to defer from it
Anonymous
"-the more rakeback I have, the more money I play"
Absolute nonsense, or at least nonsense to 99.99999% in the world."
The fact is all the rakeback I win, is added to my bankroll. The bigger the bankroll, the higher the limit I play. Even if I cashout.
""The whole business history is about war price"
Absolutely not. Most poker players play to play POKER. Price war is not in the top 3 reasons most players choose a place to play."
If you are right, there's no reason to speak about "cannibalisation". And I think you're partly right. If Ongame lost so many players, it' not because of their non-rakeback policy.
"Nitty players don't hurt games because they will be the losers in fast/tight games. The more active players will steal their blinds and make a profit, and the games will move so quickly the rake will be decent for a cardroom."
On some cardrooms, fullring tables are full of 20BB players who kill the game. And all the "weak-tight setminers" go and play on the 6max tables. That can't be good for the fluidity of the game. Even a recreational fish realizes he has to play very tight to not be crushed. A fish can't have fun on such tables. For sure the rake will be decent for the cardroom (especially with the 20BB players), but the game is not good for a "normal" player.
You're right when there are few nitty players on a network, not when 90% of the field are nitty players.
One more point : poker players are more educated now than they were in the past years. And any educated player knows the rake is the toughest opponent to beat. The best players can't reach the same BB/100 hands.
Of course, that's a player's point of view, not a cardroom manager one's !
Anonymous
What poker players need to realize is that there are two different types of "cost" associated with playing poker:
1) the rake that I pay
2) the money that I lose (or the money that I win) because of the toughness of the competition
The best case scenario for a player is if that combination of the two factors above is optimal. For that, poker sites need to be competitive on the rake/bonus schemes but also need to do a great job making sure that they games stay soft.
The problem with affiliate-based rakeback or skin-based incentive schemes is that everybody focusses on sharks only. Rakeback/Bonuses are very high, however, the games become tougher and tougher and tougher -> this will lead to the sites actually being worse for the good players, and it will lead to the sites shrinking.
The industry needs to regulate itself in such a way that affiliates and skins compete over who generates the most fish - and not over who generates the most sharks. Incidently, that's better for the sharks as well - to be honest, it's better for everybody ... unless of course you are an affiliate / skin with a parastiic business model.
Unknown Webmaster
Testing to see if it is possible to comment non-anonymously.
Anonymous
This statement near the end is key (if handled correctly)...
" Rini agrees: “Rev share is a stupid model. The affiliates will have to accept they are going to get a declining payout the longer the customer plays on the sites.” "
If by this, he means the player continues to get his same level of rakeback while the affiliate rakeback is gradually reduced - I am in agreement.
This forces the affiliate to find new players/fish (which is a must for the affiliate to be successful) and helps to grow/sustain the poker sites.
You cannot reduce a players rakeback over time, because that just encourages affiliate/site-hopping for the best deal and serves nobody in the long run.
Anonymous
"If by this, he means the player continues to get his same level of rakeback while the affiliate rakeback is gradually reduced - I am in agreement.
This forces the affiliate to find new players/fish (which is a must for the affiliate to be successful) and helps to grow/sustain the poker sites."
"The industry needs to regulate itself in such a way that affiliates and skins compete over who generates the most fish - and not over who generates the most sharks"
That means, affiliates maybe would be better off ending their 'poker school' programs to keep the fish from turning into strong players? Or to eventually provide losing or wrong strategies in their 'poker schools', in order to generate more fish? Lying to the public???
Mike Gibraltar
A few points....
We are currently in a position where affiliates hold far too much power and poker rooms take the lions share of the risk. There is not a smart improving poker player out there with the potential of becoming a whale that doesn't use forums, poker schools and educational poker tools to improve their game. With less of these than individual poker skins or different poker rooms this means that there is a bottleneck with which the majority of high raking poker players has to go through. By controlling this part of the funnel the affiliates effectively end up with more control than any individual site unless they have the resources of say Full Tilt/Pokerstars to directly market to new players. Controlling these players and moving them throughout their lifecycle creates cannibalisation and leaves poker rooms are at the mercy of the largest affiliates.
Few of these players have brand loyalty and from my experience liquidity and price are the 2 most important factors for these top players.
If affiliate costs became incremental based on volume this would go some way to fix this however it would require everyone standing up to the affiliates at the same time and I don't see anyone queueing up to do that :)
There will always be rakeback....customers in every industry will always be price sensitive and if there wasn't rakeback someone would just create a new network with a lower rake structure and call it something different.
Anonymous
Mike, I think you are missing the most important point.
Poker for a high rake player is not about price and liquidity (i.e. number of active tables)
It's rather about expected winrate at a site and the cost of playing at that site (rake - bonuses/rb/etc).
However, in any event, all the money that a winning player is cashing out was deposited by a losing player first.
The true asset of a poker site is the softness of the competition that it offers.
Therefore, you can't just create a new network with lower rake and expect a lot of players. Look at how miserably World Poker Exchange failed even though they gave 100% rakeback! Having 100% rakeback does not help you when the NL50 player there is as tough to beat as an NL600 player at Pacific Poker.
Mike Gibraltar
I think you may have misinterpreted my comments slightly.
Winrate is clearly very important to the player however it would be naive to think that players these days dont take rakeback, clear bonus and rake race winnings into account in this calculation. This is what I mean by price. However you dress your promotions essentially what you are doing is reducing the price/cost you ask of the player in terms of rake or fee. People are naturally price sensitive.
There is a significant number of players who make a very decent living purely by breaking even on their winrate playing significant volume and as such growing their bankrolls or living on the rakeback and bonuses that poker rooms provide them (This is obviously only one type of player however there are a lot of them).
My view of liquidity from a players perspective is not the sheer number of players on a site at any given time, it is their ability to play at their desired level at any given time and on multiple tables. Most high rakers multitable so if there are limited players/tables at their prefered level it is much more difficult to play significant volume. Additionally if there isn't the liquidity at the next level up players cannot grow within a site and as such move when they outgrow it. This is one of the reasons why all the biggest games are on Stars and Tilt because these are the only sites that have the liquidity all the way up to the top.
The softness of a network is important however its almost impossible to keep this stable due to the fact that people talk.Good players hunt bad players and so a soft game today (Pacific) wont necessarily be a soft game tomorrow so its difficult to build a brand on that.
Regarding starting a new site and charging a lower amount of rake.....clearly that wont instantly buy me liquidity I was merely trying to point out that if we got rid of rakeback in its current form somebody would come up with something different to give back to the players which amounts to the same but is packaged differently.
Anonymous
Dear Mike,
I think we are more or less in agreement.
However, quoting you:
"There is a significant number of players who make a very decent living purely by breaking even on their winrate playing significant volume and as such growing their bankrolls or living on the rakeback and bonuses that poker rooms provide them (This is obviously only one type of player however there are a lot of them)."
That is right - but a lot of these players don't realize that if they weren't player at a shark invested rakeback-hell instead of having a winrate of -0.5 BB, pay 2BB Rake and get 1.5 BB back, to get a true rate of +1 BB, they could be playing at another site with less rakeback and more fish and have a winrate of 2.5 BB, pay 2 BB rake and get only 0.5 BB rakeback which would actually give them a true winrate that's much higher!
Players often make the mistake by assuming that if they win X at site A, they'll win X at site B as well - that's not all true. The difference in winrates across different sites - depending on how tough of soft a site is - are *huge*. It's often the case that NL 1000 at site A is softer than NL 400 at site B.
The sad truth is that many poker sites don't even know about this. They get scared when some niche site offers high percentages, even though they are sitting on a fish-pond that they just to market better to the players such that they'd come naturally.
At the end of the day, the best poker site in the world might be a site that gives 0% back to players and spends most of their money on getting new fish to start playing.
After all, investing $100 got bait $500 deposits from fish is far better than giving the same $100 back to a player. In the first case, the total cash in the poker ecosystem increases by $400 where in the 2nd case, it stays constant. Out of those extra $400, a lot of it will flow to the VIP players naturally.
RD
Lifetime rakeback as a model is flawed as it doesn't engender any loyalty from the player, and leads to a phenomenon known in other industries as a price war.
Price wars break out when there is a zero-sum game and/or when the rewards for 'cheating' are high. Ever wonder why loyalty programs work?
Rewards should increase with time...what do you think will happen if players receive greater rakeback as a loyalty incentive?
Switching would then involve a loss of rake for the player...but yet again, the only way this could work was if networks reduced the number of skins to a level they could actually police...and realise that policing is actually in their best interest.
ENFORCED contracts between skins and room owners that calculate Rev-Share NET of rakeback, acknowledging that it will always happen, is one of the best routes.
Anonymous
The affiliates are to blame. They promote and encourage players to move from one room to another. They do not care if a poker room survives. They will find another skin.
They have actually convinced some poker rooms to have affiliate sponsored tournaments under the desgise of bring more players. We know that is not true. These players are now loyal to the affiliate and not the poker room.
Anonymous
As an affiliate who provides rakeback, I feel that online poker rooms are starting to take a different view of people like me. Previously, the seemed happy to work hard to keep me and other rakeback affiliates happy. Now they are starting to introduce stricter policies and be less cooperative.
Part of this is the result of poker room managers being a bit reckless and handing off large rev share deals to young, reckless affiliates who break network policies and cause trouble.
However, I also noticed that a lot of rooms are trying to shift the emphasis towards ramping up their own VIP programs, which has rakeback affiliates concerned. Because the rewards given through VIP programs are deducted from our earnings, they are basically trying to wrestle the whole "loyalty reward" systems back from us. I don't blame them for trying to do this - it gives them control, accountability and reduces their cost in the long run. Also, there are a few dodgy rakeback affiliates out there who sometimes disappear with their clients money and in the end, the poker room pays the price when the players stop playing.
But also - the biggest rooms like pokerstars, party, everest and mansions have built brand name through good marketing and none of them have rakeback and I think rooms are realising the rakeback might give them a cash flow, but it doesn't necessarily help brand recognition and without that, the rooms becomes completely full of rakeback players and because we cost the room 55%+ of their revenue, they end up operating on thin margins.
In the future, I think there will be less rooms and most of the networks will start stomping out rakeback and manage loyal customers internally.
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Anonymous
Great article on the whole rakeback issue - the best I ever read. It subsumes a lot of the different opionions and shows great perspectives of this much-discussed matter.
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