The mysterious world of staking poker players

by Ryan Ong

I AM so bad at gambling, that banks raise their loan interest the minute I walk into a casino. That’s why for people like me, there’s only one usable strategy for poker – it’s called winning by not losing (aka step away from the cards). As it turns out though, some people have found a way to make money from poker, without playing the actual poker. Here’s how it works:

 

What is staking?

Also called backing, this is a form of “investing” in a poker player. If you’re deep into the poker scene, you know this has gone on for a long time; but it’s become high profile of late.

As a negative example, the Sure Win 4 U scam duped 150 investors of $50 million, as reported by TODAY in January 2015. The scam wasn’t specifically related to poker, but it included staking poker players – along with other gamblers – to get five to nine per cent returns on investment.

The idea behind staking is that you put up a sum for a poker player’s buy-in (the amount needed to join the game), and the player will split the winnings with you. If said player wins. The most common arrangement is 50/50 with makeup.

A makeup is an arrangement that distributes the proportion of profits shared between the player and the backer.

For example:

Let’s say you are better than me at playing poker (i.e. you are literally anyone else on the planet). I decide to stake you, 50/50 with makeup. I will give you $50,000 for five games, at a $10,000 buy-in per game.

In four out of the five games, you drive me to alcohol addiction by losing everything. That’s a $40,000 loss for me. On the fifth game, however, you win and walk away with $120,000.

This is where the makeup comes in. Normally, we’d both get $60,000 each. But you would have to make up the money you lost in the last four games ($40,000). So what happens is I get $100,000, and you get to keep $20,000.

The makeup is important because players may lose more games than they win, but a single big win can make up for all the previous losses.

Of course, it’s also possible that you will just lose all the games, or that you won’t win enough to recover the losses. In that case, I’d just have to re-mortgage my house.

Ha ha, that’s so stupid of the investor, to let players take risks with their money, right? It would almost be like giving a mutual fund your money to gamble on stocks, so the fund can use your money instead of theirs.

How prevalent is this?

I spoke to two people who stake substantial amounts on poker players, who don’t want their names revealed. One of them, a Singaporean, staked as much as $270,000 on poker players between 1997 to 2005. He has since stopped. The other lives in San Francisco, and has been a professional poker player for about seven years.

Both agree that it’s impossible to know how big this investment “market” is, as many deals are not made public. One of the backers also revealed that there’s a preference to keep it quiet:

“In most cases, poker players are staked by other poker players. It could get awkward if both of them end up at the same table in a tournament.”

One thing is clear: staking is prevalent in the world of poker. There are people who seldom sit at the poker table themselves, but who nonetheless make money off this.

These days, however, the proliferation of poker sites – and sites that specifically cater to those who want to stake other players – means most of it happens online.

One of the backers told me: “It is probably more prevalent now than before. In the past you would back players you knew personally, it was a small circle. Nowadays you can go online, check player statistics, and bet from there.”

When picking players to stake, backers use sites like SharkScope, which track how well various players are performing. They monitor details such as a player’s Return on Investment, winning and losing streaks, and overall consistency. As with traders picking stocks, most backers have their own “system” on which indicators are important.

Besides how much and how often a player wins, character also matters. One of the backers warned that scams and conflicts are not unheard of.

“I try to get everything in writing, because I’ve been burned a few times. There have been cases where players make off with the money. There was also one incident with a player I staked. I suspect he was high during a tournament. He didn’t do well, and it wasn’t characteristic. I stayed away from him after that.”

Is it worth investing in?

The backers I spoke to said they made around $70,000 to $80,000 per year, averaged out over five years. However, they both experienced years with negative earnings.

One of the backers told me: “The probability that you will back the wrong player at some point approaches 100 per cent. There will be a year or three when you look over your numbers, and realise you’re down by a six digit figure.”

The most important fact to point out is that backers absorb all the downside risks. If the player loses, he only loses the profit, whereas the backers will lose the actual money they had. If the player wins, any gains are diluted by the steep cut that goes to the player.

In addition, there is limited – and sometimes no – legal protection. If a player you stake runs off with your money, and is a foreigner, good luck suing him; hope you understand how the laws work in Hong Kong or the United States or wherever he is.

Still, if you enjoy poker and have a bit of spare cash to burn, then this could be a way to make some money out of it. Just make sure you’re not counting on it for your retirement fund.

 

This piece is part of a series on alternative investments. Other alternative investments featured include timepieces, cryptocurrencies, and stamps.

 

Featured image poker by Flickr user dupo-x-y. CC BY 2.0.

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The post The mysterious world of staking poker players appeared first on The Middle Ground.

- Ryan Ong