eGaming Review – August Rakeback Edition

I think I mentioned previously that I had done a telephone interview with Stephen Carter from eGaming Review on a special feature they were doing on rakeback. If not, SURPRISE!

Anyway, looks like the Aug issue is beginning to hit the stands. I’m still waiting for my copy but then again I’m half way across the world and the mail delivery here is notoriously poor.

The online version of the article is up and here are a few quotes that were interesting.

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.”

I know Dominik and have had many discussions with him. He’s a very bright guy and understands the value of creating the right ecosystem mix. I’m not sure we always see eye to eye on everything but his opinions are always based on reams of data that he and his team put together. I’m glad they got his thoughts on the subject.

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.

I don’t think there’s any surprise there. I did want to say that it wasn’t necessarily my intent to single out Ongame. It was simply a name thrown about as an example of a network that has a ‘no rakeback’ policy but obviously has licensees who offer under the table rakeback deals to high raking players.

When I was up at the affiliate conference in Amsterdam I had licensees from several different networks tell me flat out that if I wanted to offer rakeback there was always something that could be worked out if I was sending enough players. The only way they can operate like that is if they have no fear of getting caught which is what I was getting at in the quote used in the article. If offering rakeback brings me $5 million a year in revenue and the network fine is $25,000 or even $250,000 for a repeat offense it’s an invitation to offer rakeback.

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.”

And Karim is right on the mark. The networks are not properly policing the licensees. I’m not even saying it’s an easy job to police the licensees but my guess is that they have less than 1/10th the resources allocated to policing licensees as they do players. It’s sort of like trying to find witnesses to a mob hit. Nobody wants to talk. If a player rings you up and says XYZ Poker on the same network is offering him 40% rakeback and you rat XYZ Poker to the network who is the network going to find who will cooperate and validate the story? Surely not the player. He doesn’t want to mess up a good thing. Surely not the room itself since it’s in violation of the network TOS. So you have one rival accusing another rival with nothing more than what a player might have said in email or over the phone but later recants.

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.

I’m glad to see that it’s the affiliates who are suggesting this model. This should have been the model from the beginning but there was so much easy money floating around that poker rooms were throwing it at anybody who sent them players. The fact of the matter is is that some players are more valuable than others. And some affiliates are more profitable than others. Net redeemers are overall bad for the system if you can’t feed in net depositors into the system equal to what’s coming out. The flat percentage model was flawed from inception and is now starting to impact bottom lines as the business gets more competitive and the stupid money is being pushed out of the market.

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.”

Obviously it looks like Karim and I agree on this point (as well as Dominik). The only problem is that your traditional affiliates really don’t want to part with a huge gross margin. Not that that’s surprising in any way but, again, it’s the poker rooms who are creating the problem by trying to manage around it rather than addressing it head on. It’s easy to point your finger at the rakeback sites and call them evil but even if they put us all out of business tomorrow they’re going to have to face the fact that lifetime rev share is a dead model that is choking the life out of many rooms.

This is really an interesting time for the industry. And if the US market opens back up and Harrah’s and a few key gaming operators can get a lock on the US market they likely won’t even need affiliates or if they do they’ll get to pick and choose what kind of business relationships they offer. One way or another the 40% lifetime rev share deal is quickly going to go the way of the dinosaurs.

Photocred to Son of Groucho