Stop The Presses: Village Voice Discovers Poker is a Zero Sum Game

Sometimes you really have to scratch your head and wonder how people get paid to write such poorly researched content. Graham Rayman, writing for the Village Voice, demonstrates how to take an obvious fact and turn it into something scary in his piece (pun intended) Online Poker Requires Constant Influx of Suckers, Says Leaked Report.

Ever wonder what online poker companies think of you, the consumer?

Well, on the heels of our piece in this week’s Voice about James Giordano and Internet gambling, someone forwarded us an investment bank’s analysis of an online poker company named PartyGaming.

Advocates of online poker like Rep. Barney Frank, who is sponsoring a bill to legalize it, and former senator-turned-lobbyist Alphonse D’Amato, paint internet poker as just a fun way to win money at home or as a matter of personal freedom.

But the 2006 analysis by the Swiss-American investment bank UBS strips away the spin and looks only at the business model. The result is a less than flattering portrayal.

Check out this sentence: “Attracting poor players — the fish — to feed the good ones — the sharks — is the only way the online poker model works,” the analysis says…

Ten percent of players, the sharks, generate almost 80 percent of the revenue, the anaysis says. That means there are a relative handful of professional poker players that are sucking money off of the casual players, who are known as “fish, donkeys or donators,” the analysis says.

Okay, first off Graham, if it’s a investment banking research report calling it “leaked” is a huge stretch. Unless the thing is stamped “Top Secret” and was only distributed to the Illuminati nothing is being leaked. It’s something that most of the firm’s staff have access to and is made available to the firm’s clients.

Second, you seem ignorant of how the poker economy works. Fish don’t always stay fish. Many become good at the game and become sharks. And some sharks move up too high and get eaten by bigger sharks and have to move down the food chain a bit and build back up their bankrolls.

But, on the surface, yes, any zero sum game is going to have winners and losers. And since poker is a game of skill then almost by definition the better players are going to fare better at the game than drunks coming home on a Saturday night and blowing $50 on a chance to win a seat into a $10,000 event.

And that just might be the most important aspect of what you don’t seem to really understand; many people play for recreation or entertainment. The vast majority of the players are losing players but they keep playing because they enjoy the competition.

I’ll let you in on a little secret . . . did you know most of the people who go to Vegas lose money gambling in the casinos? If people know that then why do they continue to frequent Sin City? Oh, entertainment. Sitting down at a blackjack table or playing a little roulette can be fun for some. They enjoy the thrill. They figure they could go on a hot streak and go home with a pile of cash or hit a jackpot and make a life-changing amount of money.

Sure, 90% of the players are going to lose money but if they hit a few lucky cards they could win a huge tournament and walk away with hundreds of thousands or even millions of dollars.

If you are one of those, you basically don’t have a chance to win. Your typical shark plays multiple tables, and uses databases to track player history. They aren’t playing for fun. UBS’ analysts argue that PartyGaming seems to have been set up to favor the sharks.

Actually, you do have a chance to win. You have probably better odds than most table games in a casino since even a shark’s edge over a total newbie usually won’t be anywhere near as big as some casino games. And again, look at players like Chris Moneymaker who was definitely not as skilled as some of the players he beat in the WSOP (even today, many consider him a fish) but he walked away the winner and $2.5 million richer. Oh, and he qualified for the event in a $39 tournament which he also did well enough to earn the $10,000 WSOP buy-in.

Think about that, the next time you sit down for an online hand.

You do realize that other than being able to store a database of hand histories against players you’ve previously played in hands with and being able to play more than one table at a time (which I’ve actually seen Wampler do and heard Phil Ivey did during this year’s WSOP) nothing you’ve said is different between live and online poker?

You haven’t mentioned one fact that supports the statement that PartyPoker is biased for the sharks. How? It’s the same software. Everybody still gets random cards. How exactly is PartyPoker biased for better players? The loyalty program rewards hands played and/or rake generated so they get the same level rewards for the same amount of play.

In order for online poker sites to succeed, they desperately need a steady flow of new fish, the analysis says. “Finding new fish to feed the sharks is the most important requirement for PartyGaming to succeed,” the analysis says. “Without these fish, the model falls apart.”

Eventually, UBS concludes, if an online poker site can’t keep attracting new customers to be the fish, profits will inevitably drop.

The analogy is that if each shark eats two fish a day, and those fish aren’t replaced, then eventually, the number of fish will decrease and the ocean will be filled with sharks. Those sharks will then starve because there aren’t enough fish to eat.

“In the world of profiteering, we believe that sharks who were once winning comfortably will leave the site and look for greener pastures because they are not winning enough to justify their time,” UBS says.

After the U.S. banned online poker for money, PartyGaming avoided losing money by attracting more players in Europe, the analysis says. Eventually, that bump will fade. “We cannot see how poker can recover to its highs because the player pool will become shark infested,” UBS analysts write.

Keep that in mind next time you’re tempted to ante up, sucker fish.

I think there are two different issues here:

1. The investment outlook for PartyGaming and similar online poker rooms based on the competitive market space

and

2. The realities of poker (online or live)

You seem to mix the two as if they were interchangeable. They’re not. Poker has always and always will rely on fish playing against sharks. The sharks would never play if they couldn’t make money doing it and there’s enough of a luck element to poker that on any given day or in any given hand even a fish can beat the best pro in the world. I believe David Sklansky made this observation in one of his books published in the 1980’s (sorry, I don’t have the book with me here in Bangkok or I would quote the passage). That’s the attraction for the fish. To make the big score or to take a pot away from one of the top players in the world.

As for the first point, yes, anybody who wants to offer poker either online or at a brick and mortar casino needs to keep bringing in new customers. Hell, even your Friday night homegame would want to see some new blood every now and then if the same players kept kicking everyone’s butts and people got tired of donating their cash to the same one or two players.

So what UBS’ report was doing is outlining this aspect of the business model. It’s no big secret just as nobody has to leak that car companies need to sell cars to stay in business. It’s simply the business model. UBS didn’t leak it. If you were unaware of it then it seems rather foolish to demonstrate your ignorance for the whole world to see especially when it’s your job to be the people who do background on the stories you write. I mean, this supposedly leaked information is in PartyGaming’s prospectus as well as their annual reports. How do you leak information that is widely available to the public?

Think about that the next time you write such deceiving headlines, sucker journalists.