Kim Lund recently left bwin and has started a new blog about the poker industry. Though Kim and I don’t always agree but he’s got a bright mind and understands the business side of online poker so it’s always good to exchange ideas.
He recently wrote a post on his new site titled, The Price of Poker, in which he discusses the mistake poker rooms have made by disclosing their rake allocation to the public. I’m quoting very liberally here but please go read the rest of his post as he makes a lot of good points.
If rake is assigned in a specific manner to accommodate business deals struck with affiliates, network partners or even to help keep track of the business targets of different internal divisions, the players have no business or need to know this. If you choose to assign rake in a specific manner in order to simplify the creation of a loyalty program of some sorts, the players have no business or need to know this. They just need to know about the actual loyalty program constructed from it.
Previously Kim had made the point that rake is only paid by the winner of the pot. That was money that the player won but the house has subtracted their cut from his winnings. Had his opponent won the pot he paid zero rake to play and his opponent would be paying 100% of the rake. He calls rake a “Pot Retrieval Cost.”
So in the quoted section above what he’s saying is that players have no need to know how rake is allocated for affiliate (or other business) purposes. In a way he’s right. As long as you’ve communicated the rake percentages that’s all the consumer needs to know to make a decision about the cost of playing poker on your poker site.
Or is it?
Kim says:
If you choose to assign rake in a specific manner in order to simplify the creation of a loyalty program of some sorts, the players have no business or need to know this.
If the allocation of rake is in any way tied to the loyalty program then the players have every right to know how the rake is being allocated. That’s like saying, “yeah, we have this frequent flyer program but you really have no right to know how we award points. You just jump on the flight and you find out how many points you earned when you get your monthly statement.”
A large percentage of affiliates are poker players. The information is still going to leak out to the same people who are the ones who care about how rake is allocated right now. Whether or not the poker site itself discloses the the information it will get out there.
The statement “Information wants to be free” dates back possibly as far as Thomas Jefferson. Even back then it was known that the more you try to wall off information the more the information will eventually find its way out.
Kim goes on to say:
The rake the different rake models assign to various stakeholders in a player shouldn’t be equated with “rake costs” for a specific player.
By communicating your rake model to players you are starting your relationship with them by saying something like:
“Welcome to the site. Click here to see how we collect rake. Rake is money we, the house, take from the pot. Essentially you pay us every hand you play.”Compare that with the actual reality dictated by all-rake-is-paid-by-the-winner:
“Welcome to the site. Playing poker is free. However, when you win a pot, we deduct a small percentage fee from your winnings.”
Why would anyone in their right mind ever present Player Experience number one over Player Experience number two?
And the latter IS the correct one. In the eyes of a player, rake is not a betting fee. It is not a see-the-turn toll. Regardless of the method you use to valuate players and businees partners, from the players point of view, rake is a pot retrieval cost.
I think there are a couple of errors here.
1. No poker room starts off the communication with players talking about rake. The discussion of rake is usually deeply buried on the site in places beginning and novice players aren’t likely to look.
2. I believe it is an error to assign no value to a player in a hand that did not win the hand. My mere presence at a table provides game liquidity. The more players seated the more games can be offered, better table selection can be had, and success breeds success so more liquidity means it’s easier to convince people to play on your site.
So looking at rake as a pot retrieval cost basically says that everyone except for the winner of the hand is contributing zero value. And if your loyalty program does allocate rake on anything other than a pot retrieval method then you acknowledge the fact that I am providing value but then say it’s not my right to know how much you value me.
There are basically three types of players within this context:
1. Players who have no clue what rake is or if they do they don’t know and don’t care what they’re paying (i.e. New Players)
2. Players who have a clue about what rake is and might even have an idea how much they’re paying and/or what their value is (i.e. Novice Players)
3. Players who not only how much they’re paying in rake but also how much value they are adding to the website and how they are valued across different websites and will go to the website who assigns them the most value (i.e. Experienced Players)
The problem with this line of thinking is that players aren’t static. A New Player will eventually become a Novice Player if he plays long enough. And if he continues to keep playing he will likely become an Experienced Player.
This creates a problem because while New Players don’t much know about or care about rake as they progress up the ladder they start to become more and more aware of it. And if you are not transparent about how you value my play or allocate the rake it becomes a much easier decision for me to go to a competitor who is transparent.
And since it costs less to keep a player than it costs to acquire a new one I think this is a tragic, tragic error. By telling players they have no right to know how your value them you greatly increase the chances of alienating them and making them go to a competitor’s site. You’re increasing your attrition rate of players that are relatively inexpensive to maintain which means that to stay at the same liquidity levels you have to recruit new players who are very expensive to acquire.
Like I said, Kim and I sometimes disagree and this is one of those times. However he does have some valid points though in the end I think the only way this works is if it becomes the industry standard. Sort of like if one airline begins charging for checked luggage the other airlines either have the choice of following along or distinguishing themselves by not charging for checked luggage.
In this case, companies like PokerStars and Full Tilt seem to be moving in the opposite direction by fully communicating every aspect of how they allocate rake which means that companies that decide to take such a radical change on their own (i.e. bwin) may be setting themselves up for a fall.
–> Gary,
That’s a wonderful way of looking at it. Interesting perspective…. 🙂
–> M.D
“leaving players in teh dark makes it extremely difficult to direct their play into long term loyalty.”
Telling players they pay the way I propose will not make anything relating to explaining how loyalty works any more difficult or even different. You’re not leaving them in the dark on anything because you can still present the loyalty rewards based on whatever points attribution mechanism you want.
You just stop explaining loyalty in the terms of being a kickback on attributed rake costs that are not true.
“the plain dealt rake atribution method is not sufficient to encourage the affiliate to bring the right type of players for healthy liquidity.”
So true, although I like to argue that the mistake is not only in the attribution methods but also in the general business setup between operator and affiliate.
I fully agree with bill on this one. leaving players in teh dark makes it extremely difficult to direct their play into long term loyalty.
there should be a simple solution for those issues – and here is the core idea behind that:
what if we allocate rake in one way that is best for room liquidity and long term loyalty [dealt method is teh best IMO], but we pay affiliates/partners according to a different formula that takes into account different set of parameters – that encourage bringing weaker players and net depositors?
I will not go in to what this formula should be, but obviouly the plain dealt rake atribution method is not sufficient to encourage the affiliate to bring the right type of players for healthy liquidity.
Hmmm…
“The other part is that as soon as a poker room has a loyalty program that is in any way tied to how they allocate rake then you have a right to know.”
They don’t have a right to know how I allocate rake. They just have a right to know how points (or whatever mechanics is used) that make up the loyalty program are distributed (which is what I wrote). The fact that poker providers tend to equate the two doesn’t mean it has to be that way.
“Hardly ever do we know what makes up the price of something.”
Precisely so why does poker feel the need to explain it?
Everybody wants to know what something actually costs though. And my proposal is the proper way to present it imho.
“nobody talks about their commissions. It’s buried way, way down into the website.”
Agree. Part reason why it is buried is because of what I wrote. It’s an ugly thing to say to a customer.
The rake-aware crowd is definitely large enough for this to be an issue regardless though. Not a massive issue by any means, but an issue.
“It’s only the more experienced and novice players who factor the loyalty program into their win/loss calculations and for them knowing is imperative. ”
They should be able to factor in loyalty programs. My intent is not to question the need for transparant loyalty programs. The problem is that if a loyalty program is explained as an effect of rake costs that aren’t actually true, you get these uneneccessary spillover effects when you change loyalty. Players will claim that they are now paying more and are being ripped off. They and affiliates will claim that you are stealing from them etc etc. Which is not true.
It’s always going to be a borderline semantic question, but I’ll write a follow-up explaining what I consider to be the most damaging side effect of this issue.
“Just like nobody ever asks how they arrived at the rake levels as they are today.”
Fascinating question that. I don’t know the answer, but intend to ask the question in the weeks to come.
Sites should keep presenting loyalty programs in the sexiest and most informative way possible. But they shouldn’t present them as a kickback on rake costs the player has not actually paid.
My mindset when I set down at a table is that every dollar on the table is mine. My problem then becomes how to get that money.
From that perspective (the player’s perspective) all rake is money taken out of a pile of my money. Money raked is money I won’t get.
Losing players might have a different mindset.
@Kim: I think the cost of a airline ticket is not a good example. Hardly ever do we know what makes up the price of something. Can anyone explain all of the underlying parts of a television set and come up with the retail price? Okay, maybe there are some people who can but most consumers don’t care. Just like nobody ever asks how they arrived at the rake levels as they are today. If they collect $1 every X in the pot, how does that $1 get spent? How much goes to marketing, how much to servers, how much to staff, how much to whatever. People don’t care. It’s either affordable or not. If the rake is too high people play elsewhere. If they feel it’s fair they play there.
The other part is that as soon as a poker room has a loyalty program that is in any way tied to how they allocate rake then you have a right to know. I know that when I use my credit card that I get 1 mile for every dollar spent. Simple. When I fly, most airlines calculate it as 1 mile for every mile flown with some short haul carriers guaranteeing a minimum number of miles even if your flight was shorter than that or awarding points based on segments.
Seriously, there may be exceptions but that’s pretty much as complex as it gets. And other loyalty programs are equally as simple. You do X, you get Y.
And, as far as communications, unless a room is specifically targeting professional grinders nobody talks about their commissions. It’s buried way, way down into the website. So, I don’t know if I can agree with you on the player experience part of this because you’re describing a user experience that newbie players are not experiencing. Most sites tell players that they need to earn points to get cool prizes or entries into freerolls or to clear bonuses. Newbies basically know that the more they play the more points they get but they don’t know how the points are calculated. They don’t even care. It’s only the more experienced and novice players who factor the loyalty program into their win/loss calculations and for them knowing is imperative.
I could see what you were saying if I was getting emails saying “Hey Bill, check out our new rake structure,” but the only people who I feel have really crossed the line in terms of pushing pricing in your face are Betsson marketing both their full rake and rakeback sites at the same player base. Other than that I don’t think anybody is really creating that big of a communications issue.
Hey Bill,
Great review. Makes it more fun to write.. in this case I think we agree more than you think. Although it’s more fun when we don’t. A couple of counter-notes if I may… 🙂
My post is about player experience – not business development. I am in no way proposing that sites change their rake models to an assign-all-to-winner model. That would be not be wise. I am however claiminig that it would be possible to present the cost aspect of playing that way WITHOUT having to change the underlying model. And that would be better.
“If the allocation of rake is in any way tied to the loyalty program then the players have every right to know how the rake is being allocated.”
Here’s where it gets borderline semantic. I do not know why exactly I am charged what I am charged when I fly. The flight and fuel tax are usually presented as separate posts, but otherwise I have no clue why the price is what it is and who gets what of that money. Neither am I told the exact algorithm that controls the Frequent Flyer Miles calculation. I am however told the exaxt amounf of points I will get for a certain trip (a flaw of some rake models we’ve discussed in the past).
I am not convinced that these two posts, cost-for-ticket or points-for-trip necessarily go 100% hand in hand in the aviation industry. It’s probably possible ot find scenarios where the same air fare generates different amount of points.
This separation of cost and reward is good. It’s a fair bet that the the aviation industry’s systems are clunkier than one would like, but still.
And while I have the right to know the amount of points my ticket will generate, I still don’t know the underlying mechanics of costs and how the the revenues are split between airline, travel affiliate, airport and whatnot. And I still claim I have no business knowing this.
Basically you don’t want to waste players time understanding a complex mechanics of paying, when you could instead be explaining a complex mechanics of rewards and keep the explanation of payment to the two-three lines I propose in the article.