How the Poker Economy Works
Here’s my simplified model of how the poker economy works:
- The bucket represents the poker room.
- There are two holes on the bottom. One hole is the rake and the other hole is withdrawals.
- There’s also a faucet that brings new water into the bucket. That water represents new deposits.
The poker room needs to keep the water level in the bucket stable or rising. A decreasing water level will eventually spell disaster.
Before we proceed, I want to point a few weaknesses of this model.
- The poker economy is actually LOCALIZED. That means that $100NL could be a very healthy game, but $200NL could be on the verge of collapsing.
- This model doesn’t really factor in bankroll management. A fish that deposits $10,000 and plays $5/$10 NL is one thing. A fish that deposits $10,000 and plays $0.01/$0.02 is another. Same kind of thing for withdrawals. It’s one thing to withdraw your entire roll and stop playing poker, it’s another to be playing $50NL with a $10,000 roll and withdraw $1k.
Let’s consider some scenarios:
Scenario 1
The poker economy is booming. The water is flowing into the bucket faster than it’s leaking out of the holes. The right step for poker rooms is try to open up the rake hole. They’re leaving money on the table if they don’t. To open up the rake hole, they can increase the rake structure or they can try to attract players that play a TON of hands. Back when poker was booming, the poker rooms did just that. They started to let players play 16 tables at once, gave VIP rewards based on the number of hands played, etc. Many poker rooms probably understand we’re not in this phase anymore, but they’re not adjusting that well.
Scenario 2
The poker economy is declining. The water is flowing out of the bucket faster than it’s flowing out. The right step for poker rooms is to try to increase the flow of water OR decrease the flow of water out of the holes. You can increase the flow of water by marketing, deposit bonuses, etc. You can decrease the water flowing out of the withdrawal hole by VIP rewards and limiting withdrawals. Why are poker rooms not encouraging a guy playing $5/$10 with a $10k bankroll to keep his bankroll on the site? You can also plug up the rake hole. I know, raising or lowering “prices” is generally a crappy way to compete against other poker rooms. But that’s NOT the point of lowering the rake. You lower the rake to maintain the health of YOUR poker room. It’s similar to what the U.S. Federal Reserve System does when it lowers the interest rate during a recession.
Scenario 3
The poker economy is stable. The water is flowing into the bucket as fast as it’s flowing out. Poker rooms can try to grow the economy the same way described in Scenario 2.
Now, it’s pretty obvious that Scenario 1 is great for poker players, Scenario 3 is OK, and Scenario 2 is disastrous. If I were to guess the state of the poker economy, I’d guess we were in Scenario 2. So why don’t I see any incentives to limit withdrawals? Why don’t I see more deposit bonuses? Why are poker rooms not lowering rake? Are poker rooms too focused on new customer acquisition when they can take easy, immediate steps to better the poker economy?
Additional Recommended Reading: Underlying Flaws of the Affiliate Rakeback Model
