Explained: What is poker markup?

Explaining poker concepts to new players, we start with the controversy with Phil Hellmuth charging a very high markup for events at the WSOP

We have a lot of new players at PokerStrategy.com and we have to therefore remember that a lot of the conversations that experienced players take for granted will sometimes go over their head. So when stories in the poker world come up that only make sense to experienced poker players, I am going to spell out what we are talking about for the newbies.

What prompted this first article is the ongoing saga about Phil Hellmuth and markup. Phil has been criticised by most of the experienced poker community for charging 1.8 markup to play in the $10,000 Turbo Bounty event at the start of the series, and the debate is still happening right now after he wanted to charge 1.5 for the $50,000 Players Championship (which he eventually skipped).

So what is markup, and why is Phil courting so much controversy for his?

A premium on ability

Justin Bonomo
Bonomo sold at 1.1 for the Super High Roller Bowl last year

When a professional poker player is selling shares of themselves in a poker tournament they can add a premium on top of it. If they believe they are a good investment, they can add, for example, a 30% premium. So if they wanted to sell 10% of themselves in a $10,000 event, they could charge $1,300 for it. The backer would only have $1,000 of the equity and the player would essentially pocket the $300. This premium can either be paid up front, or deducted after a win.

This is what is known as ‘markup’ and in the above example the markup would be 1.3. In the Hellmuth example with the 1.8 markup in the $10,000 Turbo Bounty, 10% would cost the backer $1,800. If the player sold $1,000 of equity in a $10,000 event at face value, the markup would be 1.0 (or basically no markup).

The important thing to understand with markup is that it is a premium the player decides is justified based on their skill and previous results. As a backer you have to decide if it is worth paying extra money because the player is worth it. The markup should therefore be considerably less than what you consider that player’s ROI in the tournament to be.

Markup should also be determined not only on the talents of the player, but on the toughness and profitability of the event. If the tournament is soft the markup will usually be higher because the horse has more of an edge. If the structure is good, expect higher markup, if it’s fast, and thus variance plays a bigger role, expect lower markups.

So markups should be quite low in events like Super High Rollers because they often only attract about 40 players and all of them are world class, so your potential return is lower. This year’s Super High Roller Bowl champion Justin Bonomo has previously charged a 1.1 markup in that very event, for example. I’ve bought a piece of a package of a player in this year’s WSOP and his markup was much higher in the Main Event and Monster Stack than the other $1,500 events for this reason too - they will be full of amateurs and with so many players the potential upside is huge.

So why was Phil Hellmuth’s markup controversial?

The market does not agree

Phil Hellmuth
Is Phil worth 1.8?

Most of all it was just very high compared to what the market of talented players charge. It’s quite unusual too see even very good players go much beyond 1.3 markup and usually anything above 1.2 needs to be backed up with a great track record. 1.8 was exceptionally high for any tournament and the 1.5 he suggested in the Players Championship was too when you consider it’s a small field and everyone is exceptionally talented.

If you follow the PokerShares twitter account you will see what many consider a real approximation of what the player’s markup should be in the events they play. You’ll rarely see anyone over 1.3 and cheekily Mr Hellmuth is often put under 1.0, suggesting he is unprofitable in that event.

The other reason specifically why the 1.8 markup was so controversial was because it was in a Turbo Knockout event. First of all, Turbo events have way more variance meaning that even if Phil was as good as he thinks he is, lady luck would play much more of a part in the outcome. Secondly, because Phil is famous for late registering, this is literally burning money in a bounty event. If you are not at the table from the start, you miss a ton of chances to bust a player and take a bounty. Phil turning up late when 30% of the field has busted means there is literally part of the prize pool he had no chance of claiming, and thus a bad investment for that reason alone.

It’s a free market and people can charge what they want, but remember that when a player charges any markup they are declaring they believe they are a favourite in the event. If somebody is taking a shot at a bigger game, they should be selling at face value. Like with any investment, it’s your responsibility to figure if the player involved can back up their markup (and a good place to start is by comparing them to the markup’s of other players).

What other poker concepts do you hear everyone talk about but you have no idea what they mean? Let us know in the comments:

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