iPoker changes the revenue allocation between its skins
On February 1 iPoker will be changing the way that it shares revenues with its skins. There are no changes to how rake will be taken from the players.
The most important information first: from the players' point of view nothing is changing in terms of how rake is taken at the table or how much rake is being taken.
What is changing is how the rake taken at the table is being allocated and distributed in the background per player and accordingly per cardroom. The short version of this announcement is that losing players will be worth more to the cardroom than their actual rake generated and winning players will be worth less.
StrategyPoints will not be affected by these changes and will still be based on the rake you see at the tables.
Why is there a change?
For many years the poker industry has been working under false assumptions about how poker business works. Revenues of online poker rooms are nothing more than rake and tournament fees. However, the way rake is being taken from the tables has created a “false understanding” about which group of poker players actually drive the revenues of a poker room. Most poker operators assumed that the amount of rake taken from a player determines how much this player is worth or how much revenue he generates (player valuation). However, this assumption is wrong and can be shown with a simple example:
- Player A wins $1,000 from other players and generates $10 in rake.
- Player B loses $1,000 to other players and generates $10 in rake.
In the past poker rooms perceived the "player value“ of both players to be $10. Player value (here $10) represents how much the poker room is effectively earning from the player (revenues). Logically, the player value (wrongly assumed to be $10 for both players) represents also an absolute cap of how much the poker room can spend on a player in terms of acquisition expenses (marketing campaigns), retention expenses (VIP system, promotions, bonuses) and other operation costs of the room. Let's first compare how much Player A and Player B are in reality worth to the room, as they are in fact not worth $10 each, due to following reasons:
- The $1,000 lost by player B to the other players is now part of the bankrolls of those other players and thus has a higher chance to be turned into more rake, as other players continue playing with this money.
- On the other hand Player A won $1,000 and cashed the money out of the poker room. The money is effectively gone from the poker room and cannot be turned into rake in the future.
In reality, losing player B is much more valuable than winning player A but the simple rake metric doesnt reflect this. Standalone operators reflect the true value of a player by looking at his "net-loss", which essentially means comparing the wins and losses (and rake) of a player.
Why is this change needed?
There are a lot of reasons for it. Here are the most important ones:
1. Reflecting the real value of the players
Applying a better way to understand the real value of a player is actually coming quite late at iPoker. All competitors applied this knowledge years ago.
Standalone operators look simply either purely at the net-loss (how much a player won or lost) or add a rake component while still focusing mainly on the net-loss. Networks had a harder time applying just net-loss due to the fact that it's not a closed environment. Money is flowing not only between one operator and players, but also between multiple operators and their players.
If a network would apply a net-loss formula this would actually cause a lot of conflicts of interests and would ultimately result in potential negative results for players.
Example: Player A is a winning player. Applying a net-loss metric means that the real value of this player can be negative. A standalone operator can decide that in his own environment he is fine with Player A being valued negatively since the operator is in a own closed environment and can assign from somewhere else a budget to mitigate the "loss" he faces from Player A having a negative value. This is what has happened in reality for years.
If you think about the above scenario in a network environment with various operators, you realise that some operators might decide that they don't want to have Player A playing for them because he has a negative value. This could lead in the worst case to closing down that specific player's account or trying to prohibit him otherwise.
All poker rooms apply internally a different valuation per player based on if the player is a winner or loser. The reason why you notice it now on iPoker is simply due to the fact that it's being communicated publicly instead of just being applied internally within a single company.
2. Ability to bring new players to the tables via marketing.
Everybody doing this, still doesn't answer the question, why it's needed. The reason is because simply looking at rake is ultimately flawed and has negative consequences for the poker room.
Let's look at this from a player's perspective. As a player I want to have a lot of tables and action available. I want to have big tournaments with big prize pools. More importantly I want to be able to win something. In order to win something other players need to lose something.
Players who lose money don't have infinite bankrolls to lose thus there needs to be a continuous flow of new players. This can happen only if the poker room invests in marketing to bring more players. Now the problem of the traditional system comes into play.
A new player brought in via a marketing campaign is usually losing money quite quickly. If somebody loses money quickly, he hardly generates a lot of rake while he is losing. To give an example, a player might lose €200 while raking only €20. In the traditional model the player is valued only €20 while his true value is something between €200 and €20 effectively. With €20 available you can't pay the bill for your marketing campaign. With a higher value you could.
The same principle applies to cross-marketing which means that if you take an existing customer whom, for example, bets on sports, you can promote poker to him.
3. Fair and stable environment in the network.
Money flows in poker from losers to winners. This can be on a player level but also on a poker room level in a network. Poker Room A might have a lot of losers as customers while Poker Room B has a lot of winners. Player bankrolls are moving from A to B. In a standalone environment you don't have this issue. In a poker network you have a situation where Poker Room A with many losers is suffering from their players balances being lost to Poker Room B. The players on Poker Room B could either play with it, they could cash it out or they could bet on sports with it. On the other hand players from Poker Room A can't do this anymore. Poker Room A has a liquidity drain from their company to another company.
Additionally the above concept works also between products. Imagine you have a group of players who have a lot of money and they gamble with it in the casino of Poker Room A. The Poker Room makes quite a lot of money from these players losing their money in their casino. If these players now start playing poker, they lose their money to the other players. If you combine the above mentioned effects it means that i) while losing a lot of money these players hardly generate a lot of rake (especially in comparison to what they would have generated in terms of revenue in casino for Poker Room A) and ii) their valuable money is gone from Poker Room A and sits in the pockets of Poker Room B.
Is this change good or bad?
If you are a poker player you care about good games. You want to win ideally some money from players who play worse than you. You want the poker room to invest money into marketing to bring you these players.
If you look at the poker rooms on the iPoker network you see a lot of sportsbooks. Maybe you know that sportsbetting players are not necessary the best poker players. Maybe you might also know that these sportsbetting companies have a huge amount of customers which you would love to see at the tables playing with you.
The above points explain why over the last couple of years these sportsbooks stopped cross-marketing a lot of their customers to poker. It simply made no sense for a variety of reasons. But you want them to do it again! Applying a proper valuation per player is the key to doing so. If you see non iPoker rooms investing into marketing, you might realise that they do it already. This change is nothing new in poker. It's just one way of how to implement something which everybody else has done for years. You see it not only in terms of marketing but also in terms of type of promotions which are being created.
If you want poker rooms to invest in bringing you more players to play against, then this change is good for you.
Going forward you can expect to see more promotions being targeted towards recreational players on iPoker and these players getting a better overall experience which is in your interest. On the other side you will see less promotions towards winning players.
What are the details of the change?
If you are interested more in the mechanics of how the system actually works in the background for the poker rooms, we recommend the following thread where various questions have been answered already:
