How Regulation Affects Tournament Rake
Because of taxes and other extra costs of operating in regulated markets, poker rake in these markets tends to be higher than non-regulated markets. While regulated markets claim to offer players a safer, more secure way to play online poker, the higher rake takes a significant portion of profit from players.
Effects of Regulation in Online Poker
| Average Tournament Rake*
Rake Increase (%)
*Note – these rake figures are aggregated across game stakes for comparison purposes.
In the table above, the regulated column is an aggregation of tournament rakes of the subsidiary sites operating in regulated markets and the unregulated column is an aggregation of the subsidiary’s unregulated counterparts. As expected, tournament rakes are significantly lower at all buy-in levels in unregulated markets.
When players discuss tournaments and SNGs profitability, they generally discuss ROI. However, traditional ROI includes rake in the equation as part of the investment. The equation would look like this:
ROI = (profit/investment)-1
This makes sense when discussing win-rates because it makes it such that the breakeven ROI is set to 0%. However, to discuss the effects of higher rakes, we need to hold the profits constant and use, what we’ll call, ROBi, or ‘return on buy-in’. We can also think of total profit.
ROBi is the same as ROI except we remove the tournament fees from the investment part of the equation. The equation remains the same, but we ignore the tournament fees in the calculation. Thus, the ROBi required to breakeven is equal to the percentage rake that is charged.
Example 1: 0% ROI Break Even Player
To see the effect of these higher rakes, let’s use an example player:
This player is breaking even at $100+9 tournaments in an unregulated market where he is paying the corresponding rake of $9 and then making his living on 27% rakeback. Because he is breaking even, his ROBi is equal to his rake percentage of 9% and his traditional ROI is 0%.
This means his total profit per game = $100*.09 minus rake of $9 plus $9 * 27% rakeback = $2.43
Now his market becomes regulated and he must pay approximately $11 in rake. His ROBi, however, is still 9%. So his average cash is $109, but now he must pay $100+11 to enter each game and thus loses $2 on each tournament instead of breaking even.
He now collects 27% rakeback from $11 = $2.97 and subtracts his $2 loss. He now earns only $0.97 per tournament instead of $2.43.
For this player, regulation has taken 60% of his profits.
This $2 increase in rake is very significant in a game like poker in which edges are very small.
Additionally, players with slightly less than 0% ROI’s who could previously make a living with rakeback will be turned into absolute losing players and will likely quit poker altogether (see examples below).
For recreational players, this added cost will simply serve to drain their bankroll even faster than would have previously occurred.
Example 2: 3% ROI Winning Player
For a good winning player making a 3% ROI, the change in rake from $100+9 to $100 + $11 will be as follows:
Unregulated: $109*1.03 = $112.27 + Rakeback of $9 * .27 = $114.70 or $5.7 profit per tournament
Regulated: $112.27 + Rakeback of $11 *.27 minus the new buy in of $111 = $4.24 profit per tournament
This winning player can expect to lose 25.6% of his profits due to regulation.
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Example 3: (-2%) ROI Losing Player
Unregulated: $109*.98 = $106.82 + Rakeback of $9 * .27 = $109.25 or $0.25 profit per tournament
Regulated: $106.82 + Rakeback of $11 *.27 minus the new buy in of $111 = $1.21 LOSS per tournament
This slight winner after rakeback player can expect to actually lose money in the long run.
Is Regulation Worth the Cost?
The arguments for regulation of online poker generally always include the standard “we must protect the players” mantra. And, to that end, examples of rooms running off with player deposits will be trotted out by do-good legislators, but is giving up 25-100% of average player profits really worth the cost?
Do 15-40% higher fees justify the added security?
If you were an accountant, would you trade job security in exchange for a 75% pay cut?
And even with regulation, poor bureaucratic planning has left operators lacking in liquidity which forces sites to operate at a loss, or simply shut down.
The free market works. Poker should stick with it.