This is Part 1 of a four-part interview with Andrew Barber, winner of this year’s World Series of Poker Event #63: $10,000 H.O.R.S.E. Championship. In Part 1, we discussed Barber’s issues with the selling of action at a markup. In this part, we discuss possible solutions to the problem, as well as advice for would-be investors.
Alex Weldon (AW): It seems to me that there are two problems when it comes to determining a fair markup. First, you have to adjust for variance to estimate a player’s actual long-term expected ROI, and then decide where to set the markup based on that information. If we could somehow divine that a given player is really +20% ROI long-term in a given event, then we know the correct markup for that player is greater than 1.00 and less than 1.20, but where should the markup be set, and how much of his action can that player responsibly sell?
Andrew Barber (AB): Now we are getting to the real question. I think that’s up to the player to decide. There are two models that I have heard of: the Finnish and the German. The Germans charge one another really high markup while the Finns supposedly sell to one another at par.
Assuming that you buy as much as you sell, the Finnish model makes a lot of sense and is equivalent to multi-way swapping. I’d love to see a world with a player-operated marketplace in which action was sold at par or at a low markup, but with the same group of people buying and selling and a requirement to keep one’s buying-to-selling ratio close to 1:1.
Another ethical alternative would be to let people charge whatever markup they like, but with conditions imposed, such as money made from the markup going to charity, or being fully repaid to investors prior to the player keeping any profits in the case of a cash. I prefer the former, of course, but there are many ideas like these.
I think it’s also a good rule of thumb that players should always keep at least half of themselves. Really, the bigger the markup, the less action the player can responsibly sell, but the point is that it’s important for players to have plenty of “skin in the game,” and 50% is a good ballpark number for that.
AW: You said [in Part 1] that you have some ideas to improve the situation. What would you like to see change, and how do you see that change happening?
AB: I alluded to a couple ideas earlier. Education is important; people need to understand markup, ROI, and the need for players to have enough skin in the game. I’m hopeful that the rise of sites like YouStake and TastyStakes will lead to a consolidation of the market, with the result that fair markups will sell better and ultimately displace overpriced shares. A segregated marketplace where you can only sell as much as you buy is a dream because I think it would lead to less variance for those who bought into the idea.
Since I’m pushing Raising for Effective Giving right now, I’d say that I’d also be okay with people pricing themselves as high as the market will allow as long as they do something really good with the money they’re making.
AW: Consolidation and transparency are already starting to happen slowly, as you say, but the education aspect seems tricky because although these concepts are individually simple in theory, they’re way more complicated when taken together in practice. Do you have some good rules of thumb that a lay investor could apply to make sure they’re not making a losing investment?
AB: The basic problem is that we are all pretty irrational when it comes to decision-making. When it comes to buying action, that means we pay more for people who have had recent scores and pay less for those who haven’t. It’s a classic “buy high, sell low” philosophy, and it will tend to long-term losses. As someone who has struggled to sell shares for tournaments in the past, I’d say the best advice is to avoid the bigger names and buy from people who are hungry, haven’t had a large sample or big scores yet, and are selling close to par.
For example, I bought a piece of Scott Abrams the year he got 12th in the Main Event because I know Scott is a good player and he was selling at 1.04. It was such a good buy. I also bought a piece of my buddy, Sean Drake, in the Monster Stack at 1.1 because that’s a good value event in my opinion: he ended up taking third. There are tons of bargains like that if you look for them. As a general rule, outside of the Main Event, I just don’t know if it’s worth buying anyone above 1.25, maybe even less. If everyone stopped buying higher markups, markups would have to fall, so we should all be trying to do that.
AW: Understanding the relative value of different events is great advice, but how does someone who isn’t themselves a professional player determine who is good or not, other than by looking at results?
I’m short on heuristics that could be used by those who don’t know much about poker. I suggested avoiding markups that are too high. For people who are unproven, I really like the idea of buying at par so that both the investor and the player have the same skin in the game.
Another thing that many investors look at is online results. Online play allows people who don’t have large live samples to reveal their abilities. In fact, I know several guys that refuse to touch players who haven’t played online.
Something else I’m thinking about is buying from people selling for individual events or smaller packages, rather than big packages, because I think there might be value in investing in someone playing a smaller volume. My reasoning there is that the player is likely to be taking each event more seriously.
This concludes Part 2 of the interview. In Part 3, Barber and I discuss the future of the poker economy.
Alex Weldon (@benefactumgames) is a freelance writer, game designer and semipro poker player from Montreal, Quebec, Canada.