Canadian poker star Mike “Timex” McDonald has decided to auction off 10% of his WSOP Main Event action on the 2+2 forums. The auction is potentially a long way from over – McDonald says he will leave the bidding open until 24 hours elapse without a new bid – and already the results are interesting, to say the least.

Forums members are invited to bid on any amount of the action they want in 1% increments, up to 10%, and offer any amount they like, also in $5 increments. Once the auction finishes, the action will be allocated to the top bidders from highest to lowest until the full 10% is sold off, but all winners will pay the same rate as the lowest winning bidder; for instance, if the two highest bids ended up being 5% for $800 ($16/1%) and 10% for $1500 ($15/1%), then each would get 5% for $750.

The basics of selling action

The buying, selling and swapping of action is very common in the poker world, but usually it is the seller who sets the price. Generally speaking, each percentage point of the player’s winnings is sold at slightly higher than one percent of the buy-in; the difference is called the markup.

For instance, for the WSOP Main Event, with its $10,000 price tag, each percent of action would be sold at $100 plus some markup. $105 would be 1.05 markup, while $130 would be 1.30 markup.

The basic economic proposition in buying and selling action is that the investor will share in the player’s potential profits, at the expense of taking on some of his risk. Therefore, the markup should be set at less than the player’s expected edge. If both the investor and player believe the player’s edge to be 30%, say, then the markup should definitely be in the range of 1.01 to 1.29 and probably somewhere around 1.15 to 1.2. Exactly where the markup is set depends on the variance involved in the tournament or tournament package; higher variance means higher risk, so should usually mean lower markup.

The “correct” markup for an arrangement then depends heavily on the player, the expected level of competition and the size and structure of the event or events in question. You tend to see low markups of under 1.1 for tough events like Super High-Rollers, and higher markups for events with softer fields and slower structures, where the best players can cash more consistently. Even then, it’s quite rare to see players asking much more than 1.3.

Fools and their money

With those sorts of numbers being the norm, it was pretty shocking to see a bid come in mere minutes after the auction went live, offering $1500 for the full 10% – a markup of 1.5. Granted, the Main Event has a very slow structure and a lot more recreational players than any other $10,000 event, but it also has a huge field and therefore huge variance; no player, no matter how good, is a favorite to win it within their lifetime.

1.5 markup would likely have seemed a little excessive if McDonald himself had been asking that price, but perhaps not completely insane for that specific tournament. Because it happens only once a year, it’s hard to estimate long-term ROIs for the Main Event, but it’s not hard to imagine that a player like McDonald could do better than 50% against that level of competition. The bidding didn’t stop there, however.

The auction hasn’t even been running for 24 hours yet, and the bidding has already hit $300/1%, or 3.00 markup, with several people asking for pieces at that price. At that markup, these bidders are effectively stating a belief that McDonald would have a long-term Main Event ROI of over 200%. Assuming you believe that the fair place to set a markup is between half to two-thirds of the expected ROI, he would need to have 300%-400% to ask this. Needless to say, this is insane; three-figure ROIs are extremely difficult to sustain long-term even in the softest fields.

Ethics and irony

The ethics of selling action can be a little bit tricky, because often the people who are buying action lack the experience to accurately assess a given player’s probable edge in a given tournament. This is especially the case when the action is being sold publicly, through forums like 2+2 or on Twitter.

Buyers are relying on the player himself to offer a fair price, and it’s considered shady for a player to offer to sell action at a markup that isn’t justified by their past results. At the same time, most poker players tend to have an image of themselves which is at least somewhat inflated, and players a most likely to seek staking for large events when they’ve been running well, meaning that their recent performance is likely above what their long term average would look like.

As I said, a 1.5 markup for a player like Mike McDonald in a tournament like the Main Event is arguably justified, if only barely, but anyone asking for markups that high tends to get blasted for it. A couple of years ago, for instance, Josh Arieh jokingly offered to sell action for the $10,000 Pot-Limit Omaha Championship and set off a Twitter firestorm when people took it for a serious offer. Even markups at the high end of normal, such as 1.3, often lead to people wringing their hands and wondering aloud whether players are taking advantage of their fans.

It’s ironic, then, that by letting the buyers set the price, McDonald is going to manage to sell at a markup of at least 3.00, a figure which would have had him tarred and feathered on Twitter if he’d asked for it directly.

It’s hard to tell whether the players bidding at that price are simply out of touch with the realities of poker, or whether for them, it’s not about the money at all. Perhaps for someone who is a big enough fan, simply holding a personal stake in McDonald’s performance is worth taking a loss. One way or the other, McDonald’s experiment makes one thing clear: even if big-name players are gouging with their markup, they could gouge a lot more if they wanted to.

Alex Weldon (@benefactumgames) is a freelance writer, game designer and semipro poker player from Montreal, Quebec, Canada.