Value Comes from Interactions, not Individuals

Alex Weldon : December 1st, 2015


What’s the value of one player grinding? It sounds like a Zen koan, and just as it is with dogs and Buddha-nature, the answer might in fact be mu. Perhaps we need to “unask” the question.

Today is the first day of a three-day boycott being organized by players on PokerStars to protest the changes to the VIP Rewards program, which are set to go into effect as of the beginning of January. Over 2000 players have announced their intent to participate; that’s about 15% of the average cash game players online at any given time, according to PokerScout. So far, though, there doesn’t seem to be much visible impact; in fact, cash game traffic is at a two-week high as I write this, and by a huge margin.

Of course, there are many possible reasons we haven’t seen any impact from the boycott yet. The most likely is that today also happens to be the day that PokerStars’s holiday promotions – Milestone Hands in particular – come into effect. That boost in traffic is likely dwarfing the decline due to the boycotts. Regardless, even if the site did see a drop in overall traffic on the order of, say, 5%, it’s doubtful whether those in charge would care. This is because there’s a deeper issue underlying the changes and the bad feelings surrounding them, which is a fundamental difference in belief about which players are of value to a site.

Is it all about volume?

The players most affected by the changes are those who play high stakes and/or high volume, profit at a small percentile rate, and rely heavily on rakeback and other incentives. Those players also believe themselves to be of high value to the sites. Their argument is that each dollar wagered generates rake for the site, and because they wager the most dollars, they also produce the most revenue.

In other words, they see themselves as being in a symbiotic relationship with the site, with both working together to extract money from the losing players. The site takes the lion’s share, but in gratitude for their hard work, gives them back a piece at the end of the day. From their point of view, then, these changes are a breach of that implicit arrangement.

It’s completely unsurprising that they’d see things this way, because the rewards system itself is set up to send this message. Valuable Player Points are awarded based on the assumption that each player’s contribution to the rake is proportional to the amount staked, regardless of who ultimately wins the pot or cashes in the tournament. The rewards are then often expressed as percentile “rakeback.”

This is a convenient way of looking at things – especially if you’re a high-volume pro trying to justify his or her value to the site – but is ultimately just an illusion. A similar fallacy comes up frequently in discussing taxation: People often want to know where specific tax dollars are “going,” for instance whether fuel taxes go towards highway maintenance, or salaries at the Department of Motor Vehicles, or what. The reality is that taxes go into common coffers, from which the government then spends. It’s somewhat the same for prize pools and pots on a poker site. One dollar is identical to any other dollar, so when money from several sources is pooled and then redistributed to multiple parties, it’s perfectly arbitrary to claim that any given dollar out “came from” a specific source.

Take tournament fees, for instance. They’re commonly expressed as something like $10+1, implying that every player, win or lose, contributes $10 to the prize pool and $1 to the site. However, you could equally just charge an $11 buy-in and then withhold 9.1% from each winner’s prize. Alternately, you could make it $9.85 + 1.15 (assuming 13% seats pay) and “reimburse” the winners their tournament fee along with their winnings. All three systems produce identical prize pools, leave everyone’s profits and losses unchanged (as long as you tweak the percentages on the payout table appropriately) and generate equal revenue for the site. The difference is purely in presentation, yet the standard version makes it seem like everyone is paying the tournament fee, while the alternatives make it seem like only winners are paying, and only losers are paying, respectively.

So, is it about money in vs. money out?

In the boom years, the sites’ view of things was probably much the same as the players’ view I’ve just described. Now, though, the biggest problem facing sites is that deposits have been on the decline for quite some time. Pro players may serve as pistons in an engine, but ultimately, the whole thing is running on gasoline. There’s still plenty of gas in the tank – that is, money in players’ accounts – but if fill-up stations are growing fewer and farther between, the tank will eventually run dry and the car will stop moving.

When your primarily concern is watching that needle dropping towards Empty, the economics of the situation look pretty different. The functioning of the spark plugs and pistons recede into the background and the most crucial factors are fuel consumption, coupled with how much gas you think you’re going to be able to get your hands on in the near future. It’s an undeniable basic fact that the gross revenue for a site equals deposits minus withdrawals (and balances, since those must be kept segregated from the site’s own capital).

From that perspective, it seems like pro players are nothing but leaks in the gas tank. Every dollar they withdraw is a dollar removed from player balances before it can be raked by the site. But this way of looking at things isn’t any less naive than the volume-based view, and may even be a little more so.

After all, most players’ deposit-to-withdrawal ratio depends only slightly on the site rake and much more on the caliber of opposition. Hypothetically, if a site made the bold (and absurd) move of banning all players who profited in the past year, what would happen to the remainder? The biggest losers would continue to be losers, but all of those who were formerly slight losers would be converted overnight into winners through the removal of their toughest competition. Those players would then begin withdrawing more than they deposit, and things would be basically unchanged albeit with a smaller player pool.

What’s the sound of one hand clapping?

So, then, what is the resolution to this paradox? One model has high-volume players creating value for the site, and the other has it coming from losing players, yet both have their flaws. I think almost everyone would agree that high-volume losing players are good for a site and low-volume winners are probably of little value, but those are both rare birds. Generally speaking, skill, experience, volume and winnings are all correlated, so most players fall somewhere roughly along a linear axis from low-volume losers to high-volume winners. What part of that axis is of the greatest value to the site?

I started this article by saying that asking the value of a single player sounds like a koan. Of course, that’s largely because of the way I phrased it, mimicking the structure of the classic cliché about the sound of one hand clapping. But thinking about it that way is in fact the resolution of the paradox: no single player has intrinsic value. Value comes out of the interaction of players.

After all, a site with only one user can never profit, because it can never deal a hand. It doesn’t matter who that user is: You could have Andy Beal sitting at a table with $100 million in front of him, but if he’s the only person online, you’re never going to rake a dime.

On ecosystems and skill distributions

This is why “ecosystem” is such a buzzword these days, even if most of us are sick of hearing it. Asking for the value of an individual player is like sitting on a chair and wondering which of the four legs you could do without. Unask the question.

Unfortunately, the right question to ask is a much harder one to answer: What sorts of interactions are most desirable? Obviously, when two players of equal skill interact, only the site wins (and if only the site wins, then eventually everyone quits). Conversely, when there’s a huge skill gap, only the better player wins, as he busts the weaker one before significant rake is generated.

Thus, it seems intuitive that the best thing for everyone is to have moderate skill differentials arise as often as possible. Better players therefore collect modest profits, as does the site, while weaker players get a reasonable amount of playtime in before going bust, and everyone can see that it is possible for some players to profit, so the game feels fair. This, in turn, means that the best thing for everyone would be some kind of smooth and unimodal skill distribution.

In other words, the “rec-reg” binary (i.e. recreational vs. regular players) may itself be a toxic paradigm. Players on all parts of the spectrum are valuable, but perhaps a “strong middle class,” as it were, is what’s needed to ensure balanced interactions which are of high value for all parties involved. So, maybe the actual problem isn’t really greedy pros or dwindling deposits from recreational players, but rather a hollowing out of the middle of the skill curve.

If that’s the case, then it’s not an easy problem to fix, but making sure that we’re framing it the correct way and asking the right questions would surely be a good start.

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

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