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 this part, we discuss Barber’s issues with the selling of action at a markup.

Alex Weldon (AW): Hi Andrew. I see that you’ve been playing WSOPC/WSOP events for some time now, but you were probably under most people’s radars until just recently. That being the case, can you start by giving us a little background on yourself, what you’re doing and how you got into poker?

Andrew Barber (AB): Absolutely. I don’t know if it’s the most common path, but in my case I came to poker out of necessity.

I grew up in Illinois, went to college in Ithaca, NY, and then moved to Sacramento, CA for an engineering job in 2007. I was let go from that job within five months, which upset me briefly before I realized that I’d really hated what I had been doing. More than that, I realized that I hated that my compensation had been based largely on corporate factors I had no control over.

I didn’t want to go crawling back to my parents with my tail between my legs, so I took the plunge into poker. Thankfully, things were booming in poker in 2007-2008, both live (Sacramento is quite the poker town) and online. I started in SNGs, but eventually branched out into cash games and MTTs. Then I discovered Omaha Hi-Lo, which was the gateway drug that eventually got me playing all the games.

I’ve found myself wanting to explore other avenues recently, however. This fall, I’ll be starting a PhD in Economics at University of California – Santa Cruz. I’m pretty jazzed about that. I’m a nerd at heart, so I’ve always felt a little out of place in poker, even though poker itself is becoming nerdier of late.

AW: It’s interesting that you’re transitioning out of professional poker just as you’re coming off a big win in the $10,000 HORSE event at the WSOP, which is the point at which many amateurs or semi-pros would be thinking of making the leap to becoming a full-time traveling tournament pro. Is it just a matter of feeling out of place or are there other reasons for wanting a change of career?

AB: That’s a great question. I think for me, poker feels somewhat limiting. I’ve seen a lot of great minds come and go in this game, many of them because they’ve had their eyes set on bigger and better things. The only reason I left academia in the first place was because I found myself hating what I was doing. Now, with more maturity and some time for introspection, I am quite confident that the path I’ve chosen is the right one for me.

That being said, poker pairs really well with academia. Quitting would be pretty silly, so I’m not going to do that. In economic terms, the “human capital” I’ve developed is much too valuable.

AW: The first time you and I interacted was on Twitter, when we exchanged some comments about Mike McDonald’s auction for 10% of his Main Event action. Obviously, we both feel that the price he ended up getting was ridiculous, but at the time you also felt that he was trying to make a point. We never got to follow up on that because, as it turns out, you were too busy winning a bracelet that day. Now that life is relatively back to normal, what point did you feel he was trying to make?

Ha ha. Mike is a very smart guy and he and I have both felt for a few years now that the action-selling marketplace has been getting a little problematic. Every poker player faces the same ethical dilemma when selling action: Should I charge whatever price the market will bear, or should I pick a price that I honestly believe will be profitable for my investors? I think Mike knows he’s exploiting people who don’t understand attainable ROIs and the so-called “winner’s curse,” i.e. that in an auction for an item of uncertain value, the winning bid is usually too high. On the other hand, Mike probably also believes that he’s worth it, ha ha.

AW: So, you feel that investors in general are willing to pay excessive markups. Do you feel this is true at all levels of play, or is it more a problem with big name pros and people coming off a high-profile win?

I think it’s true of all levels of play. You do have a point that, when it comes to big name pros, many of them are capitalizing on name recognition and positive variance. At the same time, though, lesser known players also tend to overcharge simply because they feel they’re entitled to charge markup and end up setting it pretty arbitrarily.

Back in the 1970s, a Nobel Prize-winning economist named George Akerlof suggested that the used car market was a “market for lemons.” He was postulating that because the buyer inevitably knows less about a given car than the seller, all the cars being sold are probably of sub-par quality. After all, why would you sell an above-average car for an average price? It’s a classic case of asymmetric information.

I think you can see something similar happening in the poker marketplace. Most of the best players are selling privately, are already fully backed, or don’t sell action but only swap it with other top players. That leaves, shall we say, a different subset of players selling action publicly, for the most part.

AW: It’s really hard to determine a specific player’s actual long-term edge in a given tournament with any accuracy, especially in live poker where the sample sizes are so small. If both the players and investors are basically just guessing at what a fair markup is, whose fault is it if they agree on a markup which is too high? How do you think “correct” markup should be determined?

AB: That’s another great question, but I still think players have better information about themselves and the game than their investors, especially when those investors are non-poker playing friends and family. I’m no saint in that regard; I have been guilty of this in the past.

We’re not completely stabbing in the dark on this, either. There was an effort a while back to aggregate all of the packages and tournaments posted on Two Plus Two over a certain period of time. From my recollection, the forum as a collective turned out to be a pretty big loser over the studied interval. Furthermore, I think the best players have a pretty decent idea of what long-term ROIs are attainable in typical small-to-medium buy-in events, but choose to disregard this information because it’s too tempting to overprice shares if you can get away with it.

It’s also important to realize that markup creates the phenomenon of “dual prices,” something players don’t usually like to acknowledge. That is, if a player sells 50% of his action at 1.2 markup, he’s effectively buying the other half of his own action at a 0.8 markdown. Of course, if he’s actually creating profits for his investors, he deserves a discount for the work he’s doing, but at the same time, this arrangement means that he can end up turning a profit even at a negative ROI. He would need an ROI greater than 20% in order to turn a profit for his investors, but only needs to do better than minus 20% to come out ahead personally. That’s considerably easier to achieve, and is the reason I (and others) suspect that a lot of pro players are making the bulk of their living from markup rather than actual winnings.

I have some ideas to improve this situation, but I realize that I’m starting to digress from the original question.

This concludes Part 1 of the interview. In Part 2, Barber and I discuss the challenges in setting markup correctly, and possible ways to make the marketplace more fair.

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