In my last post on the subject, I warned poker rooms against discriminating against winning players. My reasons were that poker should not be branded as a game where winners are not welcome, and that winning players – in addition to providing action at the tables – actually help poker rooms make more money because they are better at converting deposits into rake than recreational players.

In subsequent debates here on twoplustwo the latter statement was challenged.

In this article, I would like to provide a more detailed explanation as to why my claim is true, namely, that a lower number of strong players would cause a poker room to earn less money per dollar deposited.

Showing this is of key importance for two reasons:

• Most operators are not aware of the true value of winning players, and will make incorrect business decisions as a result of that, by over-adjusting from a "rake based" valuation to a "loss based" valuation.
• Poker players, when conversing with operators, need arguments that cannot be easily dismissed as purely self-serving.

Different views of player value
Fundamentally, there are two ways to look at how a poker rooms generates value for itself. For the sake of simplicity, I will ignore factors such as bonus costs, payment processing fees, etc. in this discussion. Also, let's assume that rake is weighted contributed rake.

The classical view
Value = Rake
Thus, a player that generates $100 in rake and loses $10 is worth ten times more than a player that generates $10 in rake and loses $100

The casino view
Value = Net Loss
Thus, a player that loses $100 and generates $10 in rake is worth ten times more than a player that loses $10 and generates $100 in rake.

How the two views are connected
There is only one way money can enter a poker room: by being deposited and lost by a player. There are two ways it can exit the poker room: by being won then cashed out by a player or by being turned into rake.

On the poker room level:

Rake = Wins – Losses, i.e. Rake = Net Loss

If a poker room switched from the classical valuation to the casino valuation, the sum of value attributed would remain the same - it would just be attributed to different players. The biggest losing players would internally show up as the most valuable players, whereas winning players would internally show up as negative.

Both views can be combined using the following formula and a value of c between 0 and 1:

Rake = Net Loss = c*Rake + (1-c)*Net Loss

Another important way of looking at things is by taking into account the money deposited and lost by weak players. Here, Rake = Gross Losses * Gross Loss to Rake Conversion, with gross loss being defined as the sum of money lost by losing players (without factoring in the corresponding winnings of winning players as is done in the "net loss" calculation).

It is important to note that the gross loss to rake conversion is not static. It is affected by the types of players that play on your tables, and in general, it's fair to say that the value is higher if the average skill difference between those players is low, and vice versa.

In particular, if you get more losing players to your platform, it's not going to help you from a poker room's point of view if none of the extra money lost gets converted into rake. This is a point which – I believe – most poker rooms are not aware of.

The oversight – ignoring the fact that a poker room is an ecosystem
A poker room might be inclined to switch from the classical view to the casino view based on the assumption that if recreational players are at a poker room, high-volume players will find them and join them anyway. This is only partially correct, but for the sake of argument let's assume that it is absolutely true. Therefore, if a poker room switches to the casino view, they will be inclined to act in a manner that scares away a significant amount of their professional players.

Now, for the sake of simplicity, let's assume there are two categories of players: decent players and weak players. A decent player is anyone with some type of game plan, relatively solid pre-flop stats and some experience in the game. A weak player is what some people would call, more or less, a fish.

Based on this, let's assume that 80% of the seats in a poker room are taken by decent players, and 20% are taken by weak players. Let's also assume a simplified model of poker, with only 2 players to a hand and each player entering a hand with the same likelihood. Now, what happens when the player groups get paired? The average skill difference between two "decent" players, given that the group is big, is of course not small (say it is on average 3 BB/100). However, it is totally dwarfed by the average skill difference between a decent and a weak player (say, 10 BB/100).

What is, however, the average skill difference between weak players? It's of course lower than the difference between a decent and a weak player, but it's clearly higher than the difference between two decent players. Why? Well, most of you will know from experience that even between weak players, there can be huge skill difference. Think of somebody playing real-money poker for the first time compared to somebody that has played poker longer, but just likes to chase cards too much and gamble a lot.

Now, what's the impact of the skill difference? The more evenly matched two players are, the more rake they will generate between them as it takes longer for one player to lose his bankroll to the other. If, however, there is a big skill mismatch, the weak player will be out of funds quickly, without much rake having been generated. The metric that is impacted by this is the gross loss to rake conversion, with gross loss being defined as the amount lost by losing players, without deducting wins by winning players.

With the above data, it looks like this:

Pairing / Likelihood / Gross Loss to Rake Conversion
Decent vs Decent / 64% / High (3)
Decent vs Weak / 32% / Low (1)
Weak vs Weak / 4% / Medium (2)

Using the weights (another simplification) above, the gross loss to rake conversion would be 2.28.

Now, what would happen if a poker site focused far more strongly on weak players, such that 50% of seats are taken by them? The table would adjust as follows:

Pairing / Likelihood / Gross Loss to Rake Conversion
Decent vs Decent / 25% / High (3)
Decent vs Weak / 50% / Low (1)
Weak vs Weak / 25% / Medium (2)

Using the weights above, total gross loss to rake conversion would be 1.75.

As a result, focusing more on weak players has significantly decreased the gross loss to rake conversion, and thus, deposits from weak players have to go up significantly in order to make up for the difference!

At the same time, from the players' point of view, those strong players that stay at the site no matter what actually stand to benefit disproportionally from the change.

Implications
The implication of the above is that as a poker room, one simply cannot take customer data gathered during a period where the rake view of valuation was used and then estimate what would happen under a casino view. This is because the casino view will change the underlying player composition which will in turn have an impact on gross loss to rake conversion. This impact will reduce both rake and net loss, given that the increased gross loss is over-compensated by the remaining strong players winning much more.

This can be verified easily by checking the stats of the big winners at tough, VIP friendly sites as opposed to VIP unfriendly sites. In the latter case, their win-rates should be much higher, which also fits the example given here.

I believe the above argument is by far the strongest one for supporting VIP and winning players in poker, as it is in the poker rooms' very best interest to do so. If you take this in addition to that fact that poker relies on the message that winning is possible and winners are welcome, it's easy to see that the current crusade against strong players is misguided.

The best way to move forward is to make poker more accessible and attractive for recreational players and professional players, with greater focus on recreational players than before, but without interfering with professional players negatively.

As a next step, given that the above article contains quite a few implications, we are working on a detailed model based on real data in order to verify the analysis above.

There should be no discrimination.

TBH Its sad (not that you have) that you kind of have had to explain why.

Rec players hate playing against 24 table RB pros who time out every other hand and bum hunters. Without rec players NO ONE eats, if it's a Eco system then an unchecked predator has been introduced into the environment ( HUDs , PTR, training sites, and fourms) and this is the Eco system way of trying to auto correct itself.

Rec players have no clue about this

rec players just hate people who take time

they usually type "zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz"

Although I agree with much of what you've written, I disagree with how you got there. You've also made some pretty weird assumptions, simplifications and ommissions to try and prove your case.
Quote: "Most operators are not aware of the true value of winning players, and will make incorrect business decisions as a result of that..."

You really think the operators of sites don't know exactly how many winners, losers, depositors and withdrawers they have?
What's "best" for an online poker site is what the accountants tell them. They have the precise figures. They can plot growth trends and predict losses. They can alter the rake/reward structure at will. In effect, the site can alter the eco-system according to how it best serves the business's short- or long-term interests.

Trying to tell poker sites how to operate their businesses when you just have a theory with some made-up numbers is just lol.

Bingo


Also its not even true. There exist poker ecosystems where only fish play and the rake is unbeatable. If somehow someone could come into that kind of game and beat it, do you think they would have any "secret value"? Let's check: the casino is losing money since once the pro wins the money it doesn't get raked and re-raked. And the players are losing money faster because the pro wins it from them. So that pro has no value to that ecosystem, I've shown a counterexample.

For networks it's a bit more complicated as low cost skins can take all the rake generated by grinders and give back more to them, whereas others skin eat the marketing and cashier cost to bring new players without making any money of them.

1) Yes, and I admit to that in the post, namely:
As a next step, given that the above article contains quite a few implications (actually I meant assumptions, will correct above - @MOD: can you edit this please?), we are working on a detailed model based on real data in order to verify the analysis above. More work needs to be done here.

2) Of course operators know exactly how many winners, losers, etc they have and how much rake they generate. However, they do not know you to correctly value them internally - in fact, nobody does due to the complexity of the matter. There are extreme cases (casino view vs rake view) and an almost infinete possibilities in between. Then there is the evolutionary effect, namely, that if you change your valuation formula, you change the underyling rules and thus the data, i.e. your forecast will fail.

On top of that, due to the consulting work and due to the fact that we work with all major rooms and that we know the details of our players, we have extensive data to rely on and thus have a much better picture of "the industry" as any individual operator, in particular, when it comes to player valuation. Finally, given that we are in very close contact to most major poker rooms, I know for a fact that the "player valuation" topic is a matter of constant debate, with a lot of different views and uncertainties and that it is clearly not something that can be resolved by accountants.

If that was true, why do you think that so many poker rooms do so badly when it comes to mainting their liquidity and attracting new players?

this is wrong

sincerely,

a recreational player

Assumptions are all well off base. Poker rooms rarely "make money". That is, the revenue generated inside the poker room does not exceed fair costing to run the room. And if they do make a small profit it is well below the return of slots and other dumb gambling space. The value of a poker room is to draw participants into the casino allowing for them to be monetized elsewhere within the property. Thus the most valuable poker room is the one that draws in the highest quality players in terms of overall casino expenditure.

You're welcome.

+1 almost as annoying as bots who just leech off the poker economy and drive away fish. Until selfish lazy poker guys realize that our customers are the fish, the sooner we'll realize that what's best for the fish is what's best for us. We follow the fish anyway, so go complain about rake or something, op.

OP failed to realize in other thread that people who make an initial small deposit then withdraw frequently are bad for the site. OP won't even argue against people in other thread when they tell him this.

Sorry OP but I think your losing the argument.
Sites want all the money thats deposited if possible, consistant winners dont contribute.

how about just don't discriminate against winning players because its a ****ty thing to do?

OP assumes that increasing the number of fish increases the proportion of fish per table rather than the number tables @ 20% fish.

Given the nature of multi-tabling and the queues that form when a fish sits, it seems more likely that the ratio of fish will stay relatively constant, and more tables will be played.

At 2/4+ on MGS last year, number of tables roughly equalled number of fish at all times, except for occasional rolling table starts and breaks. Therefore MGS makes more money if it gets more fish, and if it stops paying VIPs.

I would argue that this is true if a poker room acquires more recreational players, without messing with / discriminating ambitious players. As a result of that, overall size of the poker room would increase, while the average winrates of winners would stay low, with a very high profitability for the poker room.

I would argue however that it is not the case if a site act against winning players, and thus, that site obtaining a reputation of being winner-unfriendly. As a result of this, the average winrate of winners would be much higher, the poker room might still grow in terms of size, but deposit to rake conversion could suffer and profitability decrease.

Again, take a look at ArtySmoke's example here. Also, if I'm not mistaken, it's a common experience here that grinder-unfriendly poker rooms seem to be fishier on average, which would show that the "auto-adjustment of the fish/shark" ratio you mention above does not happen.

In a nutshell, as I state in the op, the optimum strategy for a poker rooms is to stay grinder/winner friendly while at the same time focusing marketing and acquisition strategies on bringing new recreational players in.

That's something that is well know and was advocated by us since a long time, see here for example: http://forumserver.twoplustwo.com/17...player-778378/

However, in the OP I'm arguing that when switching from a rake to a deposit based (or hybrid) player value model, once needs to consider that this could impact the deposit to rake conversion, and thus, backfire if done wrong - and with "backfire" I mean that it will alienate ambitious players and harm the image of poker, but also, indepdent from that, reduce the profitabilty of poker rooms.

This is what we said in the other thread. If a reg comes in and deposits 5 BI (for his bankroll) and then starts filleting the fish and withdrawing large amounts every month, then the site has no chance for sustainable growth and influx of recreational depositors. For a site to ever get as big as poker stars, they have to spend basically all their money gaining market share until they have like a 10% market share. When regs come in and don't contribute (and contrariliy bleed money from the sites which lessens the total amount of deposits on the books) then a site will never be able to grow fast enough to get/keep/maintain viable market share.

http://forumserver.twoplustwo.com/29...ayers-1142202/

This is the thread I'm trying to find the post I'm looking for. Do you remember the thread where some guy mathematically argued against the cannibalistic affiliate marketing system? I need to dig that thread up, first. It was a PDF that's all I remember.

Your first sentence contradicts your second sentence.

Found it! http://forumserver.twoplustwo.com/17...rategy-912102/

Currently, most promotional spend from poker rooms is going to the winning players in the form of rakeback, rake races, VIP scheme etc.
Poker rooms who are now looking to reward depositing players, rather than high raking winning players (or break even RB pros) are merely redressing the balance.
Its not about discriminating against winning players as redistributing the promotional spend more evenly to encourage more recreational players.
This is less important in a network where it can be profitable for individual poker rooms to reward sharks who win from other rooms fish, but in an enclosed eco-system like pokerstars, it makes more sense for the room to encourage fish to deposit, as a fishier incentives.

I disagree. I am a rec player, I am a losing player, but I have poker tracker 3 and a table ratings account.

I also have a full time job and a family so I only play maybe 3 hrs a week.

I am fully aware of 24 tabling regs and have recently stopped playing on stars because its rammed with no action boredom.

Rec players are changing. They are no longer clueless idiots that come in blind. They know a little about poker and their deposits last them a little longer.

I know I'm a touch off topic but to think all rec or even the majority of rec players are not aware of these things is wrong.

You are an exception. The majority of rec players have no clue. The fact that you even have a twoplustwo account proves you are an exception. Clearly, a higher percentage of rec players are becoming aware of things then a couple of years ago, but to suggest that the majority of rec players know about things like HEM and PTR and even this forum is ridiculous.

You should place fixed limit. Seriously. Fast action, winners are vpipping 30%-40%+ along with the recreational players, button 3bets of 20%+, 80% of pots get to the flop then 50% to showdown, everyone out spewing each other, multiway pots, no losing a stack at a click of a mouse and most regs only play 4-6 tables.

It's time for the LHE Renaissance brothers.