RakeReduction is one of the largest rakeback affiliates in the online poker industry. RakeReduction’s website has been down for almost six weeks. Before their site went offline they were making few, if any payments to players and their sub affiliates. Some claim that they have not been paid anything since Black Friday.
RakeReduction launched their website in 2005. They operated by email, like most rakeback affiliates operated early on, before that. They used the Rake Update software before launching the website. The software was a central login for all of their sub affiliates and their players. Players would sign up on one of the sub affiliate’s websites and see their stats in Rake Update. That is also where payments were initiated. Earlier this year RakeReduction dumped their dated Rake Update software and moved to Elite Affiliate Software. That software was leased, not owned by RakeReduction. This made it possible for sub affiliates to create turnkey rakeback websites, something their competitors had been doing for years.
Issues Related to Black Friday
When Black Friday hit it seems that it hit RakeReduction especially hard. They had just committed to the expense of new software and like most rakeback affiliates, RakeReduction received a large portion of their revenue from Full Tilt Poker, Absolute Poker and Ultimate Bet. This means RakeReduction likely had not been paid for March commissions and maybe even earlier for Cereus as they were late on affiliate payments at the time of Black Friday. This caused quite a few problems.
Players could cash out anytime at RakeReduction. While that did not apply to Full Tilt Poker, Cereus had not yet completely moved to automatic payments. This means that it is likely RakeReduction paid out tens of thousands of dollars or more to rakeback players that they were never paid for by Cereus. They also paid out refer a friend and sub affiliates at both Full Tilt Poker and Cereus on money that they never received.
The margins for rakeback affiliates are very small. When you consider refer a friend and sub affiliate payments they can become razor thin. The combination of losing their three biggest rooms, not getting paid for play from the rooms and making payments from those rooms must have been a serious loss, one that is likely hard to overcome.
Hundreds of Thousands Owed to Players and Sub Affiliates
I have been contacted by quite a few people that are owed money by RakeReduction. The total owed to the people that have contacted me is $155,000. That is the total of only 15 people. The rumor is that their overall financial liability to players, sub affiliates and vendors is about four times that which is easy to believe if you consider they owe just the 15 people that contacted me $155,000. To put that into perspective, the amount RakeReduction seems to owe in total, would be the commission on $19,000,000 of Full Tilt Poker rake based on the 3% that has been paid on players that signed up in the last 2 years. I have no idea what their rake totals were but I suspect that is probably close to four years worth of Full Tilt rake for them.
RakeReduction Communication Failure
RakeReduction has not been forthcoming about the extent of their issues. At this point they simply have the same message blaming Elite Affiliate Software for the problem. It does not take much research to find out that they were not paying Elite Affiliate Software for their services. While there may be more to the story, when you do not pay your vendors for months, your vendors will stop providing their services to you. That is just common sense. You cannot stiff your vendors and then blame them for all of your problems when they pull the plug.
There is a long thread at Two Plus Two where I moderate the rakeback forum about RakeReduction. They have not made a post in a week even though they read the thread almost daily. They have dodged questions when they do reply, and have not given correct time frames about when the issue will be resolved. They were even spotted at the affiliate convention in Barcelona. Even though they cannot pay anybody or even have a website up, they have the time and money to go to a big convention and party. Maybe they were there looking for investors but as Full Tilt Poker has discovered, investment money in online poker businesses that are offline is not easy to find.
Founder Forced Out in 2010
In 2010 there was an ownership struggle at RakeReduction/RakeUpdate that saw their founder ousted. The website saw constant downtime and payment issues but it got resolved after a few weeks. There is little in the way of details that were made public but it has been alleged that the ownership change was not done in a legitimate or peaceful way. It is possible some of the issues felt today are related to the expense of that battle that was the buzz of the poker affiliate community last year.
What Happens Now?
As with Full Tilt Poker, RakeReduction’s liabilities are likely well beyond the future lifetime income of the business. This makes it a bad investment in most people’s eyes. There is no telling how much cash they have on hand but it must be low since they are delinquent on payments to everyone. One of my goals is to make RakeReduction more active in their communication. They have been ignoring emails, not replying to the Two Plus Two thread and have left the same message on their site for nearly six weeks with no updates. It is time to come clean with players as to how bad the situation really is. I hope I am proven wrong, but it does not look good for RakeReduction’s creditors.
Disclaimer: I am self employed. One of my projects is writing for the blog of Poker Affiliate Solutions, a direct competitor of RakeReduction. RakeReduction was also once a customer on my website Rake Rebate Review in 2005-2006 and was always in good standing. Neither of these contributed to my motivation to write this story. My only motivation is to report on an important rakeback industry issue. I have been a part of the rakeback industry since 2004 and in the early days I was the “rakeback watchdog” which this story falls under.