The world’s largest online poker room made the expected announcement today that they would be dropping the popular dealt rake method and moving to the weighted contributed formula. Pokerstars has taken a lot of heat for it from players. Many players will have to decide whether they will chase the most sought after VIP tier in online poker, Supernova Elite. While the move is controversial, I can see exactly why Pokerstars did it.
There has been a lot of debate about why online poker rooms have moved away from the dealt rake formula and towards the weighted contributed formula. There are multiple reasons for this and none of them have to do with making the games softer. In fact, getting those 24 tabling rocks out of the games may even make the games worse. In my opinion, this has everything to do with online poker rooms making more money.
Affiliates Tend to Refer Higher Volume Players
There are several reasons why online poker rooms make more money when they move to the weighted contributed formula or some variation of it. One of those reasons is because online poker rooms pay affiliates revenue share based off of the same formula that they use to distribute rake to their players. More professional and winning players sign up through affiliates. This is because they are looking for a rakeback deal, they saw a banner or discussion in a poker forum, or their poker coach referred them to the poker room.
Many casual players find poker rooms through other means. They look for an online sports book, casino, or search online poker related searches. SEO and offline marketing bring in many more casual players than large poker affiliates that specialize in referring players looking for the best deal. This means that poker rooms that use the dealt method are paying affiliates the same portion of rake that they are making off of their casual, lower volume players. When they change the rake formula to weighted contributed, they are making it so that professional, high volume players, receive a lower percentage of the rake because they are more likely to play tighter and generate less action. This lowers the amount of money paid to affiliates for these higher volume player.
Less Money Owed in Rakeback
Now that I have established my opinion that higher volume players tend to be tighter, there is another reason that poker rooms have moved away from the dealt method. That is because almost all players receive some form of rakeback. Even if the player is playing on a poker network that is not rakeback friendly, that poker room has a VIP program. If a player is earning flat rakeback it is simple, a player earning rakeback is likely to be more savvy than a player not receiving rakeback. This means that a player not receiving rakeback is likely to see more flops, make bad calls, and generate other action. If this is the case, which I almost certainly think it is, then poker rooms pay less rakeback by moving to weighted contributed.
Lower VIP Program Expenses
VIP programs are an entirely different situation. VIP programs are based on the way that many rakeback programs used to be. The more you play, the higher the rakeback you receive. Now all traditional rakeback sites pay a flat percentage to a player regardless of how much they rake. That is not true with VIP programs.
VIP programs have tiers that players climb. Each tier gives players more perks. These perks include a higher theoretical rakeback percent. That higher rakeback can come through straight cash, bonuses that must be cleared, points for cash, freerolls and rake races. Most casual players will never make it through the higher tiers of VIP programs. That is because most of them will lose their bankroll if they try to rake the thousands each month that is required to reach the higher tiers. This keeps the lower volume players in the bottom tiers of the VIP programs.
If lower quality players are in the lower tiers of VIP programs, they will receive fewer VIP perks. Let’s assume a lower tier of a VIP program is 15% rakeback and a higher tier is 50% rakeback, with 25% in the middle. There is a six seat table with two players in each tier. The looser, lower quality players are in the lower tier, the average players are in the middle tier and the pros are in the top tier.
If the bottom tier players are giving 50% of the action at the table they will each receive 25% of the total rake. For every $6 in rake taken from a table, they will each receive $1.50 credit. This means that for every $6 taken from the pot in rake, these players will each receive $.225 at 15% rakeback. The middle tier players will receive 30% of the rake credit. This means that each of them will receive $.90 in rake credit and will get $.225 in rakeback, just as the lower tiered players received, even though they theoretically contributed 40% less rake. The top two players at the table will only receive 10% of the rake. This means each of them will receive $.60 in rake credit and $.30 in rakeback for every $6 in rake taken from this table. This means that for every $6 taken from the pot, the poker room is only giving back $1.50 to its players.
Let’s go back to the dealt method. Using the dealt rake method each of those players would receive $1 in rake credit. The lower tier players would each get $.15. The middle tier players would each receive $.25 and the top tier players would each receive $.50. This means that the poker room is now paying $1.80 in rakeback for the same $6 in rake. This gives the poker room an instant 17% revenue boost. This is before you even figure out affiliate payments which are more likely to be on the higher end players than the lower end players.
Harder to Achieve Higher VIP Tiers
VIP programs are tied to points, which are tied to rake paid. If a poker room makes it harder for a high volume player to earn points, they make it harder for that player to achieve the higher, more rewarding VIP tiers. This will save even more money in the long run since they will pay even lower rakeback to players not long after the rake formula change, or force those players to play more for the same benefits. This assumes that player does not move to a better VIP program at another poker room.
As you can see, poker rooms are not moving away from dealt rakeback to make poker rooms softer. The poker rooms are doing it because it makes them more money. The Cake Poker Network is the only online poker room left that uses the dealt rake formula so players upset with Pokerstars have little in the way of options if they are set on playing at a dealt rake poker room.