This month Dan O’Callaghan was asked to take a look into the world of poker finance. We’ll discuss poker's impact on the national and broader gambling economies.
While no expert, he decided to accept the challenge, so here’s Dan’s take.
It’s All About the Rake
Rake is a crucial cog in the poker economy. So, looking at how it works is a sensible place to start. You might be unfamiliar with the concept if you're new to poker or have only played in rake-free private games.
But rake is a fee that a poker operator takes from each pot in exchange for hosting the game.
- In cash games, the winner of a hand pays the rake before receiving the contents of the pot.
- In tournaments, rake is a set fee that players pay when registering (usually 5-10% of the entry fee).
A hatred of rake is one of the few things that unites all poker players. But as great as the idea of rake-free games sounds, rake is a necessary evil. It’s what keeps the poker industry going.
Rake is the primary source of income for most online poker operators. So, there wouldn’t be much incentive to continue running without it. That’s if they could even afford to at all.
Less lucrative income streams, such as transaction fees and casino side game profits, offer some financial incentives. But the rake is so substantial. So, it's hard to believe these income sources would be enticing enough to cover the eye-watering costs of operating an online poker site.
Live poker rooms would struggle too. They generate an income from food, drinks and players tossing money on black as they meander through the casino. But these aren’t going to be able to replace the rake,
Take a single live $1/2 game, for example. Say rake is 5% up to a maximum of $5 per hand. A loose table dealing thirty hands has the potential to rake up to $1,500 over a ten-hour session. (The exact amount will be slightly lower as some hands won’t hit the cap).
Losing this income would be a massive blow for a poker room.
Most of the rake goes towards casino profits, expenses and running costs. But operators pump a fraction back into the game via promotions and bonus deals.
How Does Money Move in Poker
Gus Hansen once joked that:
‘The object of poker is to keep your money away from Phil Ivey for as long as possible.’
And this remark is a pretty fair assessment of how poker works - kind of.
In a nutshell, less experienced players often contribute their funds to more skilled players over time. Once it finds its way to a winning player’s account, it either adds to their bankroll or the player withdraws it.
Less experienced players use to make new deposits and lose to the more experimented players. And the cycle goes on and on.
It’s very much like a food chain.
How Does Poker Contribute to the Gambling Economy?
One of the most obvious ways that poker boosts the gambling economy is through player crossover.
Poker brings players to the casinos.
Passing trade like this is a giant cash cow for both live and online casinos and shouldn’t be underrated. According to an article by Nick Jones at pokerindustrypro.com, the H1 of 2021 was the first time that Flutter Entertainment (owner of the biggest online poker client in the world) made more money from its casino ($305m) than from poker ($284m).
These numbers might seem surprising. Serious poker players have a strong understanding of EV during their time at the tables.
So, you might expect them to avoid pit games altogether.
After all, poker players spend their whole lives trying to make good +EV decisions. Indeed, their money would be a far better investment at the poker tables than in the pit, right?
Well, that’s true, but many poker players enjoy gambling. Compare the following two surveys run by Wendover.
They do an excellent breakdown of gambling psychology on their YouTube channel:
Both these propositions are breakeven. As you can see by comparing the two, people were fairly indifferent when it came to a low risk/reward bet. Interestingly, participants were way more likely to gamble when the upside became significant, even if the odds of losing grew too.
This finding suggests that the potential of winning a considerable sum is more appealing than the certainty of taking a small amount.
This conclusion is precisely why gambling is so popular, even among poker players.
How Does Poker Help the Overall Economy
Poker also brings a lot of jobs to the table. Online platforms need everything from customer service assistants to security teams. And the salaries that these roles offer are taxed and spent, stimulating the economy in the process.
Live tournament series help too. You only have to look at the WSOP to see how powerful the lure of a poker festival can be. The WSOP is ginormous, bringing hundreds of thousands of people to Vegas each year.
According to Pokerfuse.com, the 2022 series had 182,662 entrants, which benefits the local economy in various ways.
The most obvious is due to the nature of Sin City itself. While poker is a lure, Las Vegas has lots of other things to offer. When not at the tables, poker players (with their families and friends) are likely to spend a chunk of money in casinos, restaurants and nightclubs.
In any event or activity, people require essential services such as food, transportation, and accommodations.
These activities pump money into the economy at all levels.
The series brings many jobs to the city. In addition to other poker festivals, 832 employees worked the 2022 WSOP, many of whom were poker dealers.
A lot of these are temporary positions, with some staffing from abroad. But they still offer taxable income to people who will contribute to the local community.
The influx of people creates other jobs as well. Demand for servers, taxi drivers, masseuses and delivery people shoots up, and this all helps to boost the economy.
The Poker Economy Impact Verdict
People overlook poker’s impact on the economy due to the negative connotations associated with the game.
Some associate any form of gambling with degeneracy and worry that players will lose control and run up unaffordable debts. Rising debts are bad for an economy, and addictions also lead to increased crime, which is damaging too.
This reasoning makes sense on the surface, but poker players are very well protected these days. Online clients monitor deposits, and live casinos have a duty of care to protect their customers.
So, the financial side of the game is safer than ever before.
It would be unrealistic to assume that there aren’t any instances where an individual’s activity may hinder an economy.
But it’s fair to assume that the legitimate operations of modern poker companies make the poker industry more beneficial for the economy than ever before.
