Bigger Deal

Julius "Big Julie" Weintraub said that the man who invented poker was bright but the man who invented the poker chip was a genius. If you own a poker room, you might add that the man who invented the rake was an absolute legend.

The rake is a player’s biggest enemy. It eats away at your stack and, for the vast majority of players, it grinds away almost unseen. Most players only really see the rake coming out when they are winning a pot, as the dealer (or computer) takes a couple of chips out of the pile that is being pushed over to them. Mentally your brain is more focussed on the receipt of your winnings – and perhaps the relief at not losing – than the slice that is being taken out to pay the house.

But over time the rake adds up. In the smaller games it will take a big percentage out of your buy in and, if you play for hours, you will find it almost impossible to win in the long run at the lowest limits. Obviously a lot depends on your style of play – the more hands you play per hour, the more rake you will pay and the more you need to worry about the effect of the rake.

Top players tend not to worry about the rake. You do not hear the big names on High Stakes Poker whingeing about how the rake is killing them. This is because when they play an online pot of $100,000 or more they are playing a $3 rake, so it is a fractional part of their bankroll. But sit down in a $20-$40 limit game in Vegas and talk to the players who are trying to eke out a living at this relatively low stake game and you suddenly become aware of how (along with tokes) the rake is a big issue.

The very worst casinos and poker room I have visited in my recent travels around Europe are raking 10% from each pot. I would challenge even the best professional players to make any sort of a living, even playing against complete muppets, with that sort of obstacle in their path. Interestingly, in the UK casinos are banned from charging rake and instead charge an hourly rate to sit in a game, which is great if you are an action player who sees every flop but not so hot if you are a complete rock who only plays a couple of hands an hour. This will all change from September, when changes to the gambling law will allow casinos to charge rake, and it will be interesting to see just how usurious the managements plan to be.

Poker sites try quite hard to disguise how much money they are making from rake, not least because it would be a disaster for the industry to engage in a rake war where players were attracted to play at the site solely on the basis of a reduced rake. When Svenska Spel, the government owned gambling monopoly in Sweden, decided to go into the online poker market in December 2005 they decided that they would compete on the basis of rake. At the time an estimated 200,000 Swedes were playing online poker regularly, all at sites that officially under Swedish law were operating illegally. Offering a guaranteed maximum rake of 2.5% and with close to zero advertising, within six weeks Svenska Spel’s online poker site had 70,000 players and an estimated 25% of the Swedish poker market. That move shook a lot of the big players in the market, who realised that there was a hard core of online players who could see past the big sign up bonuses and actually realise that reduced rake was a pretty good offer.

So how much money do sites make from rake? Given most large online poker companies are now privately held, there is not that much publicly available information. However Party Gaming is publicly traded in London and the results give a pretty good indicator. Their final results, published in March 2007 but reporting for the calendar year 2006, show that on an average day last year they had 58,000 active players generating $789,000 in rake (on top of that they also made extra revenues from casino games, bingo and sports betting). So, the average player is paying $13.60 in rake per day of activity. Buried in the final results, you can find that there was a total of 17 million days of activity on the Party Poker site from 749,000 unique players, meaning that on average each player played for 22.7 days in the year. In other words, the absolute average player paid $308.76 in rake at Party Poker in 2006.

Clearly Party Poker has quite a lot of costs to come out of this. They have to process deposits and withdrawals (which is an expensive business), employ huge number of software developers, customer service teams, pay bonuses, marketing costs and so on, but that still leaves quite a decent room to make a profit.

Does Party make more money than other sites or are they an average site? In October 2006 Sportingbet, the parent company of Paradise Poker, reported an average daily rake of $513,995, representing an annual rake of $543 per active player. From chatting to representatives of both Party and Paradise, my understanding is that it is not a complete like-for-like comparison but that Paradise had a higher percentage of cash game players while Party has a large number of tournament-only players, who are obviously going to be paying far less rake.

Finally, I talked to the operator of a small online site which is a white label skin on the Boss Media network. He said that on an average day he had 96 players on his site and they generated between $1,550 and $2,600 in rake, depending on the day of the week and that an average month saw rake of $1,770.93 per day (or $18.45 per player). Crucially though, he said that in any given day the top 20 players would generate 80% or more of the rake.

Party Gaming’s estimates their share of the global poker market is currently 15.4%, so on that basis we can come up with a guess for the value of the daily worldwide online poker rake at $5,123,377, equating to an annual rake of $1.87 billion. Personally I think that number might be a bit low as there are a large number of sites and networks that do not get monitored by the sources Party Gaming are using to estimate their share of the global gaming market. Also, I think the average yield per player on Party is probably slightly below industry averages, so an annual worldwide online rake of $2 billion plus is probably a better estimate.

That’s a pretty big number. If you are a regular online player you will be paying a lot in rake and you may not know it. The poker sites will argue that they are collecting all the fish in a barrel and the rake is a small price to pay for that service. They have a point. Before online poker existed you were not only paying a huge amount of rake but you had to drive to your local casino (which for many people was a long journey) and often when you turned up there wasn’t even a game worth playing in. Online poker means there is always a game at any time of day and it will probably offer a lot better value than your local card room. But the rake is still there and it’s something you can’t afford to ignore.