backing

[technologic]

not sure where to post this so i'll post it here cause it has to do with investing sort of

is backing poker players a profitable play? i was discussing this with my friend and had the hypothetical situation come up.

let's say you staked a friend to play someone HU for 10k, and you estimated his edge at 60-40.

EV = 2000

but hold on a minute, say taxable rate is 30% of that.

EV = 200

this is ASSUMING you get 100% of the wins, which doesn't ever happen in a backing deal. so how do backers ever make money from these propositions? are there special tax loopholes or what not?

[Statutory]

+EV is +EV, -EV is -EV.

Tax isn't a consideration unless you are moving into a different bracket.

If your friend busts your stake, its a deduction. I report is as any other losing session.

If he wins, I report it as a winning session.

[DesertCat]

2+2 should have a sticky or an article on backing. The problems that Thunder Keller's deal with Scott Fishman caused him are illustrative that a young player, no matter how bright, doesn't know the in's and out's of staking deals that veterans have learned through sorry experience.

Personally I would never stake anyone 100%, they would have to have a reasonable amount of their money at risk.

And I don't understand how you get from 2000 in EV to 200 in EV with a 30% tax rate. Shouldn't it be 1400 in EV?

[schnoodleC]

I don't understand why people find staking so hard to understand.

1) The sweat/talent equity of the player should be accessed fairly and shouldn't be overstated. For a tournament I wouldn't do a deal with anyone as the staker giving more than 20% sweat equity to the player. I don't understand people who stake others for only 50% of the payout. They won't make a profit unless the player has over 100% ROI and even then this is a very high variance proposition.

2) For Cash staking the make up rules and periods must be very well defined.

3) I really don't understand why people have trouble figuring in rakeback and bonuses. They should just be treated as any other part of the P/L.

[SplawnDarts]

[ QUOTE ]

1) The sweat/talent equity of the player should be accessed fairly and shouldn't be overstated. For a tournament I wouldn't do a deal with anyone as the staker giving more than 20% sweat equity to the player. I don't understand people who stake others for only 50% of the payout. They won't make a profit unless the player has over 100% ROI and even then this is a very high variance proposition.


[/ QUOTE ]

It's easy to explain that one - the best tournament players have a much greater than 100% ROI. 500% is not unheard of, and when there's that much to go around a 50/50 split isn't unreasonable.

[Statutory]

[ QUOTE ]
[ QUOTE ]

1) The sweat/talent equity of the player should be accessed fairly and shouldn't be overstated. For a tournament I wouldn't do a deal with anyone as the staker giving more than 20% sweat equity to the player. I don't understand people who stake others for only 50% of the payout. They won't make a profit unless the player has over 100% ROI and even then this is a very high variance proposition.


[/ QUOTE ]

It's easy to explain that one - the best tournament players have a much greater than 100% ROI. 500% is not unheard of, and when there's that much to go around a 50/50 split isn't unreasonable.

[/ QUOTE ]

500% ROI players don't need staking.

[schnoodleC]

People may have 500% ROI over periods but I seriously doubt that anybody has more than a 200% expected ROI in medium and large buy-in tournaments both online and B&M. In fact, my guess is that for online you would be hard pressed to find many people over 100%.

This has been talked about fairly extensively on these boards but I enter the following into evidence:

Rizen stated recently that his monthly result of 153% was normal.

DN, possibly the greatest tourney player out there only had around a 30% ROI for 2005 and a 200% ROI for 2006 and this included some large free roles.

Dan Harrignton estimates that nobody in the WSOP ME has more than a 3 buy-in EV at the start of the tournament.

The backing deal that Raymer setup for himself included only 20% (if I recall) player equity.

[technologic]

[ QUOTE ]
2+2 should have a sticky or an article on backing. The problems that Thunder Keller's deal with Scott Fishman caused him are illustrative that a young player, no matter how bright, doesn't know the in's and out's of staking deals that veterans have learned through sorry experience.

Personally I would never stake anyone 100%, they would have to have a reasonable amount of their money at risk.

And I don't understand how you get from 2000 in EV to 200 in EV with a 30% tax rate. Shouldn't it be 1400 in EV?

[/ QUOTE ]

well if you win 10k, you get taxed 3k, so you win 7k 60% of time and lose 10k 40% of time which comes out to be 4200 - 4000 = 200.

[Derek123]

[ QUOTE ]
[ QUOTE ]
2+2 should have a sticky or an article on backing. The problems that Thunder Keller's deal with Scott Fishman caused him are illustrative that a young player, no matter how bright, doesn't know the in's and out's of staking deals that veterans have learned through sorry experience.

Personally I would never stake anyone 100%, they would have to have a reasonable amount of their money at risk.

And I don't understand how you get from 2000 in EV to 200 in EV with a 30% tax rate. Shouldn't it be 1400 in EV?

[/ QUOTE ]

well if you win 10k, you get taxed 3k, so you win 7k 60% of time and lose 10k 40% of time which comes out to be 4200 - 4000 = 200.

[/ QUOTE ]

Assuming you are a winning gambler otherwise, you will be able to deduct the 10k in loses which will save you on taxes. So you win 7k 60% and lose 7k 40% which is 1400EV. If it is a one time deal for someone who wont have any gambling winnings during the year your calc would be right.

[[Phill]]

[ QUOTE ]
2+2 should have a sticky or an article on backing. The problems that Thunder Keller's deal with Scott Fishman caused him are illustrative that a young player, no matter how bright, doesn't know the in's and out's of staking deals that veterans have learned through sorry experience.

[/ QUOTE ]

Anyone got a link to further details.

And fwiw until Sunday i had a staking agreement with john kane where he got 30% of the profit. If you work it out right, including loopholes like only ending a deal when its in profit for the staker and where there is large confidence in the horse then there is no reason it cant be really profitable whilst having a pretty large offset from what is considered normal.

But generally i agree that you should look at staking arrangments like any other business deal. It took a couple permutations until we came to that final set up but it certainly worked for both of us.