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.

[midas]

The amazing fact is that backers give away their money so cheaply. In most hedge funds or PE scenarios - the player would usually get 20% max 30% of the gains and the backer/money would get 80%. Also, it is not uncommon for the player to have their own money invested side by side in the deal.

Nobody ever said gamblers were smart investors.

[PanchoVilla]

Raymer's deal had more than 20% for himself, also he provided a portion of the initial bankroll. I believe he stated in an interview that he actually had around 50% of himself including his off the top part, plus the portion due to his contribution to the initial bankroll.

In his case all the backer's would be responsible for their own taxes and each got their own tax form from Binions. I guess tourney winnings would be easier or harder to handle tax wise depending on how much the casino was willing to assist you. (with issuing multiple forms, etc)

Pancho

[midas]

PV:

If Greg put in 25% of his own money and his carry/fee/promote was 25% - he effectively has levered his 25% investment to 50% of the winnings - very EV+ and a good deal for both sides.

If backers give players a 60/40 deal with no skin in the game - they are fools and deserve to lose their money.