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Staking and Selling Tournament Action

Saking and Selling
Staking and selling action have become extremely prevalent in all buy-in levels of poker tournaments. Staking presents a unique opportunity for players to play in events that their bankroll might not normally allow them to. It can also be a great opportunity for those with extra cash to invest in players and cash in on their skill and winnings. Ideally, staking agreements should be a win-win for everyone involved.

That all being said, it’s not always that easy. Anytime you have money involved and a lot of moving parts, you can end up with some issues. This guide is put together to try and solve all of those issues before you get started with staking or selling action. The guide is directed at both sides of the aisle, including those getting staked and those who are investing. We HIGHLY recommend that you read the entire guide as each section is packed full of important information.

Important Terms Necessary to Know

Before we can get into the details of what you need to know about staking and selling action, we need to make sure that we’re all on the same page. There are some terms that you’ll see used by backers and sellers that are crucial to understanding the process. To get you up to speed, we’ve put together a list of these terms along with their meanings and anything important you need to know to understand them fully.

Poker ChipsMakeup

Makeup is a term that you’ll hear if you ever get involved in a long-term staking deal. It refers to the staked player having to “make up” their losses before they can realize any profits. Let’s give you an example to make this easier to understand.

Let’s say you’re part of a long-term staking deal and have agreed to have makeup a part of the deal. Let’s also say that you have agreed to split all profits 50/50 with the person who is staking you. You play two $1k buy-in tournaments and finish outside of the money. In your third $1k buy-in tournament, you cash for $20k.

Without makeup, you would get 50% of your profits in that tournament. You cashed for $20k, and the buy-in was $1k. This means your total profit on the tournament was $19k. Without makeup, you would get $9.5k, and your backer would get the other $9.5k.

However, as is customary with most long-term staking deals, you would have makeup as part of your deal. Makeup says that you have to “pay back” losses before you can realize any profit. So, in the above example, here is how it would look.

Going into the third tournament, you are technically down $2k. You could say that you are $2k in makeup. When you cash for $20k in your third tournament, the first $2k would come off the top to “pay back” the makeup. This would leave $18k from which you would subtract the $1k buy-in for the third tournament leaving $17k to be split up. You would get $8.5k, and your backer would get the other $8.5k.

The reason that we put pay back in quotation marks is that even though this money must go to the backer before you can get profit, you don’t ever technically owe the money. If your backer decides to drop you and no longer back you, you do not owe the makeup money. You only have to pay it back if you are continually backed by the same backer.

Some people might think that makeup is not fair, but it is more than fair to the backer. You should not be getting any profit if your backer is not also making money. If you lost your backer $20k and then made $10k in a tournament, your backer would still be losing money if you took some of the profit. If you split that $10k in half, you would be up $5k (minus half the buy-in of the last tournament) but your backer would still be down a lot of money.

A staking arrangement is supposed to be mutually beneficial, and if you’re making money and your backer is not, it is far from mutually beneficial.

Poker ChipsMarkup

Markup is a term you will see when selling action to an individual tournament or to a tournament package. Markup is a premium that players charge for a potential percentage cut of their profits. Most of the time, you can’t buy a percentage of a player’s action at face value. For example, if a player is selling action to a $1k buy-in event, you might think that you can buy 10% of their action for $100. This is rarely the case, though. You’ll usually have to pay more than the $100 to get the 10% of the action.

How much more do you have to pay? Well, it will depend on what the markup factor is. The markup is decided by the player selling the action. It usually takes into account how challenging the tournament is, as well as how skilled the player is. If the tournament is easier, the markup is going to be higher because your potential to make a lot of money as a backer is higher. If the player is a better player, you can also expect the markup to be higher because your chance to make more money as a backer is higher.

Markups are usually depicted as a decimal point. Even money with no markup is 1.0. To calculate how much a piece of action will cost, you take the amount it would cost at even money and multiply it by the markup factor.

Before we show you some realistic examples, let’s look at the calculation for even money (no markup), so you understand the formula. If you were looking to buy 10% of a $1k buy-in, you would figure out the even money amount which would be $1k * 10% = $100. You would then take that amount and multiply it by the markup factor of 1.0 which would equal $100. It would cost $100 to buy 10% of the tournament action at even money.

What would happen if the markup factor was 1.2 and you wanted to buy 10%? You would find the even money amount which would be $1k * 10% = $100. You would take that number and multiply it by the markup factor of 1.2 which would give you $120. It would cost you $120 to buy 10% of the tournament payout.

Markup factors range all over the place. Usually, you will see them between 1.0 and 1.5 or 1.6, but we have seen them as high as 2.0 or even 3.0! Usually, the markups in the 2.0 or 3.0 range are people looking to take advantage of backers who don’t understand the game and how staking typically goes.

Poker ChipsBacker

A backer is anyone who buys action of another player in a poker tournament. This could be someone who is backing for a long-term deal or even someone who buys small pieces of one tournament or a package. The backer can sometimes be referred to as the staker as well.

Poker ChipsHorse

A horse is a term given to a player that is being backed by someone. If we buy a piece of your action, you are our horse. It comes from the classic phrase, “You got to have a horse in the race to win.”

Poker ChipsStable

A stable is a backing term that refers to a collection of horses. If you have several players that you are backing long-term, they are part of your stable. Technically, you can use the term if you have several horses on short-term deals, but it is customarily only used for long-term arrangements.

Poker ChipsSwap

A swap is when two players who are playing in the same tournament decide to exchange percentages. This is different from a staking deal, as there is no money that exchanges hands. Players will just exchange action with each other. For example, let’s say that you want 5% of action of your friend’s tournament that you are also playing in. You could agree to swap 5%, and you would get 5% of their action in return for 5% of your action. They would get 5% of what you win, and you would get 5% of what they win.

Poker ChipsPieces

When you are getting staked in a tournament for a one-time or package deal, you have the option of selling all of your action to one person or breaking it up into small parts. For example, let’s say you want to sell 40% of your action to a tournament. You could sell all 40% to one person, or you may want to break it up and sell smaller percentages to several people. This is referred to as selling pieces of your action.

This can be beneficial as you don’t have to find one big investor. It can be easier to find several investors to buy smaller pieces of your action than one to front a larger sum of money.

Long-Term Deals vs. One-Time Deals vs. Packages

Within tournament staking, there are three different types of deals that you’ll be offering or see offered by other players. The terms and arrangements of each of these deals are significantly different. It’s important whether you are selling or buying that you fully understand what type of deal you are offering or buying into. This will ensure a smooth and enjoyable experience for both sides of the deal as well as help to avoid any unnecessary headaches that may arise.

Poker ChipsOne-Time Deals

A one-time staking deal is an agreement between a staker and a horse for one tournament only. Once that tournament is completed, the deal is finished. There is never any makeup associated with a one-time deal as the duration of the contract is one tournament. One-time deals typically have markup and are usually sold as an entire unit or as pieces.

Poker ChipsPackages

A package is a “medium” length staking agreement. It’s a collection of more than one tournament that still has a definitive end. For example, if you are selling action to the World Series of Poker and want to play 10 different events, you could sell a complete package that gives an investor action to all 10 tournaments instead of selling to each tournament individually.

This makes things much easier on the horse as they don’t have to keep track of each tournament separately. It can also be more appealing to backers as, instead of getting action in only one event, they get action in several events. This gives them a good chance to overcome variance and have a nice score.

Packages almost always have makeup for the duration of the package. This means that backers will only be paid out based on profit from the entire package. Payouts are made at the completion of the entire package.

Poker ChipsLong-Term Deals

A long-term staking deal is the crown jewel for a horse. It is an arrangement between a horse and usually one person where they agree to pay for their buy-ins indefinitely. These arrangements almost always have makeup attached, but they have no ending date or fixed term attached. A long-term staking deal is only over when the horse decides to quit (only when they aren’t in makeup), or when the backer decides that they no longer want to back the player. If a backer decides to drop a horse, they are never on the hook for the makeup. The backer will eat that loss.

Things You Must Consider When Getting Staked

We’ve now gone through all of the basic information you need to know about staking. We now want to dive into the more important things that you have to know to make sure that you have a positive and profitable experience regardless of which side of the arrangement you are on.

Who You Should Sell To

If you’re looking to sell action to one of your upcoming poker tournaments or looking for a long-term deal, you might think that you should sell action to anyone that is willing to give you money. While you may be interested in doing this, you can create a lot of headaches for yourself. Personally, we advise that you only sell action to people who understand the game of poker and understand the associated variance.

People that do not understand the variance of the game think that if you’re a good player, you should be making money on every single tournament that you play. As a player, you know that this is not the case. Even the best players in the world are making no money on almost 80% of the tournaments they play. This means that a backer is going to get no money off of you on four out of every five tournaments you play.

Someone who understands the game will not freak out when you text them and let them know you didn’t make any money in the tournament. Someone who does not, though, may have a hard time understanding why you didn’t cash. They may grill you on your bust out hand and try and tell you that you made some sort of a mistake. If you’ve never experienced this, it’s one of the most annoying experiences ever.

When you sell action to someone, you need to make sure they understand what they are getting themselves into. They need to realize that majority of the time, they aren’t going to make any money, and are going to lose money. You don’t have to be a complete negative Nancy, but it’s going to make things a lot easier for you when you have a bad day on the felt.

How to Deal with an Investor | Your Responsibility

One of the biggest reasons that backers get annoyed and will stop backing someone is that they don’t live up to their responsibilities. Now, we’re not talking about playing ability. Yes, you have to play well for them to continue wanting to invest in you, but that’s a given. What we want to talk about are the off-the-felt responsibilities that you have as a horse that a lot of players tend to neglect.

First, you need to be responsible with the money that you are holding for your backer. This means no gambling with the money, no loaning it to other people, no loaning it to yourself, and no putting it in precarious situations. When you have money from your backer, it is not yours. It is their money, and you are not free to do with it as you please. This means that you need to protect it with your life and make sure to do everything you can to keep it safe.

Second, you need to keep good records of all of your transactions. Yes, your backer is going to be keeping track of things, but you need to be doing it yourself. This will make life easier for your backer and work as a great second set of eyes to make sure that everything is done correctly. If you ever have a disagreement, you’ll have a much better leg to stand on to plead your case. If you’ve never used Microsoft Excel, it might be time to learn. If you don’t want to do that, at least keep a clear ledger of all of your transactions so that you know exactly how much money you have on you and how much you owe to your backer.

Third, you need to make sure that you communicate with your backer. This means that you always need to keep them up to speed on how tournaments are going, when transactions are done, and what you plan on playing. Imagine your backer as your poker significant other. You need to update them on everything that is going on. When they can’t get a hold of you, they lose their minds.

Can you blame them, though? If someone had thousands of your dollars and you were expecting them to do something with that money, wouldn’t you be worried if you couldn’t get a hold of them?

This does not mean that you have to text them after every single hand. What you need to do is talk with your backer and see what they would like from you. Remember, they are giving you their money to play with, so you have to cater to them. Without them, you wouldn’t be able to play the tournament. Usually, an update on your stack at break and a text message every time money changes hands or is sent is plenty.

If your backer is nuts and wants you to update too often, talk to them. Don’t just ignore them. Tell them that it’s going to affect your play and you’d like if you could update them a bit less. If they stick to what they want, then you need to accommodate. If you don’t, don’t expect them ever to back you again.

For those of you that have multiple backers from selling pieces, you may want to look into using something like Twitter or Facebook to update everyone on your tournament progress. This way you don’t have to waste all of your breaks texting a bunch of different people. If a backer is upset about this, you may want to let them know that you should be using your breaks to relax. If you’re not getting time to relax on your breaks, it may affect your play and their bottom line.

Collecting Money and Paying Out

If you’ve ever spent time on either side of a staking agreement, you know that some of the biggest headaches can come about with the exchange of money. Usually, it has nothing to do with people trying to scam or short each other, but just has to do with punctuality and convenience of payments.

If you are a backer, make sure that your horses have the money that they need to play BEFORE the tournament. If you’re constantly having your horses front the money for you, they are going to get annoyed and may worry the whole tournament if they are going to get paid or not. This can be easily avoided by getting them the money they need well before the tournament. The more running around that your horses have to do, the less focused they will be in the tournament.

If you’re a horse, make sure that you send money to your backer or give it to them immediately when they ask for it. Don’t make them chase you down for their money back or for their cut. If you do this, not only are they not going to want to back you anymore, but your reputation in the industry is going to get soured. A soured image means that other people might not want to back you either. Protect your long-term stock and be on top of sending and returning money when requested.

Long-Term Deals

When working with long-term deals, there are quite a few things that you’re going to want to figure out before you play your first tournament. Here’s a list of questions that will need to be sorted out between you and your potential backer or between you and your potential horse.

  • What size tournaments is the horse allowed to play?
  • Does the horse need to get approval to play a tournament from the backer or are they free to play anything within their set buy-in parameters?
  • What is the profit split percentage?
  • Will there be makeup on the deal?
  • What happens if the backer denies allowing a horse to play a tournament? Are they allowed to play the tournament on their own or sell action for that specific event?
  • Can the backer change the buy-in limits at any point? (It can be detrimental to a horse if the backer can lower the buy-in limits while they are in makeup. It may become near impossible to make it out).
  • Will travel money or anything like that be included or covered?
  • What happens with any bonus amounts that are won through playing the tournaments? (If the player wins player of the series and gets a free seat or something like that).
  • How will money change hands?
  • When can the horse cash out if they are up? Are they allowed to request profits at any time that they are not in makeup?

Package Deals

As we did with long-term deals, we want to point out some of the questions that you’re going to need to sort out before you begin selling action on a package deal. Getting these questions answered and clearly stated to your backers before you take any money will make things much smoother.

  • How many tournaments are included in the package? Are there any tournaments around the same time that are not included in the package?
  • What happens if you are unable to play a tournament in the package? Is the horse allowed to replace it with a tournament, or does the money get returned to investors?
  • Is the horse allowed to tip on their package if they have a big win?
  • How will money change hands?
  • How will the horse update the backers?
  • What happens with bonus amount or any additional seats or prizes won through the package?

One-Time Deals

One-time poker staking deals are usually the simplest to set up and figure out. They are only for one tournament, and there is never makeup attached to the deal. As long as you sort out the markup and how money will change hands, you should be set with a one-time tournament deal. One recommendation we have is that you make sure to collect all monies as a horse before the start of the tournament. The only reason we mention this with one-time deals is you are more likely to be working with people you’ve never worked with before. While we hope that everyone lives up to their word, you should always take precautions to protect yourself.

How to Protect Yourself as a Backer

For those of you that are interested in backing poker players or starting your own stable, you need to be aware of how you can protect yourself. There will have to be a lot of trust with your horses, and you need to do everything you can to protect yourself and your investment.

Contracts

Surprisingly, most poker staking agreements are verbal. Rarely do people ever want to use contracts for some reason. We highly recommend that you don’t follow suit. Write up a basic contract and get your horse to sign it. If they have a problem with that, it should be a huge red flag. Don’t be lazy on this. It won’t take you long to write up a quick contract that will help you out if there are ever any disagreements.

If you are someone who is getting into higher stakes staking or long-term agreements with a lot of players, you should look into having a lawyer help you draft up an agreement where you can plug in the important and specific details about each agreement. This can help give you recourse in case one of your horses tries to do something shady or refuses to pay you for some reason.

If you don’t think this stuff happens, you’re living in a fantasy world. We’ve seen way too many stories of horses taking advantage of their backers, gambling their money away, or trying to steal their money. We’ve also seen a lot of stories of horses playing stakes they shouldn’t and then asking for forgiveness later. A contract could help deter a horse from going off the deep end, but more importantly, will give you a way to recoup your money if things get ugly.

Oversight

As the backer, you are the one in the driver’s seat. You’re the one giving the player a chance to play in an event or events that they normally would not be able to. This means that you should be able to have as much information about what is going on as you’d like. What we recommend is that you are not overbearing but that you keep as much oversight over the agreement as possible.

This means you need to have your horses updating you regularly with tournament updates as well as transactions. Additionally, you should double check as many things as you can to spot check your horse. We aren’t saying not to trust your horses, but we have seen some surprising things in our years and recommend doing your due diligence. This includes checking payout amounts when they cash, checking if they actually bought into a tournament or not, and double checking that transactions you requested are taken care of correctly.

Sometimes poker players aren’t trying to be shady, but they just aren’t super responsible. This means they can make mistakes with numbers and transactions and not even realize they did anything. Checking this stuff not only protects you, but it protects your horses as well in case they make any errors that are not in their favor.

Check Industry Reputation

Continuing with our theme of doing your due diligence, you need to make sure you do this before you enter into an agreement with a player. The poker community is fairly small, and anyone that has done anything shady with a backer has usually been outed to the industry. If you know that someone is shady and has issues being on the up and up with backers, you can save yourself some money and a headache by not backing that player.

How do you find out this information? There are a few ways that you can do this. First, ask around. If you know people in the industry, ask them if they know anything about the player. You’d be surprised how easy it is to find out information a player. Second, you can use Google or poker forums to search for a player. Search by their name, and if they ever played online poker, search by their screen name as well. You can save yourself a ton of headache by just doing a little bit of homework.

Make sure if you get negative information that it’s correct. Sometimes there are people in the industry that have a bad rap, but it’s not warranted. If you can’t find validation, we still recommend erring on the side of not doing business with them, though. Yes, this is not fair to them, but most stories in the poker industry have at least some truth and backstory to them.

Know WHY the Player Needs to be Backed

One of the most important questions you can ask a potential horse is why they are looking for backing. There are some answers that should make you happy, and then there are some that could be potential red flags. If the player says that they want to play higher stakes than they currently are, that can be a good reason. You may want to question why they don’t just do it themselves if it’s a small jump, but for the most part, this will be a justifiable reason

If the potential horse says that they had to use their bankroll for something off the felt, that could be a great opportunity for you. For example, maybe the player had to pay for something unexpected like buying a car or having a child. In these situations, the player is still a winning player, but just doesn’t have the bankroll to continue at the stakes they are at.

When potential horses have no reason they need to be backed, or it’s because they’ve gone bust, you may want to be hesitant. If they’re broke because of a gambling problem, you might not want that player holding on to large sums of your money. If they’re bust from playing the same stakes they want to be staked for, you might want to rethink backing them. Why? Well, if they aren’t beating the stakes currently, what makes you things are going to be different with your money? There are some situations where this might not be the case, but for the most part, it should be a red flag.

The one instance we can think of where it wouldn’t be a red flag would be a player who was playing those stakes with an insufficient bankroll. Regardless, you will want to investigate this and have a firm answer before you consider giving them any money to play with.

Get Paid ASAP

You might be a relaxed type of guy or gal who doesn’t fret to have things done right away. This is NOT the mentality you are going to want to take when dealing with horses. The longer your money sits with someone else, the more at risk it is. It’s at risk to be lost, stolen, gambled, or used as a personal loan. When you are ready to get paid, get paid immediately. Set a fixed timeframe for your horse to get the money sent to you. If they don’t take care of this in time, you should be on them like a fly on rice.

Horses will tell you that everything is ok and to relax. Don’t let them push you around. It’s your money, and you are the one in the driver’s seat. You deserve to get paid when you want without a bunch of guff from the player.

This also brings us to a complementary point. You want to make sure that your horses have enough money to play with, but there is no reason for them to have a huge surplus of your money. Only allow them to hold onto the amount that they need. If this requires them to make a lot of transfers to you, that’s fine. Remember, even though you’re investing in them, you are also doing them a favor so they can play in events they normally wouldn’t be able to.

Protect yourself. The great part is that protecting yourself also helps to protect them. No poker player wants to have to hold on to excess amounts of money. There’s no perk of that to them and only risk. Have them send any excess money not needed to play with back to you right away.

The Wrap Up

The best way to wrap up everything we have taught you in this guide is this: Make sure that you communicate everything clearly, figure out any issues before they happen, and be respectful and act with integrity regardless of whether you are a backer or a horse. It really is as simple as that. The only tough part is not knowing what issues might come up. If you read the section above where we listed out the questions, you should be able to sort out any and all problems that might arise.

Staking in poker tournaments can be a win-win for everyone. Backers can make some extra money without a lot of work, and horses can play in events and tournaments that they normally would not be able to due to bankroll shortages. All we can say is, make sure to take your time before you enter into any length of agreement and make sure that everything is clearly sorted and communicated. You are responsible for protecting yourself regardless which side of the aisle you are on.