Poker Rakeback Market – Understanding the Market Using an Economic Approach
For those who aren’t aware of what Rakeback is, below is a short informal definition which may or may not be strictly true:
In essence, Rakeback simply means refunding poker players a portion of their rake. For example, if a player contributes $100 of rake to a poker site through the course of one evening, his/her registration with a Rakeback site would allow them to receive 25%-50% of that amount.
Only a small minority of poker players receive Rakeback. The most likely reason is that the majority of players are unaware of its existence. In almost all cases, the Rakeback comes out of the affiliates Gross Revenue share. i.e. poker sites award affiliates up to 50% of a player’s revenue as an incentive to market that particular poker site rather than the thousands of others available. It therefore might seem strange that poker affiliates are willing to offer Rakeback to their customers – what successful business would accept 3% of a player’s revenue rather than 35%…
The reason is of course that the poker affiliate market is extremely competitive. There are almost zero cost barriers to entry (excluding the time spent programming the site). The poker affiliate community has long discussed “banding” together to offer lower Rakeback rates to poker players thereby increasing their own margins. Just like OPEC, attempts to control the supply (in this case defined as the Rakeback margin) have proved futile. It is simply too easy for a competitor to offer an extra percentage point above that of the cartel and attract the informed poker player.
Like most statistical populations, the distribution of poker players with-respect-to their rake contribution follows the pattern of a “normal” distribution curve – i.e. a bell shaped one. Interestingly, the correlation between the dummy variable (1 or 0) of whether a player is aware of Rakeback or not is extremely close to that of their lifetime rake contribution. Indeed, the top 30% rake contributing players are over 90% more likely to be aware of Rakeback than the average poker player. The standard distribution is so large however that the value of a player who is aware of Rakeback is greater than that of one who is not aware, even through the share of rake drops from 30% to 3%.
Like most analyses, the big question is “Do these players pay more rake because they have Rakeback or do these players have Rakeback because they have played more games and are more likely to be engaged with the informed community”. The direction of causation is difficult to tell and probably oscillates depending on who the player is. The general direction is important to Rakeback affiliates and to standard “Click here for a great bonus” affiliates. If Rakeback induces more playing, then Bonus affiliates should try to inform players of Rakebacks existence.
For detail on the different Rakeback rates available, visit: http://www.myrakeback.co.uk
For information on the different promotions that Rakeback Room affiliates offer to players, visit: http://www.myrakeback.co.uk/promotions/promotions.html