Who Actually Pays the Rake?
Who actually pays the rake in a hand of poker? It seems as though the answer could not be more obvious. But it is not obvious and with a number of sites recently switching to contributed methods of rake calculation, it is become a more important question than ever.
When we sit down and play a hand of poker we see the site taking the rake out of the pot on each street. You bet $25, your opponent calls and the site takes their $2.50 out of the pot. It seems clear that you and your opponent both just paid $1.25 in rake. But imagine for a moment that you knew the site took 100% of the rake from your opponent’s call and none from your bet. That makes no sense, yet everything would still work out exactly the same. The winner of the pot would still end up with the same amount of money earned and the site would still end up with the exact same amount of money raked. The point is that there is no individual person paying the rake, the rake is being paid out of the pot that has been built.
The first thing everybody learns in poker is that money that is put into the pot is no longer your money. You have made your bet or call and that money now belongs only to the person who ultimately wins the pot. And the same is completely true for who is paying the rake. You are not paying the rake and your opponent is not paying the rake. The pot is paying the rake. And that pot belongs one person: the person who ultimately wins the hand.
Why does it matter?
It matters because of rakeback and VIP player points. In the past most sites used the “dealt” method for rake calculation, the method that PokerStars still uses. Under dealt rake, each player at the table gets credit for an equal share of each raked pot. If there are six people at a table and a pot is raked $3 then each player receives credit for $3.00/6 or $0.50 of the rake regardless of whether or not they folded preflop. This means a player who is playing 5% of his hands will receive just as much credit for rakeback or VIP points as another player playing 30% of his hands at the same table.
In late 2010, Full Tilt changed over to weighted contributed. They were followed shortly thereafter by iPoker and more recently by Party Poker as well. Under this method, players receive credit for rakeback or points in relation to how much they contributed to a pot. So, if at a 6-handed table 3 players go all-in and the pot is raked $3, each of those players will receive credit for $1 of rake generated, while the other 3 players will receive nothing. What was the player response? In general tight players were not too fond of it, and loose players liked it. One thing that both sides generally agreed on was that it was a fair system. But is this really the case?
Amongst winning online players, there are plethora of different styles. But all winning players have one thing in common, when the pots get big they tend to show up with the goods more often than not. It is these same pots that tend to be raked the max. But there is a problem there. The rake is only being paid by the person who wins the pot, yet under weighted contributed both players are splitting the credit for the pot down the middle. And this does not even out in the long run since the more skilled player will be the one scooping the pot more often.
This bias led to an unexpected result. The nits were naturally receiving much less rakeback, but the interesting thing is that many of those those who subscribed to the Stu Ungar and Tom Dwan style of play were also receiving less rakeback, in many cases much less. But rake allocation is a zero sum game. If the nits and TAGs were not receiving more and the LAGs were not seeing much difference – where was it all going? The only group left was the recreational players. And it makes sense. They are the players involved in ton of pots who are more concerned about just having a good time than trying to plug leaks and grind out their bb/100.
So the recreational players were getting more back, presumably much more back. This cannot be bad. Recreational players are the backbone of online poker after all. But there is a recurring theme with weighted contributed: things are not as they seem they should be. The reality of the situation is that, where offered, most regulars have rakeback and tend to spend their VIP points on high value items where they can get the best exchange rate of points for dollars. Recreational players, on the other hand, do not tend to be privy to the high value rakeback deals and simply do not put in enough volume to ever be able to purchase the high value items even if they wanted to. Instead their points will typically be spent, if on anything, on low value items that typically offer very poor exchange rates on the points.
The regulars are losing out big but even the recreational players are not getting much more back. Where is it all going? In hindsight we know that when Full Tilt swapped over to weighted contributed they were under extreme financial duress, and it was no coincidence. Weighted contributed tends to take money away from regulars, disperse a bit of that among recreational players, and leave the lion’s share for the house. Is it a fairer system than dealt? Perhaps. What is for sure is that the reason a number of sites have recently changed over to weighted systems has nothing to do with fairness.