The subject of players charging a mark-up when selling pieces of themselves for multi-table tournaments has been getting a lot of press recently. The concept of charging mark-up based on your perceived skill edge over the field isn’t a new one, but it’s becoming much more widespread in recent years. There was a time when selling percentages was purely about getting into the game or lowering your risk when taking a shot at a tournament above your usual stakes, but nowadays with sites specialising in matching sellers with buyers, setting mark-up and evaluating potential return on investment are becoming valuable business skills.
So, what is mark-up? For those unfamiliar with the concept, we’ll lead with an example. Let’s say that Joe Bloggs wants to play in the World Series of Poker Main Event but that the $10,000 buy-in is a little bit outside his bankroll, and he’s well aware that playing 6,000 runner MTTs is very high variance and regularly playing this type of event when the buy-in is above your bankroll is a sure-fire way to go broke fast (or become a poker legend, depending on how well you run). Joe decides that he’ll sell 50% of his action in chunks of 5% to reduce his outlay and agrees to split any winnings with his investors. The main event has a $10,000 buy-in so all things being equal, each chunk has a value of $500, but Joe decides that he has a huge edge on the field and thinks that his backers would be getting too good a deal if they were to buy the chunks at face value. Furthermore, he’s had to stump up for a hotel in Vegas to allow him to play, so he decides to sell the 5% chunks at $600 each, a mark-up of 20%. Now potential backers have a slightly tougher decision; is Joe good enough that our investment in him will turn a profit for us when we’re paying a premium for it?
It’s pretty easy to do the math on this as the mark-up a player is charging is directly related to his return on investment (ROI). In order for us to break even if we buy a piece of Joe for $600 he must have a 20% or better ROI in big field MTT’s. While 20% may or may not be a reasonable markup depending on the player and the field, there are players charging substantially more for pieces of themselves. Jim McManus for example posted this message on his Facebook wall :
Jim McManus
Greetings, Facebook friends. I’m accepting backers for this year’s 10K WSOP main event on July 7, with the standard arrangement. For each $1,000, you receive 5 percent of my winnings, up to 50 percent. No charge for lodging or airfare. Last year’s winner received $8,715,638. Fifth place (where I finished in 2000) paid $2,269,599. A total of 693 players made the money, the lowest prize being $19,359. Please contact me at xxxxxx@xx if you’re interested. Thanks.
The mathematically savvy will notice that selling 5% for $1,000 equates to a mark-up of 2x which would mean that McManus would have to have an ROI of 100% in the Main Event for this to be a breakeven proposition for his backers. He was widely criticised in this two plus two thread, where posters felt that him targeting Facebook friends who may not understand poker well was a predatory move.
Other attempts to sell at high mark-up include that of Galen Hall who despite being relatively new to poker has had amazing success in the live arena, winning the PCA in 2011. Hall was met with some criticism in this thread for selling at a mark-up of 1.6, even in tough $10k buy-in events .
Most people selling percentages tend to do so at around 1.1-1.25 mark-up for the Main Event and anyone selling will usually cite it as ‘the softest 10k event you’ll ever play’. While there might be some truth to this, people comparing the standard to that of a Sunday Million on PokerStars have been widely criticised. As well as having lots of satellite qualifiers, the Main Event also has every good tournament poker player in the world! Of course it was soft 5 years ago; POKER was soft 5 years ago, but things have changed. Training sites, forums, and books have brought the level of the average fish on in leaps and bounds if you’re a cash game player you’ll be well aware that the $0.50/$1 games online today are tougher than the $5/$10 games of 5 years ago.
It’s true that the Main Event probably contains more satellite players than any tournament in the world and we’ve already pointed out that these players in general are better than they once were, but there’s another consideration. The structure for the Main Event puts bad players on a plate for the sharks; a 300 big blind starting stack and 2 hour levels guarantees that only the luckiest fish are going to make it to day 3. With that kind of structure they’re going to be making gargantuan mistakes with regularity and they simply won’t be able to handle decent players. If you speak to anyone who plays the Main Event year in, year out, they’ll tell you that almost all of the bad players are weeded out by day 3, and the cream rises to the top. Remember that this is long before the bubble and there are still more than 3,000 good players to get through.
Going back to the Sunday Million analogy, can this tell us anything about where mark-ups should be set? If you look at a tracking site such as Official Poker Rankings and pick out some of the big winners over the history of online poker at Party Poker you’ll find that the biggest winner, aceswithluck has a 47% RoI over about 2,500 tournaments, with an average buy-in of $50. Anyone who thinks that the $10,000 Main Event is going to be softer than a $50 online tournament needs their head examined, so it’s clear that even for the best tournament players on the internet 40% mark-up would be a poor to bad investment for potential backers.
What about the great Phil Ivey? A recent thread bandied about how much he could potentially charge if he were the type to be cautious with his bankroll . Respected players like Dani ‘Ansky’ Stern suggested they’d pay as high as 5 x for a piece of his action, with many others suggesting 4 x would be fair.
Of course, when you’re buying pieces of people’s action be sure to get the full story. Many will remember the story of Dutch Player Constant Rijkenberg who reportedly sold 137% of his action for the 2009 EPT San Remo which in one of the more bone-headed moves in poker history, he went on to win. The move is thought to have cost him in the region of €550,000 were he pay everyone what they were owed. At least he wasn’t deluded enough to charge mark-up on his buy-in!
