Why Can't We Escape Rake?

(Photo: Pokerstars.com)

The accepted means of charging poker players to play online is the “rake”. A great description of what rake means is defined concisely by Wikipedia as they say:

When you play a cash game and you win a pot, you receive the total value of the pot less the rake, which the online poker room automatically deducts from your winnings and withholds for themselves. They quite literally “rake” the money from the pot. Winning players dislike the rake as they feel they are paying a premium to play and without their volume and action, the poker room wouldn’t make as much money. The online poker room would say the winning players benefit from the fish playing the games and from the games being available in the first place, but, as they don’t want to lose the players whose action who generates rake, they try and offer bonuses and incentives keep them happy. There is an ongoing tension between the rake collectors and payees.

Players know it is extremely optimistic to believe there is any prospect of rake free games. The online poker room has many costs to cover before they make a profit, profit being the absolute reason d’etre of every business. Online poker rooms must pay for their servers (downtime is simply not an option), their customer service departments, other staff, their software maintenance and development costs, their promotion and marketing. Businesses require revenue to survive and the rake is the revenue stream of the poker room so it cannot be lost. They do not provide poker out of the goodness of their hearts and we should not expect them to.

So free games are, unfortunately, not an option, but incentives like rakeback or sliding scale rewards programmes seek to negate the perception of rake being an ongoing penalty for play, particularly felt by the better players. High volume players are a source of good and evil for poker rooms. They beat casual players whose deposits and losses are what ensures the online poker rooms existence but they also play a lot and generate lots of rake, which is pure revenue.

New businesses entering the tough online poker market have, in the past, sought to reinvent the wheel and offer a new approach to rake. Zerorake poker sought to offer online poker for a subscription fee of $20 per month per player which they argued was better value than a pot-per-pot rake fee. They reasoned that enticing 100,000 players to pay that fee would have meant a huge revenue stream for them each month.

Alas, this concept is fatally flawed. Human psychology means we find it easier to generate $50 worth of rake over time without conscious payment rather than paying a one off fee of $20, even if this is counter-intuitive. If high volume players had to pay their monthly rake up, front many would baulk at doing this even if it was incentivised to work out cheaper for them. Ignorance is bliss for poker players. Also, the 80/20 rule applies. Most of the poker rooms rake comes from their top players, so they would lose casual players who could play elsewhere without paying an initial fee. Their passive $5 - $15 of rake each month adds up over many thousands of players for poker rooms not charging their rake fees in advance. Poker rooms prefer to leave those players well alone, they have enough trouble fending off the sharks without losing chunks of their bankroll (consciously) to the poker room before they even sit down to play!

Other companies tried to entice players by offering rakeback deals of 80% or even 100%! They soon discovered that high rakeback deals might entice the players but it dramatically affects their bottom line. When these sites had to pay for security and software upgrades, they could not afford it and slowly but surely the wheels came off. These companies are not in business today.

So if we cannot escape rake, are there any alternatives to give players a better deal? One idea is to charge a higher fee for withdrawals which would ensure a “rake” occurred on money leaving the website rather than via each pot. With better players more like to withdraw, you can argue casual players are protected and, in effect, charged less rake!

This is a decent idea but it runs into difficulties when you consider the practical application of this concept. Players don’t notice the rake most of the time, but would certainly notice 10% - 20% being creamed from their withdrawal. When competitors sense an opportunity and promote their “no charge on withdrawal” offers, even the most poker players' heads would be turned, forgetting of course they would have less to withdraw if proper rake had been charged.

Competitors' opportunism means any dramatic remodelling is unlikely in the industry of the rake models we are all relatively used to and, because we all still play, we implicitly accept, even if it is because many amateur poker players and even some pros rarely even notice they are paying rake. There is a more obvious reason the rake models will not change and 2+2 user Maximus22 summed it up perfectly when he said;

No prizes for guessing what any online poker room would answer if they were asked whether they would prefer to make $20 or $500 over time via a single player's poker activity with their single bankroll.

It is easy for us to dream about rake free poker. Wouldn’t it be great if everything was free, fair, and nice in the world? There are many reasons like economies of scale, the realities of competitors opportunism, actions in a competitive market, and the fact that the largest online poker rooms are businesses that must maintain a specific growth pattern to ensure the share price dividends and the share prices themselves continue to go upwards for their investors. Forget online poker, it’s the bottom line that counts for the top execs in any business.

This is why we need a competitive online poker market as if players “vote with their feet” and move fluidly to rooms that offer the best terms for play. This forces the competitors to react and innovate their own offers and ensures players get offered the best deals for their custom. It’s basic economics, but I feel that if a dramatic remodelling of the rake systems utilized in online poker was going to revolutionize the game as we know it, we would have seen it by now.