iPoker Announces Implementation of "Source Based Rake" on Jan. 1, 2015

The current trend in the online poker industry that is aimed at attracting recreational players as opposed to grinders has again reared its head on the iPoker Network where a new "Source Based Rake" (SBR) player valuation formula will take effect on January 1, 2015.

The New Formula

The new formula relies on the premise that recreational, net-depositing players have been undervalued for far too long, while the online pros who generate plenty of rake but are cashing out instead of depositing have been valued much too highly. iPoker has determined that "deposits are essential to ensure rake and fees can be generated out of the liquidity in the future and therefore recreational players are worth more."

The new SBR model will not affect players directly in that rake taken from cash pots and fees tacked onto Sit N' Gos remain the same. SBR merely affects how revenues are distributed among iPoker skins. However, the result of SBR's implementation may lead to individual skins making adjustments to various promotions and loyalty programs, so SBR will likely affect players indirectly.

Why the need for change?

In past years, online poker rooms tended to target the players who provided a high volume of action. This resulted in the need to increase bonus costs, while decreasing net profits due to less money being deposited by players. In turn, skilled players became more skilled, putting a further hurt on recreational players who found enjoyment at the tables to be lessened due to the proliferation of "sharks" among their tablemates.

The targeted high volume players also required even higher bonus incentives, as the increased level of skill made it that much more difficult to "beat the game." Poker rooms were thus left with a shrinking pool of players due to recreational players becoming discouraged and avoiding poker rooms, which led to less rake and fees generated by the grinders because of the lack of deposits made by casual players.

The aim of iPoker is to establish a new player valuation formula intended to "break this cycle of decreasing lifetime values." To accomplish this goal, net-depositors need to be recognized as providing more value, while simultaneously performing a balancing act by "assigning enough value to high volume players to retain them."

The grinders remain a part of the equation in order to generate rake from the deposits made by recreational players. But how much of the equation remains to be seen, considering that their value will be lessened considerably. Will that value decrease so much that it will cause certain skins to modify their VIP programs to such a degree that high volume grinders are forced to play elsewhere? More on that later.

Network Revenue Sharing Agreement

The Source Based Rake concept is viewed by iPoker as a revenue sharing agreement of sorts among the skins on the network. The sharing comes into play "on rake and fees generated from money that has been deposited and wagered by players" on various skins, and subsequently "turned into revenue by another player"regardless of the skin to which that player belongs.

SBR, which will replace the current Weighted-Contributed Rake model, functions by requiring the creation of a "virtual balance" (VB) for each player in conjunction with an actual balance. Money that is "wagered for the first time" is tagged and time-stamped to the wagering player. The SBR system uses existing money of a player's virtual balance that is used in a cash game pot or a Sit N' Go buy-in.

A player is tagged with new money only if his or her "virtual balance is lower than the bet or Sit N' Go buy-in." Upon the collection of rake and fees, players who used money to enter the Sit N' Go or build a ring game pot will be assigned a value that is proportional to the wagered money. SBR always takes other players' oldest money first from the virtual balance before their own money is used.

All of the money tagged to players will not mean revenue for the skins of those players. It is highly likely that a portion of the virtual balances of players will not be turned into rake, thereby eliminating revenue for the skin.

Additional Information

Some important information to know about the SBR concept is that it applies only to cash games and Sit N' Gos -- multi-table tournaments and Twister Poker are excluded; tagged money has no time limitation or expiration, remaining tagged "until it leaves the system as a rake or fee"; bonus money is treated the same as deposited funds; and virtual balances have already been created for players using a starting date of Jaunary 1, 2013.

The new player valuation formula is designed to attribute more value to recreational or losing players. iPoker skins will be prompted to aim their budgets toward attracting more of those casual players who will have greater value in the revenue sharing scheme. The network believes that cross-marketing initiatives will be enhanced and that profitability will also increase due to the likelihood of lessened bonus costs.

While iPoker is touting the new player valuation as win-win, others are not so sure. By examining the new changes, one can certainly speculate that skins that currently value their high volume players will have to make some major adjustments to their reward programs in order to make up for the lost profits due to grinders having less value.

It has been mentioned by industry insiders who have analyzed the SBR concept that some poker rooms on iPoker with a high number of winning players could see a revenue cut of up to 50%. That could cause the rakeback percentages received by players to decrease significantly, with a possible abolishment of rakeback on some skins not entirely out of the question.

Will SBR be advantageous for players in any way, you might ask? Well, it will be for recreational players who will receive more value as net-depositors. Those casual players are also almost certain to find softer games since the new changes will likely repel a number of multi-tabling grinders who do not want to ring in the new year by seeing their value diminished at iPoker.

SBR concept voted on by iPoker Board

The new SBR concept was voted on and approved by the iPoker board at a July meeting in London. It is not the only major change made by the network that was designed to bring in more recreational players. Most are aware that a couple years ago iPoker tweaked its poker room ecology by embracing a two-tier system in order to protect less-skilled players and extend their shelf life before another deposit would be required.

While that highly-publicized network split into iPoker1 and iPoker2 received high marks for being a commercial success, liquidity did not increase. Nor did the quality of games, according to players who regularly post their views on online poker forums.

Growing Network + Declining Traffic = Time for Action

It's interesting to note that iPoker was able to welcome Everest Poker in late 2012 and Ladbrokes one year later --two rooms with significant player bases -- but finds itself with less traffic than before those migrations. The network split is likely partly responsible, but the online poker industry as a whole has less players than years past --15% less than last year at this time, according to PokerScout.

The decline in cash game player traffic has led some to proclaim that "poker is dying." However, another segment of industry observers believe the opposite to be true and that with a bit of innovation and creative thinking, poker rooms can thrive quite well, thank you.

One need look no further than the growth enjoyed by 888Poker, the success of Unibet since spinning off from MPN and establishing a standalone poker offering, Full Tilt's resurrection and reclamation as one of the industry's top poker rooms, and PokerStars to see that some poker sites and networks are far from their deathbed, and proliferating.

But iPoker and its SBR concept may ring the death knell for some of the network's skins. Time will tell just how iPoker will fare after taking another stab at enticing more recreational players --at the expense of online grinders.