This year at the World Series many poker players will be staked.  Some will be knee deep in makeup after the first week.  What’s staking and what’s makeup?  It’s not something you’ll learn in poker school but if you are considering making tournament poker a career you should learn about it.

For those that don’t know, many players enter backing or staking agreements with deep pocketed friends–usually successful or running good poker players.  The agreement is essentially the rich friend pays the buy-ins for the just starting out (but talented) poker player.  In the new age of the internet sometimes the staker is a successful online pro who isn’t old enough to play in the world series for his or herself.  In return for buying in players, the “backer” or ”staker” gets a percentage of the winnings.  To start it’s usually the majority, sometimes up to 70%, or even higher. 

An example of when things go right is this:  the backer puts up 1k for the player to enter an event.  The player wins 101k.  First thing the player does is pay the 1k back to the backer.  Let’s ignore taxes to keep things easier though staking agreements take them into consideration.  So, the two have won 100k of profit.  The backer gets 70% and the player 30%.  Thus, the backer wins 70k and the player 30k.  Win-win.

Some multi-table tournament players, due to the huge swings of variance, despite big cashes and ample bankrolls rely on backers.  In our example, despite having a new 30k bankroll the player decides to continue the staking agreement.  This gives the horse the lattitude to play say 30 more 1k buy-ins and not cash at all and still have money in the bank.  But the backer is now down 30k.

Here’s where makeup comes into play.  Say on the 31st 1k tournament the player wins 101k again.  He pays the backer, the 1k cost of the tournament first and there is 100k pot to split.  However, this time the split is not 70-30.  The player has also lost 30k in buy-ins for the backer.  He then owes the backer 30k in makeup.  Thus, the split is now 70/30 of 100k-30k.  Therefore the backer gets 70% of 70k (or 49k) and the player pockets the remaining 21k. 

So, you can see even big scores for players that are backed and haven’t hit for a while may not be so big.  There are numerous rumors of times where pros have hit million dollar scores and despite the hype of being a new millionaire are only back to even.  There is a rumor, probably unfounded, that a former main event champion was once so far into makeup that his subsequent million dollar score only got him back to even.  We won’t say who it is, but it’s one of these four guys:  Carlos Mortenson, Scotty Nguyen, Phill Hellmuth or Chris Moneymaker.

However, fair is fair.  In our example, the backer has put up 32k, the player has won a total of 202k–net profit is 170k.  The player only keeps 51k of the money, but has risked nothing to win it.  The backer assumes all the risk.  Therefore he is entitled to 119k in profit.  Such a high return on investment would probably mandate a new deal between both parties with a more even split of the winnings on future agreements.

That’s when backing agreements go well.  Many times they go south.  Let’s say the player goes 0 for 50 and doesn’t win a single 1k tournament.  Now he is 50k in the hole to the backer in makeup.  Meaning he’d had to win 51k in the next tournament just to break even.  The player may lament the hole they’ve dug for themselves, but the backer is the one that’s risked and lost all the money.

Things go sour, when the backer may try and sell his horse to another backer, or if the horse gives up poker.  In the first case, the horse now suddenly has a new boss.  The old backer might have cut his losses and sold the horse for say half of what he was owed.  The new backer still can recoup all the money the horse owed the old backer (and double his investment if the horse hits), but the original backer is only able to cut his losses.  Sometimes, a horse will bankrupt a backer.  It happens.  In the second case, if the horse gives up poker the backer is out the 50k he invested.

In the next post, we’ll examine how backers can get scammed.