The Three Types of Backing Deals

October 2020

There are three ways you can classify a backing deal: freerolling, rent seeking, or harmonious.

A freerolling backing deal is one that is too favorable for the player, a rent seeking deal is too favorable for the backer, and a harmonious deal is one in which both parties benefit roughly the same.

This is review but bears repeating: the best partnerships are created not when each party tries to maximize their personal gains, but when they work towards a shared goal and create value for each other.

Now I'll explain what each of these deals looks like in practice, so you can avoid freerolling and rent seeking and work towards a harmonious partnership.

Freerolling:

This is a deal that is too beneficial for the player. The backer is either taking on more risk than they think, or does not have as much upside as they believe.

In my experience this is the most common type of deal, but not because of an overt intention to take advantage. Every backing deal is an actual freeroll for the player, and it takes a lot of effort to make it equally beneficial for the backer.

A freerolling deal is one where the player overestimates their skill and plays too high of stakes, or they allow their ego to prevent them from moving down stakes. They don't play enough volume to possibly have a chance at earning a living. They are dishonest about the state of their mental game. They refuse to put in work away from the table to improve their game. The freeroll can also be literal - if they lose motivation while in makeup and decide to get a different job, leaving the backer holding the bag. In an extreme case, they could be taking money from the bankroll to pay their living expenses.

You can contribute to a freerolling deal as a backer too though. Maybe it is you who overestimates the edge of the player, and sets them up for failure in tough games (it's easy to believe anyone can beat $3/$5 when you are a top $10/$20 reg). Or you could be too hands off, and allow the player to slip back into their old habits that lead them to being backed in the first place.

A freerolling deal is one that has a high probability of ending with the backer taking a loss. If you often find yourself thinking "WHY did I agree to back this person??", you are in a freerolling deal.

Rent Seeking:

This is a deal that is too beneficial for the backer. The player is not receiving enough added value for the winnings they are giving up. This is the type of deal every backer dreams about. The fantasy that all deals would end up this way is what got me into the business.

A rent seeking deal usually involves a great player who is too risk averse, or too private and agreeable.

Think of a player that prints money every month and doesn't require much input from the backer. They are either self sufficient in their study, or don't need coaching. This could be a $3/$5 live cash reg that consistently wins $80k a year using a bankroll of $10k. Or someone who plays online in soft clubs and takes a few shots at live MTTs, but still has low variance and averages $150k a year.

Eventually players like the ones described above need to go on their own or receive a profit split and benefit package that is heavily weighted in their favor. The $3/$5 reg making $80k a year is in a rent seeking deal if his profit cut is 50/50 after three years. If his profit cut has moved to 70/30, that's a lot closer to being mutually beneficial.

These deals are not incredibly common, but when they do happen it's because the player is too comfortable. Their current situation is sustainable, so they might not want to move up or go out on their own. They also might be unconnected in the poker world, which prevents them from talking to other backers and being offered better deals that would let them realize their fair market value.

To avoid deals like this, the player needs to be proactive in asking for more compensation when they think they have earned it. But it's also your responsibility as the backer to make sure the player is aware of all their options, and feels comfortable discussing them with you. They may be more head-down grinding out hands, so you are in a better position to see the big picture and help them plan for the long term. If you truly have your player's best interests in mind, you will help them get paid fairly.

Harmony:

Finally, harmony. A deal that is mutually beneficial. The player receives plenty of added value for the winnings they give up, and the backer is sufficiently compensated for the investment of time and money that they make.

This could be a 50/50 profit split deal between someone who plays big volume at $25 average buyin online MTTs and a backer that plays $200 ABI, with extensive coaching. The acceleration in moving up stakes from expert coaching makes it worth it for the player to give up a large amount of their winnings. Or it could be an online cash player that wins steadily with a 75/25 profit split, and the backer provides extra value by taking care of deposits/withdrawals and providing loans when needed.

Building harmonious backing deals takes effort. Remember, the natural state of a backing deal is to be too favorable for the player. The most impactful thing you can do as a backer is to be incredibly selective in who you work with. The moment of the hire is a one time action that has a huge impact on the success of your business, so it's worth taking your time on.

Once you do find great players to work with, there are many levers you can pull to shift how favorable a deal is one way or the other. Profit cut percentage, access to coaching, bonuses, loans, or mentorship.

In my experience as a backer it's best to talk regularly about possible benefits or raises that might be in the future for your players. I also acknowledge that everything is negotiable. If after six months your player dials in their mental game and ups their volume from 25 hours/week to 35, it might make sense to give them a cut of the increased winnings. The poker landscape and the player's edge are constantly changing, so it makes sense for the terms of your deal to be flexible to account for that.

Balancing the benefits and risks between parties in a backing deal is difficult. There is no exact formula. Instead think of a harmonious outcome as emergent. If each party looks out for the other, and communication is open and honest, you will have a good chance of achieving it.