What a Backer Actually Does

August 2020

Backers do one obvious thing - the thing that they get their name from. They back the player. They provide a bankroll for the player to use in order to win money that they both eventually split.

But providing a bankroll is not enough of a service to warrant much of a return.

To give a quick example, imagine a player that makes $50,000 a year playing $3/$5 cash games using a bankroll of $10,000. If this player were backed, even with a profit split of 70/30 in the players favor, the backer is making $15,000 a year from their investment of the $10,000 bankroll. That's a 150% ROI, which is pretty amazing when you compare it to possible returns you could get on another investment, say a stock (7%/year) or a bond (3%/year). Even factoring in the chance that the player goes broke and quits poker a high percentage of the time, you can see how this deal is attractive from an investor's standpoint.

As far as investments go, poker backing deals are about as exotic as it gets. Some of this excess return can be explained by the difficulty of matching players and backers. It's not exactly as easy as logging on to Vanguard and buying a stock, or going into the bank to apply for a mortgage. The biggest factor though is that poker backing is an active investment, not a passive one. A backer does not buy an asset that will produce passive income, they sell a bundle of services to the player.

Here are some of the most common services that backers provide.

Coaching:

Most backers are professional poker players themselves, or they were in the past, and they didn't build a bankroll big enough to back people by accident. That means they are in a position to give valuable strategy advice to their players. This is a win win situation. The player improves their game and wins more, which in turn provides more profit to split with the backer. Backers can also hire coaches to work directly with their players instead of doing the coaching themselves.

This model of compensation where the student pays the coach with equity in their future winnings instead of a flat hourly rate works well and aligns incentives. It makes sense to tie the coach's compensation to the actual change in winnings it produces. If the coach doesn't help you improve, they don't get paid. If the coach helps you immensely, they capture a more uncapped upside. You can't get this incentive alignment with a coach that charges by the hour, who has little reason to not just phone it in during lessons.

It also makes sense to allow players to pay later, instead of now, for coaching. Many players who could benefit from coaching can't afford to pay an hourly rate until they improve and start making more money.

Management:

There are many challenges that come with playing poker professionally. Deciding which games to play, what stakes, how much capital to risk in each tournament, or how many hours to play. A backer can provide guidance and rules to simplify life for the player and allow them to focus on strategy at the table.

It's the sports coach analogy. In order to get the most from your players, you need to free up their energy to focus on playing the game. They shouldn't be thinking of how many minutes they will play, or what play will be run next.

Banking:

Bankroll swings are a part of life for any poker pro. These swings are what cause most players to seek backing in the first place. It's an attractive proposition. The player saves up money in their bank account for living expenses, and keeps it separate from their poker bankroll which is owned by the backer. They never have to worry about losing too much gambling and endangering their savings to continue playing the game that is their job.

This is the sort of banking that every backer signs up for. They provide a bankroll for the player to gamble with. In reality, the backer will inevitably be forced to provide other banking services. This is because if the player goes on a prolonged losing streak, they can burn through their entire savings. At that point the player will have to decide between two terrible options: not having money to pay for rent or food, or stealing from the bankroll. Spoiler alert, they aren’t going to starve themselves.

The backer has two options to avoid this situation. The first is to drop any player that becomes unable to pay their living expenses. This can be hard to do, because the backer will not have complete transparency into the financial standing of their players. It is also costly, because a player that cannot pay living expenses is a player in makeup. The backer is committing to take a loss of that makeup if they operate this way. It's not great for the player either. They may end up broke and unemployable.

The second option is to provide loans to the player. You can think of it as the backer providing an income smoothing service. Income in poker is unpredictable and spiky, especially in tournaments. It is beneficial for the player to be able to take out small loans along the way while they wait for a big score. It's a win for the backer as well, because if they have a player in makeup they need to keep that player alive and sane enough to win back the makeup.

Mentorship:

This is guidance in everything that falls outside of poker strategy. Much of what a backer can teach a player will be related to playing the game, but there is so much more to becoming a success. Maintaining healthy relationships, keeping your body fit, having work-life balance. With lifestyle mentorship, you get the same nice incentive alignment as you do with coaching. Anything the backer can do to improve the player's lifestyle should theoretically translate to making both of them more money.