To Raise or Not To Raise? The Great Rake Debate
This article was originally published on GrinderMedia.com.
Tax increases are nothing new — they happen all the time in every economy. When a government looks to raise its taxes, it carefully (in most cases) analyzes which areas of the nation's budget can handle the rise, and the subsequent effect any potential increase may have on the country's economy.
The poker economy is no different.
When a poker room looks to increase its overall revenue, there are a number of things it can do, the easiest being to simply raise taxes and increase the rake. Other ways it can do this is by increasing the number of hands dealt on each table, the total number of tables it opens, and the amount of time each table stays open for — all of which will lead to an overall increase in gross revenue.
In order to increase the number of hands dealt on each table there are a number of things that can be done, including staff training to increase productivity, procedural modifications to increase efficiency, as well as giving the players a limited time to act on each decision to speed up the action, among others.
In order to open more tables, the poker room either needs to attract more new players, increase the visitation of its existing players, or modify the head count on each table to open more tables from the same existing player base (e.g. nine-handed games become eight-handed). Increasing the amount of time a table stays open for relies predominantly on two factors: reducing the barriers of entry/reasons for players to leave (such as a time charge, drink cutoff times, etc.), and the service levels the poker room provides. If the chairs are comfortable, the staff are friendly, quality food and drinks are readily available, and players generally have everything they need in one place, they will be far more inclined to put in a marathon session than they would otherwise.
The issue faced by most poker rooms is the rising cost to operate. Staff wages continue to increase year on year, regardless of the number of players coming through the doors. When the increase in costs occurs at a faster rate than the increase in gross revenue, the net profit margin takes a hit and questions start being asked as to the viability of the business, particularly for those poker rooms located inside larger casinos. Where the smaller independent operator is able to operate with less bottom-line pressure, those owned by large corporations cannot escape the scrutiny of the board.
So what is the large poker room to do when facing these pressures?
As mentioned above, they can work on increasing profitability through staff training and productivity improvement incentives, modify its procedures to streamline opening of tables and game maintenance and management, work on improving its marketing campaigns to attract new players, and increase the visitation of its existing player base. And, as an absolute last resort, raise the taxes.
The problem with raising the rake is that it is almost never met with positivity from the players. Offsetting it with added-value offers such as free food and drinks, rakeback-style programs, and progressive jackpots can soften the blow, but poker players are a savvy niche that usually sees through the guise. To do this well, the drinks need to be premium, the rakeback significant, and the jackpot needs to be both achievable and of value, and the payout designed to reward as many players as possible.
For example, a high hand jackpot of $200,000 where one person wins the whole prize, is not as effective as a $200,000 bad-beat jackpot where the payouts scale up. escalating up from everybody seated in a game at the time, right up to the person who received the bad beat receiving the greatest percentage of the jackpot.
When deciding to increase the rake, consideration must be given to the impact it will have on the overall poker ecology. Being a peer-to-peer game, the house is incentivized to keep the players at the tables for as long as possible in order to eek out its commission. This is in stark contrast to traditional casino games, such as blackjack and roulette where the house can send the dealer home as soon as the player has lost their last bet and save on the labor bill.
On a poker table, the house wants the players to lose to each other as slow as possible in order to maximize its chances of taxing each pot. Moreover, the house does not want all the players losing too fast to it either as the money goes down the box. If the rake is miscalculated and is too big for the games, this can have disastrous effects on both the short- and long-term ecology of the room.
It affects players at all levels. Aside from the obvious side effect of regular players finding alternative places to play, it affects the recreational players as well. It is like adding another winning player into the game, which makes it that much harder to beat. Players lose faster, meaning those that may have visited twice a week previously can now only come once a week, and those who play for the first time find it extremely difficult to win and are much less inclined to come back.
If all other avenues are exhausted, and the rake simply must go up, then it needs to be done in a way that protects the poker room as much as possible, and allows it a chance for longevity. Serious consideration needs to be given to each game type individually, with a clear strategy devised that takes into account the life cycle of the poker player as they progress through the limits. In addition, any changes need to be communicated to the players, and any subsequent feedback needs to be acknowledged. Players, often more than the operators themselves, understand the business of poker and know that a rake increase is as inevitable as death and taxes — they just want a forum to air their concerns and someone to actively listen to them. A little bit can go a long way when these situations arise.
About the author: Jonno Pittock is a veteran of the poker industry, working with the game for over 15 years. He has served as Poker Operations Manager for PokerNews, Director of Poker Operations for Crown Melbourne, and an industry consultant. Pittock has a unique and broad understanding of the poker business, from setting strategy and business planning, to marketing and communications, through to operational execution and staff training. He is a passionate advocate for the game and has a keen interest in the field of health and wellness. He is also a certified practitioner of traditional Chinese medicine and a martial arts instructor.
This article was originally published on GrinderMedia.com.