Tournament Chips and Real Money

As I write, the World Series of Poker is under way in Las Vegas (and as this column comes out, we'll be heading into the final few events). Meanwhile, I'll be back home, on the East Coast, trying to figure out a way to get out for a few hands of limit hold'em. It's not the world championship, but it's the best I can arrange. Still, I figured I could contribute to poker's premier event in some small way by devoting this column to some thoughts on the topic of tournament chips.

The relationship between real money and tournament chips is confusing. The main cause of the confusion is that the chips have numbers on them that aren't always related to their significance in terms of real dollars. Even for tournaments in which a $500 buy-in gets you T500 in tournament chips, the cash value of a single tournament chip can fluctuate wildly, and may not even be the same for every participant. Although this important point is often discussed, it's worth rehashing now and then, especially as poker has started to show up on national television.

The simplest way to think about the value of a tournament chip (or pot of chips) is in terms of its contribution to prize equity. If you have chips in a tournament, your equity in the prize pool depends on the amount paid to each finishing position, and your probability of finishing in that position. The prizes don't change (rebuys aside), but your probabilities of finishing first, second, third, and so on will change as your stacks and the stacks of other players go up and down. At the beginning of a tournament, everyone has an equal chance of finishing in each money position (skill aside), and gets an equal number of chips, so each chip is really worth its face value. As the tournament progresses, this relationship can break down to the point where you need a lot more information before you can assess the value of a chip.

Here's a simple example: Suppose you're one of six tiny stacks with T100, and you're forced all in against the single huge stack at the final table, who has T100,000. The pot's value to you is whatever your equity in the prize money would be if you had those chips (minus your equity without them, which is zero). The pot's value to your opponent, on the other hand, is much smaller, because your paltry stack won't increase his equity in the prize pool very much; T100,100 isn't much better than T100,000, because he was almost certainly going to finish in first place anyway. Obviously, the total equity among the participants in the tournament must remain constant, so how can the pot be worth more to you than to the big stack? The answer is that your winning or losing has a much more noticeable effect on the other small stacks than it does on the big stack, even though they're not in the pot. When you win, a little bit of the equity you gain comes from the big stack, but a lot comes from the other players. And when you lose, it's the other small stacks who will be the happiest, while the big stack will just be glad to be a few minutes closer to the inevitable end.

The value of tournament chips wouldn't be confusing if the chips were labeled in a different currency, or in different units. One convention is to refer to 100 tournament chips as T100 instead of $100. But it's hard not to slip up and refer to the huge pot at the final table as a "million dollar pot" instead of a "million tourney chip pot, whatever that's worth in dollars." Because big tournaments convert buy-ins to tournament chips at a 1-to-1 exchange rate, and the rate is fairly reliable through the early stages of a tournament, it's an easy mistake to make.

Not surprisingly, poker commentators like to describe pots, especially at the ends of major tournaments, in terms of the denominations of the chips. If 100 people began a tournament with $1,000 in chips each, there should be $100,000 in chips through the end of the tournament. If the last two players go all in with equal chip counts, and first place pays 40 percent and second place pays 20 percent, how big is the pot? You could make an argument that it's a $100,000 pot. That's what the chips say, and the player who wins the pot will have beaten the other 99 players out of chips they paid $100,000 for. You could also argue that the final pot is worth $40,000, because that's how much the winner will get. Or, you could argue that it's worth $20,000, because that's how much it's worth to win it (compared to losing).

None of these numbers is right or wrong for every purpose. Each means something. But which makes the most sense in talking about how much a pot is worth? I think chip denominations, the big numbers, make the most sense, except possibly at the very end of a tournament. Reasonable argument is possible, but I'll give three reasons (and I'll even ignore the fact that big numbers are more exciting). First, because it's traditional, it's the least likely to cause confusion among people who understand poker. If we insisted that commentators talk about prize pool equity, every comment toward the end of a tournament would have to be prefaced with a lengthy description of exactly how the numbers were calculated. We already understand chip counts, and there's no reason commentators can't also mention the effect on prize equity, especially when the tournament is heads up. But the last thing we need is to have to qualify what someone means by "million dollar pot." Second, it's much easier to calculate than prize equity. If we want to go with the actual value of the pot in terms of prize pool equity, it's going to be hard to talk about pots at all until a tournament is heads up. Third, the chip count does convey a properly impressive sense of what the winner of the pot will have accomplished. Ignoring the prize structure, most of us have some intuitive sense of how difficult it is to turn $1,000 into $100,000, even with the benefit of increasing forced bets.

It's worth noting that this issue isn't unique to poker. Golf commentators deal with something similar every week. But because the possibilities are so hard to enumerate, they generally avoid talking about prize equity until the very end of the tournament, when a player's prize money may come down to a simple dichotomy – sinking an 8-footer or two-putting. And, of course, golf commentators don't have to worry about a confusing currency exchange. There's no doubt that when a commentator refers to an 8-foot putt, he's referring to the length of the putt in feet and not the prize money at stake.

There's really no way to appreciate tournament poker without understanding that players play for prizes, not just for chips. This is especially obvious in smaller events, where the face values of the chips don't match the buy-ins, although those events are less likely to be televised. The only downside to talking about chip counts is that it might mislead people about how much money is at stake, but that's OK. It's one of the subtleties of tournaments that we all have to understand and keep in mind. People who don't care so deeply about poker won't be making a huge error if they tell their friends they saw a million dollar pot, without really understanding what that means. And it's not too hard to figure out why, when a small stack is all in against the big stack, the small stack is liable to be a lot more anxious.