Return of the Rakeback War

As with most things that manage to become popular on a global scale, there's money to be made from seemingly every aspect of the poker world. Whether it's major events, player sponsorship, or merchandise, the poker dollar is there for the taking by anyone with enough initiative to do so.

The lion's share of wealth, however, still appears to lie in revenue that can be earned from running an online poker room. With the major operators being worth billions of dollars, it's little surprise that new sites are popping up all the time. From multi-room networks to stand-alone ventures, everyone wants to grab a slice of this very lucrative pie.

In reality, though, it would seem that some poker companies have recently been failing to make substantial profits. Like any other business sector, the poker industry is dominated by a select few companies that have set the standard, and thus reap the dividends. Everyone else is forced to play catchup, and simply hope that they too can grow into a major.

In the past 12 months, even some major operators such as Ladbrokes have struggled in this competitive environment. It certainly isn't down to lack of interest - as the popularity of poker shows no immediate sign of slowing down, especially as experts are predicting a widespread rebellion against the US legal crackdown. Instead, the problem seems to lie in companies being unable to cover their running costs - in particular, those related to player acquisition.

More specifically, it's been suggested that this profit leak is down to the rising cost of rakeback and affiliate schemes.

Player incentives such as these are a great way to gain new members, who in theory will then spend money at the tables. But they also create a catch-22 situation, as it means that a significant portion of an operator's main revenue is being lost.

Rakeback works on a principle that appears simple, but is actually more complex than the casual player is perhaps aware. With the "rake" in question referring to the sum of money taken by a poker room from every pot in real-money cash games, the idea is that the player is able to get "back" some of this money. It's rare for such deals to be offered directly between the operator and the player, meaning that most schemes are brokered via a third-party affiliate partner. These external companies offer players a percentage of their raked money back, providing they sign up to a chosen poker room through their site. In return for this new member, the poker room pays the affiliate commission, a portion of which is given to the player as rakeback.

It's clear, therefore, that offering rakeback can have specific advantages for a poker room. In a densely populated market, operators have to attract customers to their site in order to survive. For the big guns, this is easy, but for others, it's a constant challenge. It's for this reason that rakeback seems to be most favoured by small and medium-sized rooms. Although it's clear that the majors are also permanently in search of new sign-ups, they tend to use their proven reputation and huge marketing budget to find them.

There are some large sites that offer rakeback - Full Tilt, for instance - but it's not looked upon as their most aggressive method of generating members.

But for the smaller poker room, rakeback can be very useful. Without endless promotional funding or endorsements from big-name players, it's hard for them to entice players away from the more visible sites. Affiliate schemes can therefore add some much needed interest in their business. The poker room manager at Celebpoker highlights the benefits of rakeback to a company of it's size. "From our point of view, it is a gain, because rakeback is simply an "ongoing bonus" we give to players and is actually a way of retaining them for longer periods." The affiliate manager of another room (who asked to remain anonymous) agrees that the basic function of such schemes can be helpful. "We simply offer rakeback in order to recruit and keep existing customers. Our players are aware of rakeback almost without exception, and they know how much they are worth."

To be associated with an affiliate company is therefore a clear way of generating traffic. However, it also means that, in principle, a percentage of their primary revenue stream (the rake) is being sacrificed. This begs the question, is it really worth it in the long run, and would operators therefore prefer not to offer rakeback if they could?

Our anonymous affiliate manager seems to suggest this: "If possible, we would prefer to have non-rakeback players. In the long term, we are all basically losing liquidity." Celebpoker suggests that, in addition to the lost revenue, another common problem is that players often begin to demand more. "Players can become rather greedy and expect a higher percentage after receiving it for a few months. We offer no more than 30 percent, which is a strict guideline that players know before registering."

While rakeback appears to be something of a necessary evil for poker rooms, it seems more of a sound prospect for the actual affiliate companies. Players like the thought of earning back money, and the more of them who sign up on the affiliate site, the more commission that site makes. This suggests a win-win situation for them.

Nevertheless, Karim Wilkins of Raketherake.com argues that affiliate companies also inevitably find themselves in a constant fight to attract new members, just like the poker rooms they are working with. All of this adds up to a huge initial outlay. "You have to spend a lot on marketing and promotion. Even then, it's a numbers game. The margins after costs are small, so you need to have a large number of players to make it stack up." Once established, things can indeed stack up, meaning that many poker rooms appear to see affiliates as a thorn in their side. Indeed, the very fact that most people contributing to this article wanted to stay anonymous hints at the uncomfortable position that rakeback seems to have in the industry. The manager of Rakemeback.com (another who wanted to stay incognito) sheds some light on this issue: "The forces that are against rakeback want to keep their margins higher. As soon as you educate players on how much is taken out of every pot, they will realise their value to the poker rooms."

It's evident that the affiliate companies want to be seen as fighting for the cause of players. Whether or not this is truly their intention, it's certainly a creative niche they have found in the market.

As for actual players, it's harder to gauge just how much of an incentive rakeback is. For the less-experienced player who inevitably loses more than he wins, the opportunity to make something back will often prompt him to return for more action. Even highly skilled players, the type who generate high volumes of rake for their preferred site, can reap the rewards of rakeback, as seasoned Internet pro Natasha Ellis suggests: "The nice thing about rakeback is that you can have a bad week in which you play loads of hours and end up breaking even, and you'll still have made money."

Conversely, many high rollers would probably rate the chance to pick up the dead money that larger, non-rakeback sites attract as a far higher priority. "The big operators have a large proportion of fish. At the end of the day, the sharks would rather play poor players than get any rakeback," stated an affiliate manager.

It could be argued that the split opinion over rakeback boils down to a simple case of wording. The concept of "getting back rake" almost sounds as though the player is somehow getting revenge over a faceless poker corporation.

Yet, really, rakeback is no different than any other type of incentive offered by virtually all operators. Regardless of whether it's first-time deposit bonuses, loyalty points, exclusive freerolls, or complimentary gifts, all are used as a way of seducing players and to keep them coming back.

In such a volatile industry, where no one is really sure if and when the bubble will burst, poker rooms will continue to find new ways to maximise profit and offset overhead. Providing there are enough players out there willing to hunt for a good deal, rakeback looks set to be an integral part of the scene for the foreseeable future.