Poker Revenue Sharing Explained, Part 1
For most rev share affiliates I work with, rates are king. In part, this is because the range of attainable rev share rates is huge (20% – 70%) and it’s natural to chase the highest number. As with most things, it’s not that simple. A few easily overlooked details can make “70%” worse than “30%” and end up costing you thousands each month. In this 2-part post, I’ll dig into these details and teach you how to protect yourself when negotiating your rev share deal.
The first component of the affiliate rev share model is the rake calculation method. This aspect affects players as well (earning VIP points, rakeback, etc), so it is also the most discussed. There are a handful of rake calculation methods, but here are the most common:
Weighted Contributed Method: Rake distribution is proportional to the amount that each player contributes to the pot on each hand. This is the most widely adopted system in use today. Implemented at: PokerStars, Party Poker, iPoker Network
Dealt Rake Method: Rake distribution is calculated by dividing the rake taken by the number of dealt players on each hand. This method has been largely phased out over the last few years. Implemented at: Cake Poker, Everest Poker
Sill-based Method (Essence): Rake distribution is a blended formula based on the Contributed Method and a proprietary algorithm that judges a player’s skill. Implemented at: Ongame Network, Bodog
Winner Take All Method: Rake distribution is solely allocated to the player that wins the hand. This method reflects true rake paid by each player. Implemented at: High Pulse Poker
In determining poker room partners, rake calculation is a second tier consideration for me. Its impact to revenue can be considerable, especially at a micro level, but is not a critical consideration like reputation, liquidity, Rev Share calculation, game quality and payment processing (to name a few). In a future blog post, I’ll delve into this in greater detail.
Poker Affiliate Revenue Sharing Basics
Revenue sharing as an affiliate concept is intuitive and straightforward. Poker rooms pay affiliates a percentage of the rake generated by the players they refer to the poker room.
Although the concept is intuitive, actual rev share calculations are not. Why? Because there are many subtle variations in how your rev share commission is calculated and even on the exact same method, results can differ dramatically from room to room.
Even the basic words used to describe commissions can be confusing. Many affiliates, certainly new ones, would think that the following terms are referencing the exact same Rev Share calculation:
Net Revenue, MGR, Profits, what do those terms really mean? To find this answer, you usually need to sift through the affiliate T&Cs. Don’t get me wrong, I don’t think this is malicious. From what I see, not many affiliates seem to care much. When I started as an affiliate, I didn’t ask about it much either. It was only until I started working with a lot of rooms and seeing unexplainable discrepancies in commissions that I really dug into it.
To start, don’t get caught up in any of the above terms – Net Revenue, MGR, Profits or Revenue. Finding a consistent definition for any of them is an impossible task. Profit and revenue as used here are terms that don’t really have any context to you, the affiliate. Ignore them.
Instead, let’s focus on Gross Rake and Net Rake. These terms tie in with the source of your revenue (rake) and are the foundation for a clear understanding of your commissions:
Gross Rake: The combination of cash game and tournament rake generated by a player
Net Rake: Gross Rake minus a combination of deductions associated with a player
I’ve tried several times before, but I can’t define Net Rake any more specifically than that. Herein lies the problem. The majority of all rev share commissions are based on a variation of the Net Rake model. These days, I see Net Rake most commonly calculated as:
Net Rake = Gross Rake – (Bonuses + Chargebacks)
But this varies dramatically and some rooms won’t even tell you exactly what is deducted, much less report it (yes you, PokerStars). Here is a list of common poker room deductions that are passed on to affiliates at rooms I currently work with:
Bonuses: Usually consists of deposit and reload bonuses redeemed by the player.
VIP Program: Costs associated with VIP program incentives redeemed by the player.
Promotions: Costs associated with internal promotions
Tournament/Freeroll overlays: Costs associated with tournament overlays or freeroll prize pools covered by the poker room.
Chargebacks: Costs associated with player chargebacks.
Deposit Fees: Costs associated with processing player deposits into the poker room.
Fraud: Costs associated with fraudulent player activity.
Rakeback: Costs associated with redeemed player rakeback.
Network Fees: Costs associated with Network fees incurred by the poker room, generally applied as a flat percentage of revenue.
How much does this matter? Among poker rooms that we work with, deductions on our net rake deals have been between 5%-67% of Gross Rake within the last few months. Obviously, these are the extremes, but they starkly illustrate the point.
Part 1 Conclusion
Non-standards in rake calculations, Net Rake deductions and terminology can make even this industry veteran’s head spin. I feel for new or small affiliates who dive into promoting a bunch of new rooms often without the aid of a dedicated affiliate manager to help them through the process.
Now that we’ve covered some of the basics, my next post will dive into a few case studies to give you some insights into the data as well as some ways that we’ve protected ourselves from bad Net Rake deals. Until then, here are a few parting questions that you’d benefit from getting answered in the meantime:
- How is poker rake calculated at each of the poker rooms you promote?
- Are your Rev Share deals based on Gross Rake or Net Rake?
- Is the poker room willing to share how your Net Rake is calculated?
- How is each of your Net Rake deals calculated?
- What is the effective Gross Rake percentage of your Net Rake deal?
- Which fees (if any) do you feel are unfair for you to incur?
- Do you have the ability to modify the Net Rake agreement with any of your poker room partners?