bwin's New Rake Calculation

bwin recently sent out this email to affiliates:

Dear Affiliate Partner!

bwin is pleased to inform you that a new algorithm called “Essence” will be introduced on Thursday, 15.07.2010. This algorithm will finally introduce a system where the player’s overall contribution to the poker ecology becomes a major component to its healthy balance.

From this date onwards, Essence will take the following issues into account:

the player’s style of play, pot contribution and skill level the long-term effects different players have on each other The purpose of this new procedure is to evaluate a player’s true value - to assign the correct rake amount - and to ensure long-term profitability for both you and bwin.

All players are valuable within the poker ecology, hence bwin will not use any form of penalties or sanctions to ensure a healthy balance. By using Essence to assign rake on an individual player level not purely based on activity, we will ensure that there are incentives to attract all types of player, and that no players will be unprofitable.

Most Affiliates will notice an impact on their earnings as a direct consequence of the redistribution of the rake.

Please note that our Poker Points system for bwin users will not change. The points awarded for cash games will remain at 3.25 Poker Points per dollar in rake and tournament Poker Points will stay the same.

If you have any questions, please do not hesitate to contact your Account Manager.

Your bwin Affiliate team

This is a rather interesting development because unlike iPoker’s response to skins that produce too many sharks bwin has opted to adjust the amount of rake that they’re willing to pay affiliates based on various factors mentioned in the email. But this really only works if you get the algorithm correct.

That is going to be the devil in the details because I’ve seen plenty of people try to come up with a way to calculate a player’s net contribution to the poker ecosystem but none have done so with enough accuracy that I’ve ever heard or seen anybody actually use that metric.

While I was writing this post I received a second email from Betsson (on the Ongame network) that adds some more detail on exactly how they intend on arriving at this magic number.

In Essence each player is assigned a coefficient, based on the past 90 days’ performance in terms of the monetary end result. The coefficient is transformed and normalized to reflect the relative skill gap between the players in the hand. Until they have played 500 hands, players are assigned the default coefficient.

Each player is assigned an amount of rake based upon their coefficient in relation to the opposition’s coefficients and the amount of money they contributed to the pot.

If all players at a table have the same skill level, then the rake would be distributed in the same way as before Essence.

Essence will only affect cash game rake. Tournament rake will still be collected as previously; the house-fee set on tournament buy-ins.

Loyalty program/Player points - Players will see the difference between the old and new setup in the way they accumulate player points in the loyalty programs, players will receive more or less points than before depending on their style of play.

Fully integrated real time solution - Since the model is a change in the core rake algorithm it will be fully integrated with all systems cascading the player re-evaluation throughout the value chain in a transparent way.

Essence will make it more valuable for affiliates to send casual players to Ongame Network rather than grinders and pros.

Yes, they’ve added more detail but they still don’t tell you how they arrive at the coefficient or exactly how they go about normalizing.

While I think bwin is going in the right direction it does concern me that they don’t publish this formula. First, players have a right to know how their play is being valued. Part of any winning player’s ROI calculation involves the monetary and non-monetary benefits of the loyalty system in addition to their win at the tables. Now there is no clear way to know how many loyalty points are going to be earned.

My second concern is that unless bwin/Ongame are sharing this algorithm with the skins this could quite possibly turn into a massive blunder. If I was a room on the Ongame network and I can’t figure out how to encourage players to play optimally on the site in order to maximize my return on marketing dollars then the entire platform losses a huge amount of value.

I think we can all safely assume that total fish who keep depositing and losing money will result in maximum value and that grinders will yield the worst value. But when does the fish start to lose value? How much can he win before I (and the player) take a haircut on his play? Could I craft promotions that might loosen up some of my grinders? How much do I need to loosen them up? How far does their win rate have to fall?

Again, this is all a black box solution unless bwin publishes the algorithms that help them determine how many loyalty points are being assigned per each hand. And my third and most serious concern is that does bwin have the algorithms right?

No offense to the good folks over at bwin and Ongame but previous results don’t exactly build confidence that they can do what no other poker company seems to be able to pull off in creating a comprehensive player modeling algorithm that can account for different player types.

If they don’t get the algorithms right they could inflict huge penalties on certain classes of player unintentionally which will force them to leave the network altogether. Or perhaps knowledge of such a system causes players to experiment around with ways to optimize their winnings on Ongame so maybe knowing that it’s a rolling 90 day snapshot they quit playing after running too hot in order avoid penalties. Then they come back after 90 days with a fresh start.

Like I said, I think that looking at player behavior and valuing players differently is the right direction to go, but I’m just not confident that a closed-box system is in anyone’s best interest. It’s not even in bwin’s best interest. It will only raise suspicions. People will talk about it on 2+2 and other forums and decide to play where mysterious coefficients aren’t being applied making it impossible for them to forecast their ROI.

Some might say that’s sort of what bwin is hoping for. The site will be less attractive to grinders and will make it more profitable to bring in the fish. But the rake the grinders generate helps fund the marketing campaigns that bring in the fish. And to be quite honest, the vast majority of skins don’t know how to market to fish. They’ve built their businesses either cross selling their casino and sports books and they’ve already drained that pond or they’re so poorly underfunded that they cannot possibly run at a loss long enough to entirely switch around their business model from catering to a small group of grinders to becoming a marketing machine generating tons of first time depositors (the vast majority of which will never make a second deposit which is why this business model is so expensive).

The last few paragraphs in the email from Betsson to affiliates says quite a bit.

The maximum rake extracted over any period of time equals the losses of the losing players.

Industry mistake - all players have been valued in the same way on game activity no matter if they are winning money from other players or contributing money to the system by losing.

Each dollar won or lost by players has a financial value There is a gap between current and real valuation of players The gap has existed in the industry since day one All players will be profitable even if value change No negative coefficients

This looks like it was cut and paste out of a bullet points memo. It reeks of PowerPoint :-)

I’m not quite sure I follow or agree with them on the “all players will be profitable even if value change” or “no negative coefficients” though those may have been out of context as a sub-point to “the gap has existed in the industry since day one” but got lost in the formatting copying and pasting it from the bwin/Ongame presentation.

Anyway, they’re right that there is a gap between current and real valuations and that gap has existed since the industry began. That’s exactly why I think other rooms looking at winning players as leeches on the system is so wrongheaded. All players bring value. Even the apex predators in real life ecosystems have a place in the food chain and the extinction of one level in the chain disrupts all of the other levels.

That being said, I sure hope bwin/Ongame got this right because if they didn’t the fallout could be pretty huge. If I was any of their competitors I would be marketing like hell to defectors.