'Golden Age' Of Online Poker Is Over, But Is 'Silver Age' Attainable?

PokerStars’ Rake Hike: Cash Grab Or Saving The Ecosystem, And Does It Matter?

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Only a few months have passed since PokerStars owner company Amaya announced the sudden and extreme scaling-back of its VIP Rewards program, much to the dismay of the online professional poker-playing community.

Although this remains the least popular decision the company has made to date — among this highly vocal minority of players, at least — it is just one in a long series of moves the company has made to decrease winning players’ edges.

Whether the goal is to try to produce a shift in player demographics or to increase revenues and appease shareholders depends on who you ask.

The latest of these changes, announced on Tuesday, March 22, is a straight-up increase in the rake being charged for some of the site’s offerings.

A look inside the PokerStars rake hike

Unlike with previous changes, no attempt has been made to spin the rake hike as being good for customers; rather, the only justification provided by VP of Corporate Communications Eric Hollreiser in his announcement of the changes (billed as “revised pricing” rather than a rake hike) is that the new rake being charged is in line with other significant companies in the online poker industry.

Likewise, Daniel Negreanu, who has typically attempted to act as a peacemaker between PokerStars and the angriest contingent of players, has had little to say about the changes. He did recommend that those who can no longer profit in their current games due to the increased rake should move on, whether to other sites or “hopefully” to other formats on PokerStars where edges run wider or the rake is not so extreme.

In particular, Negreanu is quite clear about his opinion that low stakes and hyper-turbo heads-up play is now difficult if not impossible to beat; this is probably as it should be, as the heads-up format is problematic to begin with and has always been destined, in my opinion, to be the first form of online poker to disappear entirely.

Other formats impacted include rebuy tournaments (where rebuys will now be raked at the same rate as the initial buy-in), hyper-turbo multi-table tournaments, and many cash games. Overall, PokerStars expects players to be paying 4% more rake, which is a fairly staggering number given how narrowly profitable many players were to begin with.

A big news week for PokerStars

These are complicated times for PokerStars and Amaya, and this week has been particularly eventful.

The announcement of the rake increases has coincided almost exactly with the much anticipated launch of PokerStars’ New Jersey offering, as made possible by that state’s regulatory efforts.

It likewise comes on the heels of another positive story, that of the 10th Anniversary Sunday Million which (with the assistance of a re-entry option) managed to produce a prize pool of over $11 million, the third largest in online history. This timing has led some to suggest that the company hoped the media would focus on these other stories rather than making a big deal of the rake hike.

If Amaya was indeed hoping to avoid a bad press week, any hope of that went out the window this morning, when the news broke that Canadian financial regulators will charge the company’s CEO David Baazov on four counts related to insider trading.

Amaya and its executives have been under investigation by Quebec’s securities commission since shortly after Amaya’s surprise acquisition of PokerStars and Full Tilt parent company Rational Group.

The acquisition was what’s known as a reverse takeover, in which a smaller publicly traded company takes over a larger, privately owned one as a shortcut for the latter to take itself public; suspicions were aroused by a sharp increase in Amaya share prices in advance of the takeover, but the company’s official position has always been that these can be explained by astute investors taking advantage of publicly available information.

Whatever the verdict ultimately delivered to Baazov, the news does little for his reputation among a community which has often pointed the finger at him for “killing” online poker, allegations which often mix equal parts fact and fancy. It’s also taken a toll on Amaya’s already-struggling stock prices, which plummeted sharply before trading of the company was halted by the Toronto Stock Exchange.

An element of déja vu for PokerStars players

If news of a significant rake hike at PokerStars sounds familiar, that’s because this isn’t the first time they’ve tried it. The last attempt was in October 2014, just a few months after the company came under Amaya’s control.

The announcement wasn’t any more popular then than it is now, and it wasn’t long before the company second-guessed itself and announced that it was reversing its decision and reverting most of its games to the old rake schedule.

It was perhaps this about-face which contributed in part to the professional community’s belief that the company was willing to respond to pressure and reverse changes in the face of sufficient outcry. Multiple “player strikes” (read boycotts) were organized in the wake of the VIP Rewards changes in the hopes of forcing PokerStars to relent, but this time around, Amaya declined to show any flexibility.

For that reason, anyone hoping that the previous reversal indicates a precedent which might be repeated this time is almost certainly going to be disappointed; despite that false start, Amaya now appears fully committed to plunging ahead with its strategy.

Perhaps more importantly, the overall direction of the industry has changed in the intervening 18 months. Sites have been concerned for some time about the sustainability of the pro-centric, rakeback-driven marketing model, which worked well during the boom years but seems poorly suited to current market conditions.

And yet, a company which attempts to shift to a new paradigm risks losing market share if competitors fail to follow suit and customers respond poorly.

This is likely what happened with the first attempt at raising the rake; Amaya considered PokerStars to be the market leader and expected other sites to follow in its footsteps. When they didn’t, Amaya decided the time wasn’t right and backtracked.

Now, 888poker, the iPoker Network and others have bumped their rake upwards, and PokerStars is simply following the pack rather than leading it.

The canary in the coal mine for online poker

Anyone involved in poker in any capacity knows that times are hard for the industry and for players alike. As with all forms of gambling — which poker unquestionably is, semantic wrangling by industry lobbyists notwithstanding — the fuel by which the poker industry sustains itself is a base of recreational players willing to lose their money, ideally in return for an enjoyable or, at least, exciting experience.

Poker as a mainstream cultural phenomenon really caught fire with Chris Moneymaker’s win in the 2003 World Series of Poker, and peaked in the ensuing years; it has been on the decline since. Fewer new players are entering the game, while losing players have a tendency to quit eventually. As this happens, the games become both smaller and tougher, and formerly winning players start finding themselves losing, and forced to either move down in stakes or quit.

To get an idea of what the rake changes mean for the feasibility of a professional online career in the coming years, it suffices to take a look at the op-ed penned by Robbie Strazynski for CardPlayer Lifestyle. I would describe Robbie as one of the writers most inclined to taking a charitable view of anything poker-related, so when it comes to assessments of the health of the poker economy, I consider him to be the canary in the coal mine.

As I’ve recently argued, objective journalism is a myth; each writer and each outlet has their own angle and take on things. Naive readers tend either to gravitate towards news sources which reflect their own views, or to those which seem most neutral, although neutral is in fact itself a stance. A more sophisticated approach to media literacy is to follow the whole spectrum of voices, and then watch to see who deviates from their position and when.

Thus, on those rare occasions that the more prickly and skeptical journalists — among which I’d count myself, as well as people like Haley Hintze — express approval of something, it’s probably safe to assume that it’s a good idea. But the role of sincere fanboys like Strazynski is no less important; since his articles typically read as if they’ve been typed on a rose-tinted keyboard, when he strays into negativity, it’s a pretty clear sign that the situation has become dire.

Pulling up the ladder for recreational poker players

If everyone from myself to Robbie can agree on the general direction of things to come for people playing online poker professionally, the question is whether the industry itself can stabilize itself and what, if any, future professional players have in that world.

It’s highly debatable whether the sorts of changes PokerStars is making are primarily intended to raise revenue or correct the so-called “ecosystem,” but even for those who, like myself, believe it’s the latter, the inconvenient truth is that ecosystem adjustments aren’t any less harmful to pros than cash grabs.

Rather, the difference is simply one of intent: when raising rake is simply an attempt to boost revenue, pros are collateral damage, whereas “balancing the ecosystem” is a euphemism for deliberately driving professionals out of the game.

I think it’s inevitable that the future world of online poker will contain far fewer people playing or attempting to play as a primary source of income. Obviously, increased rake increases the average player’s net losses. Assuming that most losing players eventually lose the entirety of their bankroll either way, then a higher rake must necessarily reduce either the number of winners, how much they’re winning or, most likely, both.

More than this, though, the games hardest hit by the rake are those at the lowest stakes, which is going to have a significant impact of the development of would-be future professionals. The primary intent of raking these games heavily is to encourage winning players to play at higher stakes rather than simply playing a greater number of low-stakes tables at once.

At the same time, however, a near-insurmountable rake at microstakes closes off the path most people follow to becoming professional, i.e. starting from an affordable bankroll and grinding up while learning the game along the way. In effect, rake increases will “pull up the ladder” and ensure that new recreational players entering the microstakes are doomed to remain recreational, unless willing to abandon the idea of responsible bankroll management and risk going broke to take their shot at the big time.

Equilibria and collapse

Although resisted by many players because it’s used as a justification for these unpopular changes, the “ecosystem” analogy is actually extremely apt. The parallels between ecology and economics are sufficiently strong that ecological models arise frequently in the latter field. After all, the behavior of plants and animals at the species level often resembles the mythical “rational” capitalist entity pined for by economists.

Ecosystems typically exist in equilibria, where each species’ birth and death rates balance out in the long term, such that either the populations remain stable, or follow a repeating cycle. Under normal circumstances, things like predation rates naturally compensate for environmental changes, such that a new equilibrium is eventually reached.

For instance, an increase in rabbit population will increase the food supply for foxes, which will result in more foxes and more predation of rabbits, eventually stabilizing the rabbit population at some new, higher or possibly even lower value.

This only holds true of small perturbations to the system, however. Large climate changes over time, or sudden disasters (whether natural or man-made) can push a system into a place where no equilibrium exists. If a disease wipes out almost all the foxes, for instance, the rabbit population may explode to the point that all the vegetation in the area is consumed.

Even if some foxes remain, if their population doesn’t recover in time, the rabbits may exhaust their own food supply before the predation rate catches up with them. In an extreme case, such as on an isolated island, starvation may wipe out the entire rabbit population, at which point the foxes will die off as well.

Foxes, rabbits and plants are not necessarily a strong metaphor for sites, pros and recreational players, but the basic principle is the same. Under ordinary circumstances, an increase in rake will reduce the professional population, but eventually a new equilibrium should be reached; fewer pros means a softer field, so pre-rake profitability rises such that there are still pros who are earning as much as before, just fewer of them. That’s no consolation to those who were forced out, of course, but the industry itself survives albeit with different demographics.

But what if things are already too far out of equilibrium? What if circumstances have changed enough that no new equilibrium exists? Would we even know?

Delayed response and converging effects

The writing has been on the wall for quite some time that the industry would have to change or perish. People with an eye on the industry like Kim Lund have been vocal about this ever since the bubble of the boom years began to deflate, although players have by and large ignored them until now.

Sites, for their part, were aware of the problems, but have in a sense become victims of their own success; the larger a corporation is, the harder it becomes to change its direction, and the story of industry giants getting tripped up when the market changes under their feet is one that’s often been repeated throughout history.

Thus, the first question is whether the changes are simply coming too late. You can add more foxes to the island — or take them away — but whether or not the plants grow back, and how long that will take, is another matter.

As someone who has played online poker throughout most of its history, there’s definitely a different and less pleasant vibe now than there used to be or than exists even now in a live environment. Obviously, any time you have an activity at which people are losing money, some of whom can’t really afford it, there are going to be people getting upset.

Nonetheless, poker is primarily intended to be a recreational activity, while in the modern online environment, people having fun seem to be the exception rather than the rule. Perhaps, then, recreation rather than recreational players is actually the vegetation in our analogy. If the fun is actually gone from online poker, it might not come back, and in that case the industry might be in more trouble than anyone realizes.

Meanwhile, demographic shifts and decreased player influx aren’t the only problems facing the industry. Technology is becoming a big issue, in terms of the tools available to players.

Based on recent developments in artificial intelligence, it probably won’t be very long before computer algorithms can beat humans at any format of poker, and attempts by sites to limit the extent to which players can employ computer assistance are likewise an arms race that will almost certainly be lost in the long run.

Sticking with the ecological metaphor, the threat posed to poker by bots and so-called “dream machines” could be likened to disease or environmental toxins, factors which have the most severe impact on species already on the verge of extinction.

On top of all this, the world economy continues to struggle and the younger generations have less disposable income to spend on recreation than those who came before, at least for the time being. Thus, even if the overall decline of poker since the boom years can be seen as a correction towards a new equilibrium, several external factors also seem to be converging on the industry just as it approaches what might otherwise be its low point.

Will there be a “Silver Age” of online poker?

One way or another, the Golden Age of online poker is now many years in the past, and I haven’t heard anyone make a reasonable argument that things will ever again be as they were in the mid-00’s, before Black Friday.

Meanwhile, it’s my sincere opinion that there will come a day, one way or another, after which it becomes impossible for any humans to profit long-term at online poker: Either bots (or computer-assisted middlemen) will become so widespread that the games are unbeatable by anyone relying on their own intelligence, or in order to keep them out, sites will be forced to raise the rake to levels which make it impossible for even bots to profit, at which point the concept of a professional player likewise loses its meaning.

Although there’s plenty of precedent for people enjoying unbeatable forms of gambling, I don’t think that poker can survive without the existence of profitable players. The purely losing forms of gambling — craps, roulette, lottery tickets, bingo and so forth — are universally very simple.

Meanwhile, if you look at skill-based gaming, from blackjack through sports betting and finally to poker, it’s clear that players’ tolerance for complexity is in proportion to the potential to come out ahead in the long term, which in turn relies on having visible examples of people beating the games.

If sites hope that they can survive with a community of only recreational players, that may prove as fanciful as imagining that the foxes on our hypothetical island will simply eat foliage in the absence of rabbits.

We’re not at that point yet, however, and online poker may in fact see more victories in battle before it inevitably loses the war. Things could, in fact, be all downhill from here until the end, but there could equally be one or more smaller booms before that day comes. Everyone — sites, pros and media alike — is hoping to see such a Silver Age in the next few years.

Whether or not one comes, however, I think it’s very important that anyone relying on online poker for an income have a backup plan.

As tempting as it is to blame PokerStars and other industry players for “raking players to death,” the truth is that capitalism and nature are both fundamentally brutal. The survival of one individual often comes at the expense of another; yet on the macro scale, species actually depend on one another for continued existence.

In other words, we might not like the game, but hating the player is pointless. If poker is to survive, everyone’s efforts might more productively be spent looking together for better ways to play.

- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for Online Poker Report, he has been writing about poker and the online gambling industry in various capacities since 2014.
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