June 26, 2011

The Iowa Poker Economy:
Little Rounding Error on the Prairie

Recently I took a look at the economics of the Prairie Meadows poker room in Des Moines, Iowa. Based on data reported to the Iowa Racing and Gaming Commission, my estimate was that rake, jackpot drop, and tips for dealers and servers likely took roughly $4 million a year out of the central Iowa poker economy. But what about all Iowa casinos?

Let's take a look at data for all gambling at all Iowa casinos for Fiscal Year 2010 (July 2009-June 2010). [FN1]. First, the one figure that leaps out of the data is that Iowans (and its visitors) love to gamble, to the tune of gambling losses of nearly $1.37 billion last year. Another striking figure is the sheer dominance of slot machine revenues, which accounts for 93% of all Iowa gaming revenue, and 91% of gaming revenue at casinos with poker. [FN2]. As someone who spends most of my casino time in the poker room, with occasional sessions of blackjack or craps, the fact that most other folks actually prefer to gamble in the rows and rows of slots really hadn't registered with me.

(Click on charts and tables for a larger view.)

Still, the table game revenues in Iowa, although dwarfed by the slots, are nonetheless nothing to sneeze at, coming in at nearly $117 million last year. Poker revenues (which are counted with the table game revenues) accounted for a mere $11.5 million last year, a sizable chunk of change that is nothing more than a minor rounding error on the casino balance sheet. And poker players wonder why they are treated as the red-headed stepkids of the gaming world.

Breaking down the table games brings some interesting insights. Hardly surprising is that blackjack is far and away the biggest earner among the table games, while poker actually holds it own, earning roughy half what is earned by the craps tables and assorted carnival games, and more than what is earned by either roulette or pai gow poker.

(Click on charts and tables for a larger view.)

Poker looks a lot less robust, however, when evaluated on a per table basis. Although blackjack also drops in the rankings on a per table basis, pai gow, roulette, and the carnival games more than double up the per table revenues of poker, while craps dominates the field with the highest per table earnings (nearly four times poker's per table earnings). Again, poker is the smallest fish in the already small table games pond.

The per table statistics are interesting to me, because a table game in the pits and a poker table should have roughly similar cost profiles. Each table requires a dealer, cards/dice, and an automatic shuffler (or wheel for roulette). Each table takes up roughly the same floor space, and can serve roughly the same number of players. One pit boss / floor person in the pits or the poker room can supervise roughly the same number of tables. The one exception is craps, which requires three dealers and a boxman per table, and a pit boss overseeing, at most, three to four tables. Still, pit games and poker should be roughly comparable on a per table cost basis. Thus, poker lagging in per table revenues certainly can't endear the game to casino management, who have to maximize casino revenues in every square foot of gaming floor space.

Table games have a few built-in advantages over poker. Most important, table games can be played on an individual basis, while poker games rarely start or continue running with fewer than five players. Also, poker can only offer the house a steady rake, while many table games offer sucker bets with a 5-10% (or better) house edge. Still, poker does bring in revenues that might otherwise escape the casino's greedy paws, and a million extra dollars of revenue can help pay the electric bill. [FN3] In many ways, poker resembles gasoline at a convenience store—a product with a low profit margin that hopefully entices players to come inside and purchase higher profit margin products like soda and groceries.

Looking at the four biggest Iowa poker rooms by revenues—the Horseshoe in Council Bluffs, Prairie Meadows in Des Moines, Riverside near Iowa City, and Diamond Jo in Worth County—these four rooms account for over 75% of Iowa's poker revenues. The Horseshoe pulls from the Omaha market, Prairie Meadows dominates Des Moines and central Iowa, Diamond Jo (Worth) draws heavily from Minnesota (where no-limit poker is prohibited), and Riverside is near Iowa City (home of the University of Iowa). Yet of these four rooms, only the Horseshoe and Prairie Meadows really show a significant revenue stream from poker on an overall basis, and on a per table basis, poker continues to be a bit player in the overall table games portfolio even for these four casinos with a large poker revenue base.

One final interesting set of data can be derived from looking at the overall and per table poker revenues for all Iowa casinos offering poker. The Big Four rooms obviously dominate on a total revenues basis. But, looking at poker revenues on a per table basis, some of the smaller rooms actually are quite competitive. Further, it is clear that Riverside lags significantly on a per table basis given its overall revenues. This is hardly surprising given that Riverside does not use automatic shufflers, forces its dealers to pool tips with other pit dealers, and generally fails to market its large poker room to the Iowa poker community.

(Click on charts and tables for a larger view.)

In an upcoming post, I'll look at the overall costs of the Iowa poker economy.


[FN1]  Data for fiscal year 2011 will be available in roughly four to five weeks, and I plan to do a year-by-year look at the progression of the Iowa poker economy once that data is released.

[FN2]  Gaming revenue excludes horse and dog racing revenues, which are not included in these reports.

[FN3]  I find it highly unlikely that poker is a "loss leader" as some people claim. Casinos aren't in the business of losing money in any facet of their operations.

Rockin' the Cosmopolitan

During our recent WSOP trip to Vegas, Santa and I stayed at the new Cosmopolitan hotel and casino, located between Bellagio and City Center. I had wandered through the casino during trips in March and April, and had been impressed with the casino design and ambiance. So, when I found a Vegas.com special deal for an average room rate ~$140/night (with most other sites charging over $350/night), I figured what the heck, might as well try it out. So, I ditched the rooms I had booked at TI (~$120/night with the "resort fee") and took a whirl with Cosmopolitan.

It was a great impulse buy. I've stayed at Bellagio, Venetian/Palazzo, Wynn/Encore, and Aria, which all compete for the same high-end customer base (I've stayed in a suite at Caesars Palace, but I keep them a notch below these other properties as Caesars' base rooms are not on the same luxury level as the elite properties). In my view, Cosmopolitan fits comfortably into the elite Vegas resort niche, and offers some unique twists that make it a fun hotel option.

My value package offered either of the base room options; I booked a Terrace Studio room, which was slightly larger and had a walkout terrace (the other option, a City Room, does not have a terrace). When I went to check in, a friendly young man approached me, led me to a check-in counter, and after looking up my reservation, immediately offered to upgrade us to a Terrace One Bedroom room at no charge (and without my even attempting the $20 trick). He also let me choose which side of the hotel we wanted for a view, and a lower or upper floor. I opted for the Bellagio side, and we would up in the east tower (closer to the Strip), on the 59th floor.

As you'll see from the photos below, the view from our terrace was impressive, overlooking the Bellagio fountains, and having great views of Bellagio, Paris, and the Strip running north toward Wynn. The room itself was decorated in a contemporary style, and was every bit as nice and comfortable as comparable rooms at the other elite Strip resorts. The terrace was surprisingly large (over 100 sq. ft.), and would provide a comfortable place for a morning or evening drink when temperatures are lower. The smaller footprint of the casino made for quick access to restaurants and shops, as well as making it a breeze to walk to poker rooms at Aria and Planet Hollywood (making it easy to overlook the resort's regrettable decision against opening a poker room).

What really sets the Cosmopolitan apart from the other elite Strip resorts is its atmosphere. The crowd in the hotel seems younger and less stuffy than at, say, Bellagio or Wynn. The Cosmopolitan's employees likewise seem friendlier and more approachable; every employee I encountered seemed genuinely interested in assisting me, and several made suggestions as to fun things to try at the resort. Just as a couple of examples, I requested fresh towels from housekeeping after a late afternoon shower, and a friendly lady delivered them in less than five minutes, while the two ladies at the Identity players card sign-up desk were absolutely hilarious.

We did check out the pool area so we could collect our bag of freebies offered as part of a summer promotion; our loot included a cloth pool bag, flip flops, straw fedora-esque hat (which will be featured in next year's Ironman of Poker), sunscreen, and waterproof playing cards. In a bad beat, my bag didn't have the cards, preventing the Cosmopolitan from getting a perfect score. But, I can almost overlook that slight given the beautiful pool area, complete with pool tables with craps table designs on their felts. The pool looks like the perfect place to relax and read a book during the day, and transforms into a party area in the evenings, often with live music, DJs, and even movies.

If you're looking for a fun yet luxurious hotel experience in a great Strip location, Cosmopolitan is hard to beat. If you're on a trip with a spouse or significant other who you want to impress, Cosmopolitan definitely delivers on the "wow" factor. As long as its room rates remain competitive with the other elite Vegas resorts, Cosmopolitan has earned itself a spot as one of my regular Vegas hotels.

View from our terrace looking north late afternoon.
(Click on pictures for larger view.)

Day and night views of Bellagio from our terrace.
Rio is visible on the left in the night picture.

Day and night views of Paris from our terrace.
The night picture of Paris is my favorite of the trip.

Bellagio fountain show from our terrace.
This might impress a spouse or significant other,
particularly if you throw in cocktails or champagne.

Great views from the elevated pool area.

Apparently they can't keep out the riffraff.

Yo Eleven! Corner pocket!

June 25, 2011

Crazy Vegas Poker Players

Last weekend, I journeyed to Poker Mecca with good buddy Santa Claus. Santa was knocking an item off his before-40 bucket list: Play in the World Series of Poker. I was using Santa's plans as a cover for a spouse-free Vegas poker trip (fair's fair, since the sig other didn't invite me to the Vegas bachelorette party he attended in early June).  As usual, we ran into a fun cast of characters.

Santa smuggled Templeton Rye for our brief
layover at the Denver airport. Classy!

Santa in action, at Aria (top) & Planet Hollywood (bottom).

Met two new friends, Jason (left) (a/k/a @jasonsimon) and
Matt (a/k/a @LOLfolding) at Aria. Matt's "buddy" @weizel 
put a bounty on Matt as he played in a cash game with us
at Aria, if we felted him with "the Crabbler" (King-Trey).

The infamous "Belgian Chef" from IMOP-VI
returned to Planet Hollywood to donk off
another couple thousand dollars in maniac style.

This young lady joined my NLHE table at Planet Hollywood,
and promptly had every other guy at the table distracted.
Being gay is an important poker strategy!

The nice lady later jumped into the PLG game,
confirming my read that she is a solid player.
Her boyfriend (right, also a nice fellow) had 
been playing NLHE, and after his game broke, 
had come over to suggest "going back to the room".
Like any good poker player on a solid run, 
she instead asked her boyfriend to join the game.
After he dropped three buy-ins, there was this fun exchange:

Dealer:  "Are you coming back in?"

Guy:  "No, I've dumped enough money into this game."

Me:  "I'd disagree."

These two guys were part of a crew of six Canadians
all wearing identical "Cat Got Your Tongue?" t-shirts.
The one at my table was a good guy, and it sounded
like they were on their own Canadian IMOP.
International hilarity ensues!

Managed to sneak in a session of PLG at Venetian
with buddy and poker industry insider Katkin.
I hit nut vs. second nut against him twice to send
him home early, but it was still good to see him.
(I'm keeping his cash, thanks!)

Look who pulled himself off his sick bed to
give us a ride to the airport. Poker Grump!
(I think we got long-hauled.)

The legendary Pediatric Unabomber, missing
in action since IMOP-I, was spotted at Aria.

June 13, 2011

Am I a Cheapskate?

In a recent post, I discussed a big pot I won where I flopped the nut straight and made nearly $950 in profit after surviving a five-way all-in. I mentioned that I tipped the dealer and the cocktail server $10 each. An anonymous commenter took me to task:

You win a $1250 pot, while fading half the deck, and you give the dealer ten bucks; the same as some chick that brought you a drink. Cheap dude, very cheap.

Now when it comes to tipping, one thing I know is that I tip far better than average for meals (dine-in, carryout, and delivery), taxis, bags/concierge, etc. So if someone wants to call me cheap, they obviously don't know me.

That being said, this comment does raise a couple of interesting points. First is the premise that a poker dealer tip should be proportional to the pot size. Now I tip at least $1 on every hand, even when just winning or even chopping the blinds. I usually tip $2-$5 on big pots or when I hit a monster hand or a big suckout. In this particular hand, I tipped more ($10) in part because it was a big pot, and in part because the dealer needed to sort out several side pots, which slowed the game and denied him tips from hands he would've dealt in the normal course of events.

That all being said, I simply can't agree that merely because my hand held up, or I hit a draw, or some other such outcome occurred that the dealer deserves a bigger tip. The dealer has no influence on the outcome of a hand (assuming no dealer errors). The dealer's duties are to deal the cards, run the action, and award the pot. The dealer has no influence on whether I happen to hit a big hand or win a monster pot. So if the dealer's actions don't influence whether I win or how much I win, why should my tip size vary significantly based on the size of the pot, or whether I hit or dodged a draw?

The other implicit criticism is that the cocktail server did not deserve the same tip as the dealer. However, I had ordered a drink prior to this hand occurring, and the server brought me my drink while the hand was being completed. Since my money was in the middle of the table, I couldn't tip the server (all I had in my wallet were $20s and $100s). I specifically asked the server to wait for the hand to play out so I could tip her. Given the multiple side pots and big action, the denouement of the hand took some time to play out. So, I tipped the server extra because she delayed serving other tables and presumably lost tips while waiting on me. Now perhaps my $10 tip was too generous, but that is hardly the basis for any criticism of my tip to the dealer, which should be evaluated on its own merits.

As I've discussed previously, I accept dealer tipping as a necessary part of the game. I believe most dealers work hard to make the game fun and profitable, and I have no qualms about tipping generously. I have tipped more than $10 on a hand on occasion, and I likely will again in the future. I simply don't agree with a contention that a $10 tip—10 times the standard tip—is "cheap" merely because I won an unusually big hand.

What do you think? Am I a cheapskate?

June 12, 2011

Economics of a Small Poker Room

This spring, Iowa poker players have been abuzz about the larger than usual bad beat jackpots at the Prairie Meadows Racetrack, Casino, and Den of Iniquity. In mid-May, the main jackpot went off at a little north of $215,000. The reserve jackpot of roughly $95,000 was then rolled out, and has since grown to nearly $110,000. With shares of 50% to the losing hand, 25% to the winning hand, and the remaining 25% divided equally among the other players at the table, the bad beat jackpot is certainly a nice pay day for catching the wrong end of a cosmically rare lucky cooler hand.

After a little reflection on the bad beat jackpot (BBJ), it occurred to me that the nature of the BBJ structure and the timing of the recent jackpot win permit some intriguing insights into the economics in play at the Prairie Meadows poker room. In particular, the BBJ information provides a method for making a meaningful estimate of the number of raked cash game hands dealt, total cash game rake taken by the house, average rake per hand, and even dealer and cocktail server tips.

Looking first at the structure of the BBJ, the sizes of the the main and reserve BBJs in May suggested that the jackpot drop was distributed to the two BBJ funds in a 2:1 or 3:2 ratio. A poker room manager confirmed to me that the jackpot drop was distributed with 60% going to the primary BBJ and 40% to the backup BBJ. Even more important is that the room's other uses of jackpot promotion funds—$200 flat payments to straight flushes—are not funded with a dedicated reserve, but instead bonuses for straight flushes are deducted first from each day's jackpot drop, with the remaining funds then credited to the two BBJs. [FN1] Thus, unlike many poker rooms which use their jackpot drop to fund a variety of promotions, it is fairly easy to determine the actual total jackpot drop taken at Prairie Meadows.

To calculate the jackpot drop taken at Prairie Meadows, we first take the amount of the reserve BBJ, which we know was wholly funded since the last BBJ was won. Dividing the reserve BBJ ($95,000) by 40% gives the amount contributed to the main BBJ ($142,500 of the $215,000), for total BBJ funding of $237,500 since the last BBJ was won. Next, we need to add an estimated payout for straight flush bonuses from the jackpot drop. Talking with the poker room manager, roughly two to four straight flush bonuses are paid out each day. Assuming an average of 20 straight flush bonuses per week adds roughly $208,000 per year to the jackpot drop taken (20 x $200 x 52 weeks).

Next we need a way to convert the BBJ funds to an annual basis. This is where the timing of the recent BBJ win comes into play. The recent jackpot was won roughly six months after the last win in late December. So, to get an estimated annual jackpot drop, we can simply double the jackpot drop since the last BBJ win ($237,500 x 2 = $475,000) and add the annual straight flush payments ($208,000) for a total annual jackpot drop of $683,000. [FN2]

Now the interesting point to keep in mind is that the amount dropped for the jackpot fund  is correlated to the amount dropped by the house in rake.  The dollar dropped each hand for the jackpot fund is taken at the same time as the first dollar of rake (at $10 in the pot). So, if a hand is not raked, no jackpot dollar is dropped. Thus, the amount dropped for the jackpot fund is the minimum amount taken by the house for rake (the "base rake"). To estimate the total amount taken in rake, one must simply estimate the percentage of raked hands that also reach the second, third, and fourth dollars of rake (taken at the $20, $30, and $40 marks).   This depends to a great degree on the game mixture in each room. A room spreading $2/$4 LHE will take less rake than a room with $3/$6 or $4/$8 as the smallest LHE game. Similarly, a room with $1/$2 NLHE will hit those rake marks less frequently than a room with $1/$3 or $2/$5 NLHE as its smallest game (though some rooms offer more graduated rake structures for their bigger games). Rooms that allow or require kills, half-kills, and/or straddles will also take more in rake.

Turning back to Prairie Meadows, the estimated annual jackpot drop of $683,000 translates into a base rake for the house of $683,00. Taking into account that the jackpot drop calculation might be subject to some variation based on season, economic conditions, the effect of promotions, and the live horse-racing season, the jackpot drop and base rake might vary up to 20%, giving us a range of jackpot drop and base rake of roughly $550,000 to $825,000, though the actual number is most likely much closer to the original estimate, probably around $650,000. Converting the base rake to an estimated total rake merely requires estimating the frequency of each raked hand also being raked at the second, third, and fourth dollar levels. A room with mostly small stakes limit games and "social" style no-limit games will generate a less aggressive rake profile than a room with predominately action-oriented no-limit games. The following table for a room with base rake similar to Prairie Meadows illustrates the range of total rake that might be taken depending on the nature of the room's game mix and action level [FN3]:

Table 1—The "additional rake distribution" columns reflect the
percentage of raked hands which reach each additional dollar of rake 
($1 in rake taken at $20 / $30 / $40 in the pot). Figures are on
an estimated annual basis. (Click on table for larger view.)

The left hand column for total rake is probably a closer fit for a poker room with mostly $2/$4 LHE and some $1/$2 NLHE, while the right column for total rake is a better fit for a room with mostly action-oriented $1/$2 or $2/$5 NLHE and some $3/$6 or higher LHE. Prairie Meadows generally spreads mostly $1/$2 NLHE and $3/$6 LHE (with a full kill), along with fairly regular $2/$5 NLHE and a weekly $6/$12 Omaha8 game. Using a base rake of ~$650,000 per year, and the more aggressive rake assumptions, the estimated total annual rake for Prairie Meadows is roughly $2.25 million.

Looking at the Iowa Racing and Gaming Commission official financial reports, Prairie Meadows reported total poker rake of $2.3 million in 2010. Assuming $75,000-$100,000 of the reported rake is from poker tournament entry fees [FN4], the estimate of $2.25 million in cash game rake, as well as the underlying assumptions regarding the size of the annual jackpot drop and the aggressive rake structure are validated as being reasonably accurate.

As an interesting side note, the Caesars Entertainment family of casinos has imposed a $5 maximum rake at most of their poker rooms (and a $5.50 maximum rake at their Horseshoe Casino in Council Bluffs, Iowa). The amount generated by this extra rake can be estimated by adding the amounts in the following table to the rake calculated previously for a $4 maximum rake (the table below shows the percentage of hands that reach the maximum rake threshold of $50):

Table 2—Effect of a $5 maximum rake, related to percentage
of raked hands that reach the maximum rake ($50+ in pot). Figures
are on an estimated annual basis. (Click on table for larger view.)

Based on the table above, if Prairie Meadows increased its maximum rake to $5, it could generate an additional $250,000 to $300,000 in annual revenue. Although there would be some resistance from players to any rake increase, Prairie Meadows really has little direct competition due to geographical constraints. The closest competitive poker rooms in terms of size and action are in Council Bluffs (across the river from Omaha) and Kansas City, each two or more hours drive from the Des Moines area (not to mention these rooms already have at least a $5 maximum rake). Some players might go to rooms at Meskwaki or Riverside (near Iowa City), but these rooms generally have less action and less satisfactory room set-ups in addition to being an extra one to two hour drive for most players. In any event, it's easy to see why Caesars increased its maximum rake.

Now, why bother deriving the jackpot and rake drops indirectly if the rake drop can be determined simply by looking at financial reports? First, as noted previously, we can verify the general validity of our assumptions about the rake structure, which will help derive financial data for all Iowa casinos (the subject of an upcoming post). Second, knowing the jackpot drop can help us draw some other interesting conclusions about the economics of the poker room, specifically the amounts spent by poker players on tips to dealers and cocktail servers.

Our analysis of dealer tips begins with the observation that the jackpot drop is essentially a proxy for the number of hands that are raked. Each dollar in the jackpot drop represents one hand that was large enough to generate rake (i.e, had at least $10 in the pot). Generally speaking, if a pot is large enough to be raked, a dealer is usually tipped at least $1. Some players will tip on smaller pots, while some players are stingier with tips. In a room like Prairie Meadows with a high number of regular players and mostly long-term dealers, tips tend to run above the $1 per hand benchmark, with a fair number of players tipping more than $1 on larger pots. A matrix of raked hands dealt ("tipped hands") and average tip size gives us a reasonable range of total dealer tips per year:

Table 3—Range of total amounts paid for dealer tips. Figures are
on an estimated annual basis. (Click on table for larger view.)

Using a range of 550,000 to 650,000 tipped hands per year, and assuming $1.25 to $1.50 per tip, a reasonable estimate of total dealer tips would be roughly $800,000 per year. Assuming 20-25 dealers on the regular rotation, this works out to $32,000-$40,000 per dealer per year, which seems a reasonable income (some regular dealers with more seniority, prime shifts, and better people skills likely pull down well above this amount, while the part-time dealers earn substantially less).

Turning to cocktail server tips, the connection between raked pots and server tips is not as closely correlated as was the case with dealer tips. However, servers generally come by each table two to three times each hour, and typically bring three to five drinks each trip. Most players tip $1 per drink, so a server should earn $6-$15 per table per hour. So, if we assume that the typical table gets in approximately 25 raked hands  (30 total hands) per hour, then we can estimate the reasonable range of cocktail server tips:

Table 4—Range of total amounts paid for cocktail server tips. Figures
are on an estimated annual basis. (Click on table for larger view.)

Using the range of 600,000 to 650,000 raked hands, and assuming $10-$15 per table per hour (Prairie Meadows players and servers being regulars, tips run on the generous side), an estimate of $300,000 in server tips per year seems reasonable.

Taking each of these economic factors into account, the total financial costs of poker at Prairie Meadows can be calculated:

Rake:                 $2,300,000
Jackpot Drop:      $650,000
Dealer Tips:         $800,000
Server Tips:         $300,000 

Total:               $4,050,000

This figure is only an estimate, but the rake figure is definite (based on financial records), and the jackpot drop is likely not overestimated by more than $50,000 or so. Even if the dealer and server tips are overestimated by as much as 25% ($275,000 too high), the most conservative estimate for the total costs of poker at Prairie Meadows is still $3.7 million. Of course, the dealer and server tips may be underestimated as well. 

Prairie Meadows is just one of 16 casinos in Iowa that offer poker, albeit being the second-largest room in terms of both casino and poker revenues (after the Horseshoe). Prairie Meadows is a typical small-to-mid-sized (11 table) poker room with a mostly local / regional player base. Non-local players find their way to the poker room because Des Moines is the state capital and state's largest city, which helps attract a certain number of business and convention travelers. Also, Drake University is located in Des Moines while Iowa State University is in Ames, an easy 30 minute drive north of the casino. Des Moines is located in the center of the state, at the intersection of I-80 and I-35, generating additional players from long-distance travelers, primarily truck drivers (it certainly doesn't hurt that the casino is located right off an I-80 exit near the east I-80/I-35 mixmaster, an exit shared with the Adventureland amusement park). Certainly, the room certainly has a different player base and business model than similarly sized rooms in Las Vegas.

In any event, it is indisputable that poker players pay roughly $4 million per year in actual costs for the privilege and convenience of playing poker at Prairie Meadows, money which is completely removed from the poker community. Obviously a certain percentage of the Prairie Meadows players are winners. So, the Prairie Meadows poker community as a whole has to generate non-poker income sufficient to cover the $4 million in overhead costs, as well as pay the winning players their profits. This money can only come from one source—players' outside income, whether from wages, business or investment revenue, savings, government assistance, or other sources. With Iowa having a population of only 3.04 million, median household income of $48,000, and median individual income of $31,400 (women) to $42,600 (men), generating $4 million to cover the poker overhead at Prairie Meadows is no mean feat. It certainly gives one pause to reflect on the long-term sustainability of poker, at least in the live casino setting on the current scale.

Stay tuned! Later this week crAAKKer takes a broader look at the economics of the live poker scene in the state of Iowa as a whole.


[FN1]  In the rare instance that the straight flush payouts exceed the daily jackpot drop, the amount needed to cover the excess straight flush payouts is deducted from the reserve BBJ fund. The poker room manager indicated this situation has occurred "at most three or four times".

[FN2]  This annual estimate might be a little on the high side given that the Prairie Meadows poker room generally sees somewhat higher action during winter months (monthly poker room rake ranges from $165,000 to $220,000 according to Iowa Racing and Gaming Commission reports). Also, the BBJ mania likely generated somewhat higher than normal numbers of players, though much of this extra business probably generated lower than normal rake rates as many of the extra players sat in $3/$6 LHE games and folded hands with little or no BBJ potential, while checking down or light-betting hands with BBJ potential.

[FN3]  The spreadsheet from which all the tables were derived can be viewed on Google Docs.

[FN4]  Prairie Meadows has three weekly tournaments with buy-ins of $60 or less, each of which has 30-100 entries. Assuming 150-200 entries per week at $10 each, the poker room will earn a total of ~$75,000-$100,000 per year from poker tournaments. Although many poker rooms offer more tournaments with higher entry fees, clearly poker rooms rely on cash games to generate the bulk of their revenues.

June 05, 2011

A Big Hand for a Big Guy

"I'm not in the thinking business."

—Sam Rhine (James Berwick) in "A Big Hand for the Little Lady"

Sometimes, poker can be a grind. Premium starting hands few and far between, bad flops galore, and scads of missed draws. On those days, it can take every ounce of skill just to eke out a small win. In fact, the ubiquitous use of "grind" (and its cousins, "grinding" and "grinder") in the poker vernacular reflects the perceived need to manufacture profits out of small edges, thin value bets, and situational steals. In many ways, the modern aggressive grinding strategy is simply the logical fruition of Doyle Brunson's Super/System strategy of contesting even small pots on the theory that winning many small pots gave him an edge when big pots were contested.

Although grinding might be the most profitable—or at least most consistent—strategy at higher stakes games, I've found that low stakes no limit hold 'em games are profitable because of the big pots. In a typical $1/$2, $1/$3, or even $2/$5 game, the blinds are so insignificant that jousting over a limped pot offers poor risk-reward odds. Instead, the real money to be made is in the big hands that develop over the course of a session. Win a majority of the big hands—sets versus two pair, boats versus flushes, trips versus overpair, etc.—and you will usually walk away a big winner. Lose a majority of those big hands, and you'll likely wind up a loser regardless of how many small pots you drag.

Recently, I played a session at Riverside. I got up early by flopping a set of Queens, but busted and rebought when my Kings were cracked three times in two orbits. One cracking occurred when my button preflop 3-bet to $57 was called by QQ and QJs; naturally the case Queen flopped, and I paid off the extra $150 after both players pushed in front of me. I rallied and made a buy-in profit when my Queens twice held up after preflop all-ins, and after flopping trips against a player married to his Aces. Although I did steal one nice pot with a preflop squeeze play, the remainder of my session was mostly spent either folding or limping into pots against specific players, looking for opportunities to generate a big pot in an advantageous spot.

Last weekend, I played an afternoon session at Prairie Meadows Racetrack, Casino, & ATM. Typical for an afternoon game, the table was filled with nits and rocks, most nursing stacks under $200. There were a couple of deeper stacks, so I bought in for the maximum of $300. Also typical for this kind of game, players limping in almost invariably called any preflop raise, even a raise to $17-$22.

I settled in for a grinding session, praying an action player or two would show up early for the generally looser, wilder evening games. There was no need to wait. Barely five hands into my session, I was dealt JdTh in MP. I limped in after another limper. The player to my left raised to $12, and was called by two LP players, the BB, and the limper before me. So, I called and closed the action.

The flop came down: KdQd9s. Yahtzee! I barely had time to contemplate the best way to play my monster hand when all hell broke loose! The BB pushed for roughly $100 and the player after him pushed for roughly $150. I thought a bit, then made the only real play, pushing all-in myself for nearly $300. Imagine my surprise when the preflop raiser also pushed for over $300, and an LP player also pushed for almost $200. Holy action flop, Batman! 

I fully expected to see a range of hands like KQ, 99, AdXd, and maybe even another JT. I definitely didn't want to see AdTd, the one monster draw that could counterfeit my straight. Instead, I saw: BB with Ad3d, MP with K9o, preflop raiser with KTo, and LP with Td9d. Although I was fading the world—any King, Nine, or diamond beat me, along some runner-runner combos, while a Jack would chop—my opponents were drawing somewhat thinner than usual as they held some of each other's outs (and I also had the Jd). After the dealer, Chase, sorted out the man pot and four side pots (and skillfully so, I might add), he put out the turn and river—3h and 7s. Blank, blank. And just like that, Chase was pushing me a monsterpotten that took a few hands to stack:

One hand, one monster pot. Including $10 tips to the dealer and 
cocktail server, total pot was $1,252, with a net of roughly $950.

Although I played another five hours, that one hand was essentially my profit for the session. I did have several other big hands, including flopping four sets (once cracking both Aces and Kings with a set of 7s), but those pots were offset by my Kings and Queens being cracked twice each, and losing a trips versus trips battle when my opponent paired his kicker on the river. Still, walking out with a three buy-in profit was a rather satisfying conclusion to what had initially looked like a grinding session with little chance for a big score.

So why is small stakes no limit hold 'em such a big pot game while bigger stakes versions seem to be more conducive to grinding? I think the main reason is that small stakes players are more prone to making the true big money errors—calling preflop raises with dominated hands, playing raised pots out of position, being unable to lay down overpairs and top pair hands, and chasing non-nut draws. Big errors, big pots. Small stakes players are simply much more likely to stack off light than are players at bigger stakes games.

Gawd bless 'em!