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TheLangolier's blog

/Feb/2014

Staking 102

By: TheLangolier @ 15:16 (EST) / 1535 / Comment ( 7 )

In my last staking blog I introduced some ideas that I consider basics for getting started in staking, and promised a follow up with some additional facets of this aspect of the poker world.  These may or may not come into play here in the PSO staking forum, but are things good to know if you're interested in getting more involved in staking at large.

 

Stakeback:  This is something that comes into play in a backer/horse relationship where the backer is assuming the financial responsibility.  It basically means the backer gets their staking money back first, before any other monies are divided up.   For example, let’s say I back a player for $225 to play 50x $4.50 180-man SNG’s.   We agree to a 60/40 split in the backers favor, with stakeback.   As the horse cashes in events, 100% of the cashes are returned to the backer under the stakeback part, up until the $225 is reached… any monies made over and above the $225 (profits) get split 60% to the backer, and 40% to the horse.   So if after the 50 events the horse cashed for a total of $525, the backer would get $405 ($225 stakeback + 60% of the $300 overage) and the horse would get $120 (40% of the overage).

In the type of “stock sales” common in the PSO staking section, in particular where the horse is taking some % of themselves, stakeback need not be stipulated… it is essentially built in.   The total of the stake is divided into %’s (some of which the horse themselves own) and any money cashed is gets divided up equally by those %’s… so if a stake is for $225, and you bought 10% of it for $22.50, if the ending cashed out amount is $225 you’re getting your 10%/$22.50 back.  If the ending amount is $500 you’ll get $50 back and be in profit. 

The only type of stock sale I would suggest looking for stakeback, is one where the horse is putting up none of their own money.   Like where they say for example, “I’m looking to sell $225 to play in 50x $4.50 180-mans.  I must sell 100% of the $225 for this stake to go off, and will return X% of all cashes to the backers while keeping Y% as the horse.”   In this case the horse is proposing that the backers assume 100% of the financial risk, for less than 100% of the reward, so at least giving them their stake back out of the first $225 in cashes makes sense.   It is a pretty terrible deal for the backer(s) if the horse can make money while they lose it, which is exactly what would happen in this case if the horse cashed but wasn’t profitable.   In fact, without stakeback included in the deal, this could happen even if the horse was profitable!  For example, let’s say the offer was for 60% to the backers, 40% to the horse, with no stakeback in the above hypothetical.   If the horse cashed for $300 total, 60% of that is $180.  But the backer(s) put up $225 for the stake.  So without stakeback the backer(s) lose $45 in total (-.45c per 1% share) while the horse makes a profit of $120 (40% of the $300, with no initial investment on their part).  You can see why this is a terrible arrangement for the backers side of things.

Make up:  This is something that comes into play in longer term staking arrangements, or potentially a series of multiple stakes, in a backer/horse relationship where the backer is assuming the financial responsibility.  It is almost always coupled with stakeback.  Make up basically says if the horse loses money on the stake, the shortage will carry over to the new stake to be made up out of those future profits (if any). 

So let’s go back to my original example, where I back a player for $225 to play 50 of the $4.50 180-mans at a 60/40 split with stakeback, and add to it that we agree on makeup as well.  So our horse runs the stake and they don’t do well, cashing for only $150 in total.  I would get all of that under the stakeback part of the agreement, but as the financial backer, am still out $75.  So hypothetically, I think the horse just ran bad, is +EV in those games, or whatever, and decide to extend the relationship with another $225 for another 50 games.   Now out of any cashes from this second set of games, I will get 100% of the money for the first $300 cashed ($225 stake back on this stake, + $75 make up from the hole of the prior stake).  If the horse cashes for more than $300 during this go around, then their stakeback and makeup will be paid in full and the overage is profit for us to split in the 60/40 agreement.

Hopefully at this point the idea of makeup makes sense to you for longer relationships where there is a 100% financial backer(s).  This may also raise the thought, what if the horse quits in makeup and stops playing?  So let’s talk about how this works…

Firstly, in a 1 on 1 backer/horse relationship, typically the horse can not quit in makeup.  As part of the agreement, they can’t leave the backer hanging in debt, or they risk losing their reputation and ability to be staked again in the future at other staking sites or by other backers.  The horse CAN buy out of the deal.  In a long term relationship the horse can generally terminate the arrangement anytime they are not in the hole, so If they owe $75 in makeup and want out of the deal, it’s commonly accepted that they can buy out by simply paying back that $75, in lieu of the original agreement to continue playing.  The backer, in retrospect, can always terminate the deal.   If the backer does this, the horse is not obligated to pay back makeup.   If backer feels a horse is simply not profitable they might terminate while makeup exists… no use throwing good money after bad.

This type of thing is most common in long term mtt stakes… when the horse is playing a schedule of large fields they can go a long time without a big score and makeup can start to add up.  The backer is usually prepared to ride it out, if they believe the horse has the home run potential to ship a big score and clear the whole makeup at one time (if they don’t think this, why are they backing them in the first place?!?).    But eventually, the backer may decide they made a bad judgment, enough is enough, and turn off the money spout.   Until that happens, the horse is obligated to continue playing while under makeup.  Or buy out of it if they can.

In multi-backer situations, like would be common here in the PSO staking section, it would work in a similar fashion.  The horse who is selling 100% of their action should be very clear if offering makeup, exactly how that will work, so the investors are clear on what to expect, whether the horse intends to guarantee a future run if the stake ends negative, or only guarantee makeup IF they decide to do a future run (big difference obviously). When making a future run with makeup existing, they should give priority to the backers they owe make up to, so they can invest first if they so choose.

I realize this may be TMI for some of you, but for those looking to get more involved in the staking world, I hope it helps.

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