Wall Street Journal Publishes Call? Raise? Bluff? A Feature on the Poker Staking Business

Henry Jacobson, Bear Hug Poker

I have to admit to being a bit taken aback to read a feature on the poker staking business in the venerable Wall Street Journal. The Wall Street Journal is the arbiter of what is fit to print when it comes to business and the subject of money. In this regard, as a newspaper published daily in both hard copy and on-line forms, the Wall Street Journal trumps the New York Times, the Evening Standard and everybody else. That’s my opinion, and though it may not be shared by everyone, it doesn’t really matter.You see, since forming Bear Hug Poker with my partner David Pomroy in September of last year, I have been under the misimpression that virtually no one had any idea of what we do, or really cared, outside the boundaries of our industry. Well, apparently I was wrong.That the Wall Street Journal would publish a feature on our little corner of the world, means that because the editors of the Wall Street Journal care, others will too. I think that’s about all I’m going to say on the subject at this point and just allow you to read the feature below which I have copied in exactly the form (save for some graphics) that it appeared in the March 28 edition of WSJ.Money, as written by Alexandra Berzon.While the red meat in this article is clearly the millions of dollars passing between player in the form of staking, action-sharing and prop bets at the World Series of poker each summer in Las Vegas, there is a surprising amount of column space given to exactly what we do – staking on-line players.Form your own opinions on what this level attention means to our business and feel free to Tweet us if you have anything to add. Personally, this is going to take some time to sink in. I’m guessing my developing thoughts on the subject will be fodder for a future blog on BearHug.com.


The Hidden Game Behind Professional Poker
How the poker pros bet millions on their own card hands—and each other

March 28, 2014 11:02 a.m. ET

DANIEL NEGREANU IS one of the most successful poker players in the world, the winner of six World Series of Poker championships who has racked up more than $19 million from live tournament pots. So sharp is his bluffing that he once went on a TV science show to try to fool a lie detector—and, ultimately, he succeeded.

But until recently, the 39-year-old star put some serious resources into a strategy that most fans know little about. He hedged his bets, by investing in other poker players. Two years ago, he says, he invested about $2 million in 10 players at the World Series of Poker, and at times he has played against some of those he has backed in tournaments. “I play against them as hard as I play against someone I don’t even know,” he says.

To most observers, professional poker is a straightforward game of winners and losers, with almost $200 million in prize money dished out at more than 60 World Series of Poker events last year alone. With cameras that reveal each player’s cards, devoted fans can see how every hand is played and the strategy behind each bet. But there’s one thing they can’t see: the financial dealing among the players.

Whether it’s played face-to-face among steely-eyed pros, or online where each person may be participating in many games at once, professional poker has developed its own economy. That economy is based on players not only betting with their own money but also getting “staked,” or financially backed by former and current players. Many players also agree to invest in each other and swap a small part of their earnings.

Such deal-making isn’t new to the game, but veteran players and analysts agree that the amount of money—and level of sophistication—involved in the arrangements has risen considerably since the World Series of Poker championship began in 1970. According to players, agents and other experts in poker interviewed by WSJ.Money, at least half of the estimated 6,600 contestants in this summer’s Main Event championship in Las Vegas, the game’s biggest annual competition, are likely to receive financial support from past and current players, family members and other poker investors. The event last year collected $64 million in entry fees, which means the backing could’ve been in the vicinity of $30 million.

All of which is a lot of money getting shuffled around under a system rarely discussed on TV, but that consultants and players say has become an accepted fact of the game. As the largest ruling body over the game, the World Series of Poker says it has no rules against the practice, other than not allowing players to play “soft” against one another. “It’s not something really discussed or disclosed,” says Chris Grove, a longtime poker-industry consultant who thinks the deal-making should be formally revealed at events. “It introduces a new dynamic into the game.”

SHANE SIGSBEE DESCRIBES it as “dumb luck.” About five years ago, when he was in his early 20s, serving as a new trader at a trading firm in Chicago, he decided to sign up for a local poker tournament. Up until then, the former college golfer and finance major at Notre Dame had spent only a few years playing poker seriously. He’d picked it up during bus trips with his golf teammates. But he was doing so well online that he started making more than at his full-time job. At the live Chicago tournament, he won $206,000. “It was the right place at the right time,” he says.

That helped prompt him and his wife, after he was laid off from his job, to give up their home and go on an extended road trip. He would play poker online and at local casinos while she did work for online magazines. They rented a ski chalet in Breckenridge, Colo., for six weeks. “I basically played poker at night and skied during the day,” says Sigsbee, 28. They hit Fort Lauderdale, Fla., then Hermosa Beach in California, Fiji then New Zealand. “We ended up in Australia,” he says. There, he decided to try investing in other players, including some of them in a six-week-long series of events that make up the World Series of Poker. That was 2011, and Sigsbee managed to cobble together $1 million from various investors—players and others involved in the game—to back 35 players participating in hundreds of events.

Done sometimes with written contracts but often with a simple handshake, staking usually involves paying the entry fee known as the buy-in to tournaments over the course of a year, in exchange for 50 percent to 70 percent of the player’s earnings. If the player loses, he typically pays back the investor with all of his future winnings until the slate is clean. Some of the better pros interested in playing major events with a large buy-in will sell “action” to investors, who each put up a part of the buy-in in exchange for a one-time part of the winnings. Some pros will also simply swap action, agreeing to pay each other 1 percent to 5 percent, or more, of their winnings. “Everyone understands it’s such a big part of poker,” says Brian Balsbaugh, a poker agent who represents 30 of the top players in the world. Of those, he estimates, 60 percent do swaps, 20 percent stake players, and 25 percent receive stakes themselves.

“I’ve been doing it almost since I started playing,” says Faraz Jaka, a well-known, high-stakes player who started playing the game seriously a half-dozen years ago and now travels the world playing poker, living out of a suitcase. Interviewed while on a visit to Chicago, he says he does staking and swapping because it “lowers your variance.” While other colleagues will stake 20 to 50 players, he says, he prefers to stick to a small group of two to five players, and has a partner who handles the tracking of their results and financial arrangements. For him, it is a global operation, with investments in players in Poland, Costa Rica, Thailand and Ukraine, as well as a form of mentoring, since he likes to take the players under his wing and teach them strategy.

To a person, the players say they can do all this without it affecting their play. “It’s one of those things that has the potential to be a conflict of interest but in reality isn’t,” says Balsbaugh, the agent. With swaps, the percentages are considered too small to affect performance, he says, while even with the larger stakes, a player would have a hard time, amid a table of players, deliberately playing easy against someone they were backing. “There are rules against [playing soft],” he says. “The other players at the table would say something.”

Still, sports economist Andy Schwarz, a partner at OSKR consulting in Emeryville, Calif., says that at least in theory, the system of betting on each other and being staked would matter. “If you ask any economist whether identical players with identical cards would act the same if they own a piece of someone else or 0 percent, you’d get every economist to say they would act differently,” Schwarz says. People may also play differently—likely more aggressively—if they aren’t playing with their own money, he says.

For poker authorities, “staking” practices are well-known but not acted on.

Players do say that staking can play a role in determining the field of competition at any one event, since it makes it easier for players with a string of bad luck to keep playing. And it does cause awkward moments: Jaka recalls how he and a player he backed in 2012 came into the next to last day of a six-day tournament in the Caribbean in first and second place, respectively. At one point, he says, they were seated at the same table for the first time in the tournament. As Jaka puts it, the two competed hard against each other—”it was pedal to the metal”—but he says that ignoring the dealings takes discipline. In the end, he says, he placed third, winning more than $700,000, while his opponent-partner placed further down the rankings.

FOR THE AUTHORITIES that run, organize and televise poker, staking and swapping are practices well-known but not acted on. “It has been on the radar,” says A.G. Burnett, chairman of the Nevada State Gaming Board, but “we don’t have a regulation that governs it.” Neither does the World Series of Poker, which is owned by Caesars Entertainment and says it monitors all games closely but doesn’t get involved in any player financial arrangements. “We don’t want to be in the middle of those kinds of issues,” says Seth Palansky, a spokesman, who offers a detailed explanation on how WSOP maintains the sport’s integrity. Each event has many cameras fixed on the table, recording moves, as well as a large audience seeing cards as they are dealt. “The cards are going to give you the answers,” he says. “The way they play the cards.”

As for serving viewers, ESPN, which televises the World Series of Poker Main Event, says its broadcasters know about the arrangements. “Because of the uncertain nature of swapping and staking, we rarely discuss it on our broadcasts,” says Jamie Horowitz, vice president of original programming and production. The network says it averaged 1.2 million viewers for the final table at the World Series of Poker last year.

How much bigger the dealings between players will become is an open question. Though the game remained large globally, the poker business was seriously hobbled in this country three years ago when the U.S. Justice Department, after long before declaring online poker an illegal form of gambling, effectively shut down the mainstream Web industry by taking criminal and civil actions against the top sites and some of their executives. Some new legal sites have since emerged, because three states—Nevada, Delaware and New Jersey—have passed laws allowing online poker, which may only open the door to more deals among players.

But whether it grows or not, observers say this side game to poker will remain a tricky endeavor, one that has tripped up more than its share of players. Balsbaugh, the agent, says he has noticed that many of the game’s stars seem to pick the wrong competitors to back, unable to read the ability of a player who wants backing as well as they can an opponent trying to bluff them at the table. “The best players and smartest guys in the game have all been hustled by staking players,” he says. “The skill doesn’t translate.”

For his part, Negreanu, who invested $2 million two years ago, says he thinks not all the players he backed played seriously enough or treated his money as their own; ultimately, he says, he lost about half of his investment. Nowadays, he’s backing only two players. But Sigsbee says he discovered that the investing can work by focusing on online players. There, players can participate in many more tournaments for less money, he says, reducing the risk inherent in big-money events. Through his company, Imawhale, he now backs 80 players. And he says he’s had only one losing month in two years.

He didn’t have quite the same results with the $1 million he invested at the World Series event in 2011. After pulling together eight backers and investing $100,000 of his own money, he watched excitedly from the audience as one player the group had backed moved into eighth place at the Main Event. If the player won the event, the group would make a 500 percent return—Sigsbee himself, $1 million. Instead, the player ran out of chips and finished in 12th place, leaving the group with a 36 percent loss for the summer. “It was a surreal thing,” Sigsbee says. “It was like, it’s just over.”

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