Stake Agreements and Trading Action - Chris "Fox" Wallace

Most serious players--and even some low-limit players--will be involved in a stake agreement at some point in their poker career. Sadly, most players, even those who frequently play with other people's money, have little understanding of the concepts involved in stake agreements. Properly negotiating an agreement with your backer or with a player you plan to back can be the difference between a big losing proposition and a small but steady winning investment. This article should provide some ideas on how to think about this sort of agreement.

There are typically two types of stake agreements: stake or "backing" arrangements and trading action. Let's take a look at stake agreements first.

In a stake agreement the “standard deal” for a full stake has always been that the “stakehorse” (the backer who puts up the money) eats all of the player's losses and gets half of the winnings. But in the real world things are a little more complicated. The length of time involved in the stake, the relative strength of the player, and the number of hands ultimately involved, are the most important factors to be considered. If the player is very strong then obviously you can live with a somewhat shorter agreement. Why the number of hands involved you ask? Let's take a look at a scenario that illustrates the point:

Our stakehorse, Bob, hands 500 dollars to our player Tom to play 4/8 hold em at the local card room. Knowing that Tom is a regular winner who simply cannot manage his bankroll, Bob has decided that this should be a profitable situation. In the first agreement wins and losses will be tallied and paid out after every session, while in the second, Tom will be paid his half of the winnings at the end of each week. For our example, we'll use a week from my records a year ago.

Monday Tom wins $60
Tuesday Tom loses $44
Wednesday Tom wins $105
Thursday Tom takes the day off
Friday Tom wins $85
Saturday Tom loses $63
Sunday Tom takes the day off

Total for the week: Tom wins $143

If the stake is resolved each day, then we have 30 – 44 + 52.50 + 42.50 – 63 = $18 for Bob's share of the winnings. Bob risks losing $500 dollars to make a measly $18, while Tom risks nothing and makes $125 from his play for the week.

If however we resolve the stake only at the end of the week then we have Tom's total for the week at $143 simply divided between the two men, giving Bob a more reasonable share of the winnings at $71.50. Of course, this applies to any length of time and/or number of sessions, meaning that each week could be tallied up as a session at the end of the year and we would see the same effect.

The moral of the story? Tally up wins and losses over the entire length of the period in which you are backing a player in order to get the best return on your money. My guess is that if you were to stake the very best players in the world and tally up wins and losses on a day by day basis you would make very little or even end up a loser, while if you were able to resolve the wins and losses after an entire year the profit would obviously be quite large.

A situation that profits from similar thinking involves trading “pieces” with another player. This often means that each player takes a quarter of the others winnings, but occasionally there will be an agreement where players take a portion of each other's losses. Taking a portion of another player's losses should be avoided, as it can easily be used to take your money when your partner throws off all his money to a confederate and takes a quarter of that value from you.

There is a use for this type of agreement between players of course, as long as you trade only winnings and only with players you trust. When used wisely, “taking quarters” can cut down your variance and be profitable, particularly when only winnings are traded, and each player covers their own losses. You want to pick only solid winning players who you consider trustworthy for this kind of agreement, and very aggressive players with higher variance are actually more profitable to trade with as long as they are long term winners.

If on the other hand you are the higher variance player, then these kinds of agreements are usually not profitable for you. We can illustrate this with a typical week from two players, a solid conservative player (we'll call him Joe) and a very loose and aggressive player (we can call him Speedy) who have approximately the same yearly income. The stakes are a little higher this time:

Joe
Monday + $1200
Tuesday - $700
Wednesday + $400
Thursday + $1700
Friday - $900

Joe's total for the week is +$1700 dollars

Speedy
Monday - $1500
Tuesday + $2100
Wednesday + $900
Thursday - $2600
Friday + $2800

Speedy's total for the week is also +$1700 dollars

If the two players are “taking quarters” on each session it looks something like this.

Monday Joe hands Speedy $300 (¼ of his winnings) and Speedy lost money for the day, so he gives nothing back to Joe
Tuesday Speedy gives Joe $525
Wednesday Speedy gives Joe $125
Thursday Joe gives Speedy $425
Friday Speedy gives Joe $700

At the end of the week, even though both players had the same income, Joe makes $625 in profit from his deal with Speedy. This works because a more volatile player (usually a loose aggressive style) is effectively playing for higher stakes even when he's playing at the same table as the more conservative player. Part of the loose aggressive style is making your opponents play for higher stakes than they expected when they sat down, thus making them uncomfortable. However, a higher level of variance is to be expected.

What do we learn from all of this? If you know a very aggressive player who can win or lose a thousand dollars in a game where you usually win or lose a few hundred, trade quarters with him. If you are the higher variance player, politely turn down any offers to trade action; you'll just lose money in the long run.

I'll see you at the final table,
Fox

*Note - This article was originally purchased by, and published in, the twoplustwo online magazine, and they were kind enough to simply use it for a few months and return the license for it's use to me, as they do for all of their authors.

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