Backing poker players in tournaments can be as straightforward as transferring funds from the backer to the player, but appearances of simplicity can hide some of the complexities beneath the surface. Players considering a backing proposition might be particularly interested in some of the comments below. Before going further, it’s helpful to distinguish backing from a freeroll. <READMORE>

In the context of gambling, David and Rachel Croson define a freeroll as “a gamble with . . . with some possibility of winning and no chance of loss, over your next best alternative.” This means that a true freeroll has positive expected value with zero risk, as long as the next best alternative is doing nothing at all. In certain circumstances, a risk-free backing proposal with only positive potential outcomes is in fact a freeroll, as long as the alternative for the backed player is watching paint dry.

However, backing and freerolls are not the same in most circumstances. For example, let’s assume Player A has a positive expectation of $100 in a large number of $30 buy-in tournaments. A backing proposal for $10 buy-in tournaments where the expected value drops to $60 could not be called a freeroll, because it would cost Player A $40 per tournament on average (we’ll assume in this example that Player A has an expected value of $120 in the $10 buy-ins, but he must split it evenly with the backer). Not only is this not a freeroll, but this example points to some of the complexity if the player has a better alternative than the backing proposition. The question is whether this backing proposal is suitably attractive for Player A when the risk-free nature of the backing proposal is compared against the $40 opportunity cost of missing the larger buy-in events.

In this example, Player A could avoid the $40 opportunity cost simply by competing in both tournaments. In other words, he might compete in the $30 buy-ins and also accept backing for the $10 buy-ins, potentially reducing his cumulative variance. If Player A could only compete in one or the other, but not both, how might he evaluate the backing proposal?

One way to evaluate the backing proposal is to review the tournament history of Player A in $30 MTTs. If Player A’s expected value of $100 is overwhelmingly the result of clustered outcomes between a band of $70 and $130, then the backing proposal for $10 MTTs appears unattractive. Player A’s participation in $30 buy-ins could be described as a dominant gamble under these conditions, because he would be “losing” between $10 and $70 in the backed tournaments. Therefore, Player A probably should not accept the backing proposal (in practice, however, it appears that few players have enough data or consistently clustered results to reach this conclusion). This perspective makes the decision relatively easy, especially when other factors are not considered.

A second way to evaluate the backing proposal begins accounting for some of the economic risks. Let’s simplify another example for Player A and chart expected outcomes below:

<TABLE width=383><TBODY><TR vAlign=top><TD width="33%" height=12>$30 MTT</TD><TD width="33%">$10 MTT</TD><TD width="33%">Outcome</TD></TR><TR vAlign=top><TD height=12>2%</TD><TD>3%</TD><TD>Final Three</TD></TR><TR vAlign=top><TD height=12>4%</TD><TD>5%</TD><TD>Final Table</TD></TR><TR vAlign=top><TD height=12>30%</TD><TD>40%</TD><TD>Other ITM</TD></TR><TR vAlign=top><TD height=12>64%</TD><TD>52%</TD><TD>Non-Cash/Loss</TD></TR></TBODY></TABLE>

What we can observe from this hypothetical performance chart is that Player A realizes greater success at the $10 MTTs on a percentage basis, but probably prefers the $30 MTTs because of the greater financial returns in net dollars. Note, however, the last row would be changed with a backer: instead of 52% non-cashing/loss outcomes, backing means there is a 0% risk of loss. Thus, Player A must weigh a 64% risk of non-cashing/loss outcomes against no economic risk at all. When we return to our earlier assumptions and adjust for the economic risk, Player A might reduce his $30 MTT expected value by 64% from $100 to $36, while his expected value in $10 MTTs remains at $60. In this case, a $60 expected return with a backer is superior to a $36 expected return when both propositions are adjusted for the risk, so backing would appear to be favorable to Player A.

It’s worth pausing here to note that the size of Player A’s bankroll is not an important factor when we summarized a view of the dominant gamble in the first evaluation method and risk-adjusted returns in the second evaluation method. In fact, many bankroll sizes would not have much impact on the analysis so far. For the player who is evaluating a backing proposal, the question of “affordability” is somewhat lower on the list of important questions to consider—especially if the player is not forced to choose one tournament or another, and thus has the ability to avoid opportunity costs by competing in both.

Suppose that Player A accepts the backing proposal for $10 MTTs and also competes with his own funds in the $30 MTTs. His cumulative economic risk is reduced due to the backer, and he is only exchanging upside in the $10 MTTs for this risk reduction. The same result holds true even for a player who is considering two similar tournaments (say, two of the $215 Sunday online tournaments) with backing for one and a solo effort in the other. The significantly high level of variance in these bigger tournaments strengthens the argument in favor of backing, with little regard for the player’s bankroll size. Put in baseball terms, a strong player typically has numerous strike-outs, a handful of base hits, and a small number of home-runs in these big events. The fact that he can pick up a bat and walk to the plate numerous times primarily alters the sample size, not the overall effect of variance. A cost of $430 may be insignificant to Player A, but our focus is on what is economically desirable rather than what is economically necessary.

Now comes an interesting paradox: backers often want to invest in strong players, but strong players are often the least likely to be interested in backing, regardless of the potential benefits (and despite the fact that some strong players are analytic, capable of making sound financial decisions, and competing in larger buy-in events that attract numerous competitors). Whether a strong player’s “edge” over a large sample of tournaments is enough to overcome some of the economic benefits of backing is a question best answered on a case-by-case basis. Some additional reasons strong players refuse backing include overconfidence in their abilities, misconceptions about the nature of variance in tournaments, uneasiness when playing with funds provided by others, diminished autonomy in tournament selection, a powerful “do it yourself” streak, an emphasis on short-term results, focusing on the less important topic of affordability/bank roll size, and competing in tournaments for bragging rights or other non-economic reasons.

Finally, some players think that avoiding remorse is critically important. Perhaps some players know themselves well enough to reject backing on this basis alone, regardless of any economic considerations. But if the pain of sharing profits with a backer after a “big score” is too much to bear, consider what a player is resigning himself to—multiple attempts to tame an unpredictable animal, with all of the happy victories and glum failures. Misery can be more powerful than joy, but which of these is worse: the regret of sharing financially in your triumph or failing solely at your own expense?

Jed Weissbluth is the founder of 5th Street Venture Capital, a fund created for investing in successful tournament players. Candidates are encouraged to apply at www.5thstvc.com.
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