What are backing agreements?
Backing agreements refer to situations where a player has some (or all) his buy-in(s) provided for cash games or tournaments, in return for a percentage of winnings. Backing agreements usually occur when a player doesn’t have the bankroll (either because he has no spare funds, or he doesn’t want to put his personal money on the line for whatever reason) to play at a certain level, but someone else is prepared to provide the bankroll – it is possible for both the player being backed and the person doing the backing to benefit simultaneously from the backing agreement.
A backer could provide a certain number of buy-ins or a fixed amount of money (either all upfront, or some upfront and the rest if needed), in exchange for a share of the profits. If a player is making a cumulative loss, they must wait until this is reversed, before taking out any share of profits. If the backing agreement expires, and the player has made a cumulative loss, usually they don’t have to pay back the loss (and the whole loss is suffered by the backer).
Some backing agreements might require the player to have some skin in the game. This means the player provides some agreed percentage of the buy-ins. The main advantage of this is that the player might have more incentive to play well. The main disadvantage is that it might preclude players who cannot afford to (or won’t) do this, who would have been profitable to you.
Some backing agreements pay players a fixed amount for playing (e.g. $x/hour played) and a smaller share of the profits. The big advantage is that this decreases the chance the backed player will want to make plays that would be negative expected value for you. However, the player has less incentive to maximize the expected value of the backer.
The exact agreement will often depend on who is bringing what to the table. If the backer is providing all the money, and the backed player is not responsible for any losses at the end of the agreement, the backed player is likely to get a smaller percentage of profits than otherwise. If the backed player is providing some percentage of the buy-ins, the backed player is likely to get a better deal than otherwise. If the backed player has shown they can comfortably make money at smaller limits, and need the backing to play at slightly larger limits, he could argue that he deserves a better deal as its the difference between what he was making and what he could make with backing that’s important.
A well structured backing agreement will try and best match up the interests of all the parties involved.
What are the advantages to a player of being backed?
- You get to play higher than you are otherwise bankrolled for. For example, you may only have the bankroll to play $1/$2 live, but both you and your backer believe you could beat $10/$20 at your local cardroom (perhaps there are a lot of rich whales in that game, and you have a solid understanding of poker strategy). Instead of waiting to build a bankroll big enough to play $10/$20, you could be backed. You may find even though you got to keep all your $1/$2 winnings as you were playing with your own bankroll, but you have to give away a lot of your $10/$20 winnings to your backer, you are actually winning more $/hr on average. Let us imagine you were making 10bb/hour at $1/$2 over a reasonable sample size – this means you were making $20/hour (and you kept everything, as you were bankrolling yourself). If you had to give away 50% of your winnings to your backer whilst being backed at $10/$20, you would have to only win at 2bb/hour, to make the same amount of profit for yourself – anything more and you are doing better! For tournaments, due to increased variance, the bankroll requirements are much higher than cash games. So, playing in big buy-in tournaments (even when soft) might be out of reach for you even with an adequate skill set – which is where the backer comes in.
- You get to start playing poker, without an adequate (or no) bankroll. For example perhaps the backer knows you are willing to put in the time learning poker, but don’t have the money to get started (especially live when even playing $1/$2 would require a $6,000 bankroll at 30 buy-ins).
- You don’t have to put your own money on the line, if the agreement is such the backer provides all the money and absorbs all cumulative losses (for example money from your own salary from a job, which has been allocated to household expenses).
What are the advantages to the backer?
- You may be an active poker player in which case instead of just making your own winnings, why not identify other potential players with a positive expectation and get a cut of their winnings too? Imagine you are a live player who is playing a soft $2/$5 game and have a healthy winrate. You can’t multi-table, but you can back several other players (and perhaps keep 50% of their winnings). Often you will also help these players with free coaching, as if they improve, you gets a bigger amount of winnings. Of course, backers don’t have to be active poker players – you may have money which you feel is best invested in this way, because you think the returns are better than other investments you could make.
- You will be reducing your overall variance, especially if you are backing multiple players. Imagine you are a player playing certain buy-in levels of tournaments, by backing other players (provided you have negotiated a good deal) you reduce your overall variance.
What are the disadvantages to a player of being backed?
- You will be giving up a significant percentage of your winnings – could you have found the buy-ins elsewhere, and got to keep all the winnings?
- You may be tied-in for a given amount of time.
What are the disadvantages to the backer?
- You want your backed players to play in a way that maximizes your expected value. However, they may be in a situation where maximizing their own expected value, isn’t equivalent to maximizing your expected value. An example of such a scenario may occur if a backed player who shares profits with you (but you bear any losses) is nearing the end of his agreement with you, but is currently making an overall loss – he may decide to gamble against the odds in a situation that he wouldn’t if it was his own money – as if he loses the gamble he will still be making a loss (and won’t gain or lose anything), but if he wins then he could be in profit (and will gain a share of the overall profits).
- You have to trust your players are honestly reporting results to you. What if they underreport their winnings, and/or overreport their losses? This can be negated if you only back online players and you have access to their online account (where this isn’t breaking any rules of the cardroom), or you ask for regular screenshots (and you are able to know that what you are sent hasn’t been doctored), etc. If the players you back are playing live tournaments, often results are publicly available (or there will be other people you know in the tournament, who can keep a watch on the players you are backing) so you know how they did etc. For live cash this is the most problematic, but again you can have other players you know watch and report on the players you are backing – you could even have your backed players watching each other, but be careful they don’t collude.
- You will often be paying money upfront, and get potential profits back later. What is to stop someone absconding with the money you gave them? Of course, this can be somewhat negated, through careful planning on how to distribute the money.
- Your money might get greater returns elsewhere, that is to say there might be an opportunity cost of investing your money into backing agreements.
Do backing agreements affect players not involved?
Backing is controversial in certain situations. For example, a player may soft-play another player in a tournament because he has a financial interest in that player staying in the tournament. Most tournaments have no requirements for backing agreements to be disclosed – so this might not be apparent to the other players, or even if they suspect something they can’t do anything about it. The smaller the field of the tournament, the worse, as it is more likely the backer and the backed player end up on the same table. In a cash game, would a backed player and backer collude either implicitly or explicitly versus other player(s) in a pot? Of course, backers and backed players, are not necessarily colluding – many will be honest and not do so, but they do have more incentive to do so than random players.
