Well, it looks like eGaming Review has yet another online poker room saying that rakeback is bad for the business. The only problem is, I really don't think his argument makes a whole lot of sense.
Danny Frishman, head of PlayTech (iPoker Network) had this to say, "Giving players linear percentages from the rake they are generating creates a price war, reduces the bottom line to a minimum and does not incentivise loyalty. It is killing the industry by taking money from developing better platforms and promotion."
This is a fundamental misunderstanding of how businesses operate. First off, if the reason that rakeback shouldn't be offered to players is that it might reduce the bottom line then someone needs to examine whether the pricing model reflects the current market conditions.
Plus, it actually doesn't reduce the bottom line. It was the poker operators that stupidly came up with an affiliate compensation system that gives affiliates a linear percentage of the rake. All rakeback is is the player getting the money instead of the affiliate. How does that reduce the bottom line if the poker operator was going to pay an affiliate the same amount anyway?
As I've said several times before, the problem with rakeback is that licensees within a network are incentivized to steal customers from each other. But that could be fixed if one were to penalize cross-room acquisitions. It's a very simple fix. Just pay a room that acquires a player that already has an account on the network a drastically lower payout than for bringing in a new customer. Then they can't offer rakeback. And the payout is so low that it incentivizes a room to acquire new customers rather than steal customers from competitors on the same network.
He went on to say, "Maybe it's better for these players to leave more of this money for the industry to invest in penetrating new markets and getting new players, because those grinders that generate so much rake and get it back will then be making much more money from winning from other players than they actually make from rakeback. So it's also in those players' interest that poker keeps recruiting a lot of new faces."
Players should forego rakeback or other monies so the rooms can invest in bringing in new players? I'm not even sure what to say about that statement.
It's sort of the chicken and the egg scenario. Players aren't going to willingly fund new player acquisition until they see that PlayTech can deliver the fish. That was one of the things Party used to have going for it back in the day. They spent so much on advertising and promotions that the fish pool was always stocked and players could make a lot more money than they could playing at a site with a bunch of rocks trying to get rakeback. But, truthfully, I don't think the iPoker network is so fishy that it's +EV for a player to give forego rakeback to play there.
And to be honest, I really don't buy into this whole argument that rakeback is hurting the industry. PlayTech's revenues were up 70% from a year ago. They're obviously making money hand over fist. They're the third largest poker operator. They could fund massive customer acquisition campaigns if they wanted to. There's simply no reason for them to expect that players should be the ones who front the bill for building PlayTech's business. Or if they're so concerned about licensees having enough money to do promotions then cut the fees that PlayTech charges. I mean, that's one of the biggest expenses a poker room has so if what's killing the industry is the money not being spent on promoting new player acquisition then simply cut your fees so the rooms have more to spend.
The market is simply far too competitive these days to not offer rakeback or other player compensation schemes. Even when these poker rooms supposedly clamp down on rakeback they end up giving the money back in loyalty programs anyway. What's so different between Party's 40% rakeback equivalent loyalty program and getting 40% rakeback from a room that openly offers it? There's no major difference. It's just semantics.