This is the eighth installment of my weekly poker column in the Economic Times, Range Rover.
I’ve spent a lot of time inside casinos in the last few years – mainly in Macau and Goa – but there’s only one game I’ve ever played there: poker. In all other games, you’re playing against the house, and the odds are tilted in its favour. Whether it’s roulette or baccarat or slots, the house will always beat you in the long run. In poker, on the other hand, you play against other players, and it is a game of skill. For a rational gambler chasing an edge, it makes sense to only play poker inside a casino. However, you must be warned that this is not the whole truth.
Contrary to what some believe, poker is not a zero-sum game, where the winners win exactly what the losers lose. It is a negative-sum game. In every game of poker, the house takes a percentage of each pot. This is known as rake. And there is a maximum amount beyond which they cannot rake from any given pot – this is known as the cap. Now, the level of the rake has a decisive impact on how sustainable the game is. If the rake is too high, and even the skilled players cannot make a profit, then the game dies down. Abroad, over the years, the rake has evolved to that equilibrium where the house makes enough profit without taking so much money off the tables that the players disappear. This has everything to do with the cap, not the percentage of the rake.
The two main casinos in Goa where live poker is legally played are Casino Pride and Deltin Royale (formerly Casino Royale). These guys have had a duopoly on the legal poker scene in Goa for years, and their rake is therefore ridiculous: they charge 5% rake with a Rs 5000 cap. (Some casinos abroad take an hourly fee, but this hasn’t caught on yet in Asia.) The problem here is not the rake: casinos in Macau and Vegas also charge 5%, in some cases even more. The problem is the cap. In a 100-200 game, a 5000 cap amounts to 25 big blinds. This is, to my knowledge, by far the biggest rake cap in the world. The standard cap is between 2 to 5 big blinds, and never, ever close to 25.
The rake, when it is too much, bleeds money off the table. If you win a big pot in a heads-up battle, since half the pot is the money you put in, you’re effectively being taxed at 10%. Everyone’s stack gets affected by this continuous taxation, and if after a few hours of playing you stack someone, his stack is much less than what it would have been if not for rake, so its effects go deep into the game. A friend of mine once played a heads-up game with an opponent in Royale, and they both sat with 1 lakh each. So there were 2 lakhs on the table. My friend stacked him three hours later and looked at his stack: 1.10 lakhs. The rest went to rake. I once played a session in Goa where after eight hours of play, all the players were stuck. Needless to say, I don’t play in Goa anymore.
The Goa guys get away with it because there is a steady tourist influx that is a captive audience on their boats and doesn’t know better. So they don’t have to worry about damage to the ecosystem. Underground games in the Indian cities have lower rakes than Goa, so winning in them is easier. Regardless, the effects of rake are such, worldwide, that most players are losers and most winning players are marginal winners. If you take poker seriously, you need to be aware of how the rake affects you. To be a big winner, you not only need to beat the other players, you need to beat the rake.
Since I began writing this column a few weeks ago, one of my big themes has been the lessons one can learn about life from poker. However, there is one sense in which life is dramatically different from poker, and indeed from all other sports, which tend to be zero-sum. Life is a positive-sum game. You don’t win at someone else’s cost, you generally win when they also win. Take free markets, for example: every transaction has two happy people at the end of it, believing they are better off for it. (John Stossel memorably called this the ‘double thank-you moment’.) No one rakes our happiness – so no moping around today, go and hug someone you love.
Previously on Range Rover: