A month or so I was browsing the internet looking at tax brackets (why? I dunno probably because I have entirely too much time on my hands) and came across this Laffer-Curve.
You can read more about it on wikipedia here. The gist of the curve is that it shows graphically how to maximize tax revenue for a state. Intuitively you might think that a state maximizes their revenue by implementing an extremely high tax rate, but it turns out this is not true. If the state charged a 99% tax rate what motivation would anyone have to work? Same goes for 90% or 80%. What about charging a super low rate? After all if you only charged 1% everyone would work REALLY hard because all the money they make they get to keep right? Well, you can only make up for the lower % in so much increase in volume so surely you can agree that the ideal tax rate to maximize revenue for the state is somewhere in the middle between 20-70%. All right that’s all good and all you might say, but where am I going with this and why do you care?
Well you can replace everything I said in the last paragraph about “state” with “online poker casino” aka Full Tilt and Stars if you live in the US and everything I said about “tax rate” with “rake” and it suddenly all becomes extremely relevant. Check out the following graph.
If online poker sites really want to maximize their revenue they should lower their rake in my opinion. Last month I made about $1k for myself and paid poker sites over $3k in rake. It completely destroys my motivation to grind. Why should I go grind 40 hours a week when for 30 of those 40 hours I’m just making someone else rich? As a result, the games die and people quit playing. There are tons of other grinders out there just like me. Now clearly the way for the sites to maximize their revenue is not to dramatically drop how much they are charging their customers down to $100/month like some people suggest or whatever, but it’s clearly not to completely gouge their customers til they’re broke or lose all motivation to play either. Their current rake system is completely unsustainable and is killing the games.
I realize the US Department of Justice is partially to blame for seizing player funds, which account for huge losses to the sites, but they can’t just continue to increase rake indefinitely and expect to still have a growing market either. Maybe they don’t care and just want to make as much as they can short term as they know Harrah’s or MGM will ultimately overtake them in the market in the years to come and are perfectly okay with killing off 90% of their customers, but if they are smart they will realize this is not good business for them.
I’ve seen all sorts of complaints about the rake and personal anecdotes, I merely wished to give a sound economical argument for why the rake is too high in the interests of the gaming and poker site operators. An argument which to date, I have seen no one effectively make.
Notice the backup QB saying “Did you just…” as the camera pans away.