You Just Don't Have the Stake

Let's be frank here. You never wanted my friendship. And you feared to be in my debt. So you didn't need a friend like me. Now you come and say "Don Corleone, give me justice."

Yesterday I had a conversation with a good friend about whether or not he should enter into a staking arrangement so that he could grind online MTTs. His backer would put up 100% of the bankroll, and they'd share the profits 50-50. The kicker (as with most staking arrangements) is that the profits would be subject to "make-up".

Make-up is not quite as bad as buying securities on margin -- there's no interest on the money loaned to buy the securities, or in this case the money loaned as the initial bankroll -- but the effect is similar. The potential upside of any gain to the borrower is minimized, and the potential downside is magnified, because no matter what happens the "borrowed money" has to be paid back.

Consider an example: I am backed by CK 100%. I start out with a 10k bankroll and lose 5k of it on an extended downswing. Then I have a nice score, maybe a 15k score. I don't get to keep 7.5k of that score. First I have to "make up" my earlier losses -- by paying back 5k to CK. Only after those losses are settled do I get to keep half of the remainder, which turns out in this instance to be 5k. So instead of being up 7.5k (or 10k if I staked myself) I'm only up 5k. And this assumes a "big score". After that first downswing, I might spend a long time grinding out small and medium wins just to get out of make-up. At that point I would be playing 100% for my backer and 0% for myself.

My take on staking has always been: if you're good enough to show a long-term positive result, then stake yourself. Otherwise you're admitting to a bankroll management issue (i.e. playing above what your bankroll can support). But I'm not going to get into it much further because CK has written an excellent post that has generated some great comments about why the typical 50-50 make-up staking deal is such a bad arrangement for the player. Go read it.