Friday, February 04, 2005

Perpetually Scheming

For the love of Jebus, no more reload bonuses! Stop the madness! I now have 123,182 raked hands to play this month!

(PokerRoom is offering a reload now too, in addition to the Paradise and Empire ones.)

Going to a strip club with the wife tonight. That's not a sentence I get to type every day.

So yeah, scheming. I got bored yesterday at work (gasp), and my mind started to wander. Which usually means that I sit here and try to think of ways to get rich. I'm not picky, when it comes to getting rich. Pretty much any quasi-legal avenue will do. I'm equal opportunity when it comes to grubbing for gold, turning no one away.

But yesterday when I was poking around doing research for my entry about poker sites and networks and what-not I started pondering just how much it would cost to get an online poker site up and running. Let's set some parameters, though. I'm not talking Party or anything in that ballpark. I'm not talking about developing your own software. I'm talking about the lowest entry point, probably as a Prima licensee.

Even then it'd be expensive. You'd still have to get a gaming license in a jurisdiction that allows gaming, work out the arrangements for the hardware and bandwidth, etc. Depending on the license, you also might have to handle customer support and transaction processing. And it'd be just another low-rent poker site, jockeying for the same players, getting the snot beaten out of it by Party.

Ahh, but suddenly there is a glimmer of light. What if it was owned by poker bloggers? And, more importantly, played at by bloggers?

You'd be surprised/horrified at what you pay in rake. It really adds up, even at low limit tables. That's why online poker sites are so insanely profitable. While they have the obvious overhead, they also have a rakish cash cow that is being unobtrusively milked every second of the day.

If you play two table hours a day on average (1 table for 2 hours, 2 tables for 1 hour, 4 tables for 30 minutes, etc.) in a full month of playing you'll pay the typical site the following approximate amounts in rake at the limits listed:

.50/1: $155
1/2: $275
2/4: $390
3/6: $620
5/10: $930
10/20: $1,100

Now for the fun part. Let's play pretend and say the site exists. We'll call the site HammerPoker. Let's extend that playing of pretend and say that we have 100 bloggers/co-owners who'll play on the site. Remember, HammerPoker part of a larger network, so it's not bloggers playing bloggers on a tiny site with no games. It's basically the same as playing at The Gaming Club or any other Prima site. The only difference is that the rake goes to HammerPoker.

Of the 100 total bloggers/co-owners, 25 bloggers are willing to play at .50/1, 25 willing to play at 1/2, 20 willing to play at 2/4, 15 willing to play at 3/6, 10 willing to play at 5/10, and 5 willing to play at 10/20 and up. Keep in mind that they're all just playing 2 table hours per day, on average.

That works out to the following in rake generated each month:

.50/1: $3,875
1/2: $6,875
2/4: $7,800
3/6: $9,400
5/10: $9,300
10/20: $5,500

Total: $42,750/month in rake

That's a decent chunk of change, just from the rake produced by the co-owners. Remember, that's just the rake that you normally pay anyway. You'd keep any winnings.

So you'd have ~$43,000/month in income locked in. That's $516,000/year. Keep in mind, too, that that's completely ignoring any non-blogger players signing up and playing at the site. Given the collective reach of all the blogs and the eyeballs that view them, I think it'd be a safe bet to make that we'd be able to get a decent number of outside players onto the site.

The big question is the obvious one. Expenses. Especially start-up expenses. Kahnawake Gaming Commission charges a non-refundable $15,000 to consider your application for a gaming license, as well as a refundable $10,000 annual fee if accepted. So that'd be a cool $25,000 just for the gaming license.

I have no clue what Prima charges for a license. None. I would guess it would be somewhere in the neighborhood of $25,000-$100,000 annually. I would guess that they'd want this upfront, but they might allow you to pay on a monthly basis.

You'd have fees associated with processing deposits and withdrawals by Neteller, FirePay, etc. I'm not sure if they charge you initially or annually to sign up as a merchant. I know they charge a fee on each end of a deposit/withdrawl but that's all I know. These fees would be less than a normal site would incur, however, as the core blogger group wouldn't be shuffling money in and out like many normal players do. I'll guesstimate fees of $5,000/month, or $60,000/year.

Customer support woudn't be too bad, given the nature of the endeavor, since the core group of bloggers/co-owners removes a lot of the headaches. You could probably get away with just email support for awhile, and lord knows there'd be plenty of bloggers online at any point to put out potential fires.

You'd have to domicile the parent corporation in a jurisdiction that allows gaming. Incorporating actually isn't that horrible and is reasonably inexpensive even if you pay someone else to do it. Let's say $10,000 in expenses in initially setting up the corporation (although you could do it for much less).

Hardware. This I don't know about, as I have no clue of the load a smallish site like this would put on servers, or what security measures you have to have in place to deal with DOS attacks, etc. I also don't know if the servers physically have to be located outside the US, etc. I would imagine that you could find a reputable hosting company and either go the co-lo or dedicated hosting route and not have to physically own/control the servers yourself. But I really don't know. If you can rent, you're probably looking at around $2,500-$5,000/month.

Using my wild-assed guesses, that's about $200,000 in annual expenses. As far as initial unavoidable start-up costs, you're looking at $50,000-$150,000, depending on the licensing.

You've got $516,000 in income locked in from blogger/co-owner rake. Subtracting expenses leaves you with about $300,000 in profit. (This is ignoring corporate taxation, which could or could not occur depending on where the parent corporation is domiciled.) Or, assuming 100 blogger co-owners, $3,000/year per blogger.

Interesting, no? And that's not even touching on the all-expense paid annual shareholder meeting in Vegas every year. And, like I said, it's ignoring the fact that we have lots of skilled blogger monkeys with other talents, too, to attract and keep outside players on the site. Such as shilling for sites *cough*, offering and managing an affiliate program, handling some assorted programming and IT stuff, accounting, getting tattooed on foreheads, etc.

In reality, sure, it'd be much more complicated. The all-for-one-and-one-for-all-equal compensation of co-owners wouldn't work, as some people would put more time in than others, etc. But I imagine you could work up a profit-sharing agreement that was fair and equitable. And yeah, you'd have to raise initial capital, and factor that into the equation somehow. And I'm sure countless other myriad details I'm forgetting.

But dude, that'd be cool, all of us co-owning a site. Somebody make it happen.


evilbilly said...

Apologies ahead of time for skipping all the wholesome poker goodness and going straight for the sleaze, but what's with going to the strip club with the wife? More importantly, how can I convince my wife to do the same?

BTW, I've been reading you every day for a few weeks now and enjoy your writing. Keep up the good work.

ScurvyDog said...

Sadly it's a one-time sort of thing, as my wife's brother (still seems odd to say brother-in-law) is celebrating a birthday tonight and he choose a strip club as the venue for said celebration. So I've got to grit my teeth and be a good husband and go along with my wife. The horror, thr horror...

Human Head said...

What a freakin cool idea...

The Bracelet said...

That is a great idea. I'm sorta pissed I didn't think about it first! :)

ZeRat11 said...

Great idea, you don't know how offen I've dreamed of opening a new online poker site. The blogger idea is genius and solves the problem of "how to get your first group of players to build momentum/market share". That was the one of the things I could never figure out. And how to get the capital. Have you seen DobroSoft's site at all?