The Rise and Fall of Rakeback

August 15, 2013
The Rise and Fall of Rakeback

Rakeback has been one of the most controversial issues for online poker networks, skin owners and affiliates since its introduction about ten years ago.  It started out operating in the shadows.  Most rakeback deals were created via email or forum private message systems.  As the end of 2004 approached, some network and skins started realizing rakeback was a great opportunity to attract and retain high volume players.  It quickly exploded.  Unlike today, some of the largest online poker networks permitted rakeback.   

Rakeback Caps

One of the original challenges of rakeback was finding the proper balance between player rewards and the margins needed for operators and affiliates to generate a profit.  There was a private discussion among many affiliates who pushed operators to set rakeback caps.  Any affiliate that violated the set rakeback cap on a network was in violation of the rules and risked their affiliate account getting closed.

This was important as many rakeback deals were paid by affiliates in the early days.  It was easy for affiliates to violate rakeback rules as they handled many payments.  One way to combat this was for rooms to move towards an automatic rakeback model where players receive payments directly to their account.

Networks Start Banning Rakeback

Party Poker was the first major network to see issues with the rakeback model.  It stopped allowing rakeback in 2005.  Some skins continued to offer rakeback.  The solution was to segregate Party Poker’s tables from the rest of the skins.  The other skins either sold to Party Poker or moved on to other networks.

Rakeback was eventually dropped by many other rooms.  Full Tilt Poker, iPoker, 888, Bodog, Ongame and Merge were all rakeback friendly at one point but are not today.  Rakeback deals went back underground on several of these networks.

Effects of Unregulated Rakeback

The trouble with under the table rakeback deals is that they are not regulated.  Players may think that getting the biggest rakeback percentage is most important, but there have been many operators that have failed using this business model.  Tusk Investments, a defunct Microgaming white label network, is one example. 

Some network skins have found themselves in a tough situation.  Some operators that play by the rules find their players being solicited by other network skins.  David Jung, CEO of Hero Poker, wrote at length about the challenges that face some network site owners. 

Permitted Rakeback Deals

Rakeback deals that are explicitly allowed by a network are not the problem.  This places all skins and operators on a level playing field.  Rakeback is often provided in lieu of a VIP program.  Some operators still feel that flat rakeback is better for attracting high volume players.  It is certainly cheaper than hiring prop players.  All publicly available rakeback offers are paid automatically by the poker room to the player’s account. 

Legitimate Rakeback Affiliates

Just as poker rooms that allow rakeback are not the problem, affiliates that offer those deals are not the problem either.  Many rakeback affiliates have evolved over the years.  It is now common to see rakeback offers alongside approved VIP offers, quality reviews, coaching content, poker videos, news and other poker related content.  Some affiliates have turned early rakeback businesses into successful, well diversified companies. 

Who is the Problem?

The affiliates that are the problem are typically making their under the table rakeback deals by email and forum private messages, much like their counterparts did during the early days of the poker boom.  With most networks moving away from rakeback, this type of underground rakeback market has reappeared.

Is Regulating Affiliates the Answer?

Nevada took a different approach to the affiliate situation.  All online poker marketing affiliates in Nevada must receive a gaming license.  A gaming license was already required for any company that received revenue share or any kickback related to casino gaming revenue.  Interactive gaming regulations closed any perceived gray area.  New Jersey also requires online gambling affiliates to be licensed. 

The licensing process includes a thorough investigative process.  It also leaves licensed companies open to audits.  The regulation of affiliates could become important to removing some of the issues the current unregulated market experiences.  If it does not, then regulators can address the situation on a case by case basis.

 

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