What is backing and how does it work?
The term “backing” is often encountered on poker resources, but not everyone understands what it means. Put simply, backing is investing funds in a player. You buy a share of the buy-in — you get a share of the winnings. At first glance, it’s straightforward, but there are pitfalls in backing, which we’ll explain now.
What is backing?
Backing is financial support provided to a player with the aim of making a profit. Unlike gifting or charity, backing implies reciprocity, profit-making, and mutual benefit for both the player and the backer. The player gains the opportunity to play in higher-stakes tournaments, participate in more events, while the backer, if the player makes a profit, is entitled to a portion of it. In other words, backing is an investment in the player.
Did you know that there’s also backing in fishing? Backing in fly fishing is the extension line connecting the reel to the fly line, necessary for catching strong and large fish. Although poker is also somewhat like fishing in a way.
When did backing originate?
It’s impossible to determine who and when first invested money in another player and made a profit from it. In general, investments themselves emerged during the exploration of America, when major European kings and states invested funds in expeditions to discover new lands.
How does backing work?
The backing scheme is very simple. Suppose there is a player who wants to participate in a tournament with a $1,000 buy-in. It’s costly for him to fully cover the tournament entry fee on his own, so he decides to sell 50% of the tournament entry cost, which is $500. A backer appears, who buys 50% of the buy-in and has the right to claim 50% of the winnings. For example, if the player manages to win this tournament and earn $50,000, then his backer will receive half of the winnings ($25,000).
Most often, players offer backing not for a single tournament, but for a series or several tournaments from a series, meaning they sell shares in a package. In this case, the total amount of buy-ins is agreed upon, and the specific tournaments are specified. The backing scheme remains the same, but the backer claims not a share of the winnings in an individual tournament but a portion of the profit from the entire package played.
This is how backing works in general. In practice, however, two backing schemes are common: with a markup and with a markup and a kickback.
Markup backing
For example, let’s say the tournament buy-in share price per 1% is $1,000. And the markup coefficient is 1.2. In this case, the cost of the share will be $1,000 x 1.2 = $1,200. The difference between the share price ($1,200) and the sum of the buy-ins ($1,000) = $200. The player keeps this amount for themselves and, for instance, can use it to cover travel expenses or hotel accommodation.
Profit kickback
In this case, shares are sold without a markup, but the player receives a certain percentage of the net profit — a kickback. For example, profit up to $1,000 — kickback 0%. Profit from $1,000 to $5,000 — kickback 10% of the profit.
For instance, let’s say we acquired 50% of the package value for $500 out of $1,000. If the player wins $800, then we will receive $400, as there is no kickback for this profit. However, if the player wins $4,000, then we are entitled to 50%, or $2,000. But in this case, there is a kickback of 10% of the profit amount. The profit for us is $2,000 – $500 = $1,500, and the kickback will be 10% of this amount, which is $150. In the end, we will receive $2,000 – $150 = $1,850.
What if the player didn’t win anything?
If the player sold shares but didn’t win anything, then the backer gains valuable experience in investing in a poker player. No payments are owed to them.
What is makeup?
If a backer agrees to finance a player’s participation in multiple tournaments, the deal may be made with makeup. Makeup in backing is the amount of debt the player owes, which they must cover before being able to receive payouts from winnings.
Let’s break it down with an example. Suppose a player enters into a contract with a backer for 10 tournaments with a 20% markup. Something goes wrong, luck turns away, and after 5 tournaments, the player ends up with a loss of $5,000. These $5,000 will be his makeup. Now the player must pay the backer these $5,000 before receiving his profit. So, if in the next tournament he wins $6,000, he will have to give $5,000 to the backer, and he will receive his profit from the remaining amount.
Why is backing needed?
To the average enthusiast, backing seems unnecessary. Agree, it’s frustrating to give away 50% of the profit to some other person who was sitting at home drinking juice while you played a tournament for 14 hours a day for 3 days in a stuffy and cramped room. But backing didn’t appear out of thin air. It has its reasons:
- The player wants to play more expensive tournaments that are beyond his bankroll but where he feels he has an edge over the field. A vivid example of this is the sale of shares by Russian-speaking players at the WSOP.
- The player wants to move up to higher limits faster but currently lacks the bankroll.
- The player lost his bankroll. For example, he went on a downswing or withdrew all his money.
- Due to family or other circumstances, the player does not want to play on his own but wants to have a more stable income.
Backing is usually provided by people close to poker, former players, businessmen who have spare money but no desire to play themselves. Or a backer objectively assesses his capabilities and sees potential talented champions and is ready to support them.
Where to find backing?
If you want to offer or purchase a share from poker players, then look for backing sections on major poker forums, such as twoplustwo.com. Poker schools and poker affiliates may also provide backing.
In conclusion, it is worth saying that backing, like any other type of entrepreneurship, always involves risk. Backers risk their money, and players risk their reputation. Therefore, invest only in trusted individuals and, like a good poker player, observe bankroll management.