The Inevitable Poker Economy Crash

[shipitfish]

In a comment on a recent post of mine, frankieriver asked me for my comments on why I think the poker craze will fizzle out within a year or so.

I don't know how to calculate hard numbers on this. Having been through the DotCom boom myself, and even having tripled $3,000 in two weeks on a stock IPO that I was involved in, I have see a number of anecdotal indicators and gut feelings (reads, if you will) about the situation. I'll try to list them:

• During the dot.com boom, everyone in the business press spent a lot of time explaining how we had a "new economy" and therefore it couldn't crash. Basically, everyone was trying to convince themselves that it couldn't crash. This reached its highest pitch about six months before things really started to decline. I think that we are just starting to reach a perfectly parallel pitch with poker. Nearly every article in poker magazines seems to push this idea that the games are just going to keep getting better.

• I've been watching new people lose very carefully. I've watched people dump money into games and then never come back. Usually, it's a five-to-six month cycle for a given person. They get excited about the game, play every week, and then eventually have to make a choice: should I keep dumping money into this hobby with no purpose, or actually get good at it? I've watched online user names dump cash for that six month period, then disappear. I've watched people show up at Foxwoods regularly for that period of time, and disappear. I've watched people show up at home game/clubs for that period of time, and disappear. It's definitely a pattern.

  This is actually how most people proceed through most hobbies. They get involved heavily and spend too much money on it. Then, they realize that any hobby is a lot of work if you want to actually become a serious amateur (contradiction in terms intended). Frankly, most people don't have that commitment level, so they stop. The golf clubs collect dust; the karate outfit goes to Good Will; the poker chips become toys for the kids. Heck, even if they did have that commitment level, they'd probably become strong players and stiff competition once they got serious -- exactly who we don't want in our games.

• So, even if we agree on the last point, why can't we just assume: "that's ok, we'll keep getting new players!"? Well, that's a classic but flawed pyramid scheme approach. This is why MAKE.MONEY.FAST and Amway don't really work. People enter the poker world, either learn the game well and become stiff competition or get sick of dumping money and quit. If they do the latter, you need a constant stream of new people who are willing to dump money. There aren't enough people to make that work. Eventually, the math dictates that you need everyone in the country to donate $500-$1,000 into the poker economy to maintain current levels.

  Some people do make out in pyramid schemes. It's best for the people on top (read: very high limit players) because they make the most money. Eventually, many people move up and dump at least some, and maybe most, of their bankroll at the highest limits (Peter Principle). (Indeed, I've done that myself. I've dumped about 300 BBs worth of bankroll into 10/20 games that I won at lower limits. Now, I'm playing $1/$2 again.) Eventually, either people are going to quit while they are ahead (taking money out of the poker economy), stay at limits they can beat, or just not play. A steady stream of new people to dump money into the poker economy at a constant high level cannot continue; there aren't enough people in the world who find poker worth playing.

• Finally, by way of historical example, NL HE had a huge following in Texas in the late 1970s through the early 1980s that fizzled out. It became a popular pastime for people with large disposable incomes, but eventually those who didn't love the game deeply (who are generally those willing to work hard to improve their game) stopped playing. A similar thing may happen here.

Although I admit it's just a feeling without hard data, my read of the situation tells me that things are growing too fast. People are dumping too much money too quickly. Remember what's been said about NL/PL poker: it's the fastest way for the money to ship from the inexperienced and unknowledgeable players to the experienced and knowledgeable ones. Because this craze is mostly about NL HE, it means that the burn rate is very high. People will lose a lot of money quickly, and it will find its way to the best players quickly, where it won't reenter the poker economy easily.

The thing that I ignore in analysis above, of course, is that poker will be better than it every has been. That change is likely permanent. Poker has always been, by many measures, one of USAmerican's favorite indoor pastimes. It's out in the open now, and the games will go on. Certainly, I think there will be more beatable games than there once was (say, in the early 1990s), but I think everyone who is taking a lot of easy money out of poker is going to find that current levels aren't sustainable. In particular, I think that Internet play will become tough, because only the best will want to play there after a while (Internet play just isn't as fun and not as social, and those who are losing players want that specific part of the game to make it worth playing). The casinos will still be good, because people go there to gamble, and people will always find their way to the poker tables.