I've been seeing an increasing number of threads about swapping pieces or selling percentages on our forums and elsewhere and I just wanted to throw in my two cents on the issue and what I would consider a fair way to charge for a piece of yourself in any given event. It seems that a lot of people believe that 1.2 is just a standard markup.
Here are some thought processes which I'm afraid to say are very flawed:
"I'm playing this event, I don't want to put all the money in myself, I'll sell some at 1.2."
"I have seen the Blue Belts charging 1.2, so that's what the standard for this event is, I'll charge 1.2 also."
"I have seen the Blue Belts charging 1.2, I'm no worse than they are, I'll charge 1.2 also."
"I'm charging 1.2 to cover my expenses for the trip."
"That guy sold at 1.2 and I beat him heads-up so I'll charge 1.25."
"I'm so good at poker that people should be paying me to gamble with their money."
I could go on like this but I'm sure you get the picture. Don't get me wrong, I am all for people buying pieces of their friends or other players, but I don't want to see people getting ripped off in the same way that I don't want people to undersell themselves in an event.
Here's the key concept. Your markup should be slightly less than your expected ROI in the tournament. Think of the players who are buying pieces as people who are doing you a favour, not the other way round. The reason you are selling pieces is because your bankroll cannot afford the total buy-in. The potential investors should be getting rewarded for backing you, not you being rewarded for gambling with their money.
So, how do you work out your ROI? It's very simple. ROI for tournaments is expressed as a percentage of your original buy-in. It is standard in poker to remove 100 percent (buy-in) from the calculation at the end.
For example:
You play 100 tournaments each with a buy-in of $10+1 fee and end up with a total bankroll of $1,600.
ROI = (1,600)/(1,100) or 145% - remove the 100% (standard format) and you have a ROI of 45% for those tournaments.
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Therefore, if I was looking for backing for my next 100 x $10 tournaments, I could reasonably offer to sell to potential backers at around 1.3 or 1.35, and be confident that this was a good deal for both backers and myself.
However, it is important to realise that your ROI changes as the stakes change. Just because the player is able to charge 1.3 makeup for 100 x $10 tournys, doesn't mean that he should also charge 1.3 in an EPT. If you are considering taking a shot or playing an event and you have never played at those stakes before I would seriously recommend charging no markup. How can you as you have no realistic idea of your ROI in those events?
Let's use the London EPT as an example. Over the last 15 months, I have played in $47,000 worth of $1,000 plus events and cashed for $172,065.
Using the above formula, we can work out that my ROI in $1,000 plus events is:
ROI = (172,065)/(47,000) or 366% - remove the 100% (standard format) and I have an ROI of 266% for those tournaments.
Now I'm also aware that my figures are skewed slightly as I played the EPT last year as a complete freeroll and won an event outright. Nevertheless, based on these figures, you can see that charging 1.3 to 1.4 wouldn't have been unreasonable. I think the 1.2 I did charge was a great deal and having taken the time to write this, I now feel I may have undersold myself a little. I'm happy to have got it all sorted so early so no qualms there.
Can you say the same thing to your backers? Are they getting a fair price based on your ROI or are you still plucking figures out of the air because they seem like the standard?