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There are several ways to handles this.
Let someone skip the blind - which I disagree with. I've made in ITM in several tourneys at Pacific just because I got out of paying blinds 2-3 times in a row.
In the case where the SB gets knocked out, you could have a dead button. Move the button to where the guy just got knocked out, just don't deal it any cards.
A trickier way to sort it out that ensures each person always pays two blinds. This is the "official" way from the place I work, but different rooms may handle it differently:
Advance the button to the guy that was going to have the SB next. Get him to post his SB on the button, the next TWO players will post big blinds.
On the next hand, advance the button, then have two SB's, one on the button, the normal position, and then one large blind. After this hand is over the blinds will be correct again, and everyone has paid 1 SB and 1 BB.
This is the way we do it at my B&M. We have a forward moving button, so the blinds are kinda tricky to sort out in these situations. It gets really fun when 3 people leave the table all at once. If the 3 players were going to be the button, SB and BB, then the button would move to the next seated player and there would be 3 BB's. On the next hand , there would be 3 SB's and 1 BB. Weird.
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