AMA with Matt Stout

Originally Posted by JetPropulsion

Matt, do you stake anyone or get staked? How does that business work?

I've been involved in a lot of backing deals in my life, both being backed and backing a stable of other players. This is more of a book that could be written than an answer to a question, but I'll break down the two main types of arrangements.

Makeup deals: A backer has all action for a horse in agreed upon stakes/events. They split long run profits 50/50 in most cases but it can vary. The horse never "owes" the backer the money they lose, but must continue to give action to the backer in the agreed upon events if they keep playing. If the horse loses the first $100k in buy-ins and then scores for $200k, the backer gets the first $100k in back buy-ins ("makeup") and the other $100k gets split 50/50 between the horse and backer.

Piece buying: I often do this for the rare $25k events that I think have enough value to be worth playing. I'll invest ~$5k of my own and sell the rest of the action at a 10% markup, or "1.1:1". That means that since my edge is presumably more than a 10% ROI in the long run in the event, it's profitable for a buyer to purchase a piece at higher than face value. So instead of selling 1% of a $25k for $250 at face value, I can sell it for 10% more, $275. Typical markups run from 0-30% but a top-level player selling for great value tournaments like WSOP 1k-1500's can demand markups of 50% or higher since their ROI will often be 100%+. The net result is that other people get a fast and profitable gamble that they do little to no work on while I get to keep more than 20% of myself for the $5k that I invest and it works out for everyone.

Freerolls are an extreme example of this. If I sold 91% of myself in the tournament at 1.1:1, I could "freeroll" 9% of the action. This is often frowned upon because people want you to have "skin in the game" so that they know you'll try harder. However people often freeroll friends who can't afford the buy-in 20-33% in an event if they don't want to have to enter a makeup relationship and have that type of commitment. Essentially they're buying all of the remaining action at a markup (freerolling someone 20% is like buying 80% at 1.25:1 or a 25% markup, freerolling 33% is like buying 67% at 50% markup).

That should be enough to get you started.

AMA with Matt Stout

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10-05-2013 05:14 PM #22
ProMattStout View Profile View Forum Posts Private Message View Blog Entries Join Date Sep 2013 Posts 62	Originally Posted by JetPropulsion Matt, do you stake anyone or get staked? How does that business work? I've been involved in a lot of backing deals in my life, both being backed and backing a stable of other players. This is more of a book that could be written than an answer to a question, but I'll break down the two main types of arrangements. Makeup deals: A backer has all action for a horse in agreed upon stakes/events. They split long run profits 50/50 in most cases but it can vary. The horse never "owes" the backer the money they lose, but must continue to give action to the backer in the agreed upon events if they keep playing. If the horse loses the first $100k in buy-ins and then scores for $200k, the backer gets the first $100k in back buy-ins ("makeup") and the other $100k gets split 50/50 between the horse and backer. Piece buying: I often do this for the rare $25k events that I think have enough value to be worth playing. I'll invest ~$5k of my own and sell the rest of the action at a 10% markup, or "1.1:1". That means that since my edge is presumably more than a 10% ROI in the long run in the event, it's profitable for a buyer to purchase a piece at higher than face value. So instead of selling 1% of a $25k for $250 at face value, I can sell it for 10% more, $275. Typical markups run from 0-30% but a top-level player selling for great value tournaments like WSOP 1k-1500's can demand markups of 50% or higher since their ROI will often be 100%+. The net result is that other people get a fast and profitable gamble that they do little to no work on while I get to keep more than 20% of myself for the $5k that I invest and it works out for everyone. Freerolls are an extreme example of this. If I sold 91% of myself in the tournament at 1.1:1, I could "freeroll" 9% of the action. This is often frowned upon because people want you to have "skin in the game" so that they know you'll try harder. However people often freeroll friends who can't afford the buy-in 20-33% in an event if they don't want to have to enter a makeup relationship and have that type of commitment. Essentially they're buying all of the remaining action at a markup (freerolling someone 20% is like buying 80% at 1.25:1 or a 25% markup, freerolling 33% is like buying 67% at 50% markup). That should be enough to get you started.