An interesting phenomena is occurring in the state of Texas in which poker clubs are operating in cities that do not traditionally have any legal gambling venues. Whereas others in the past have tried to argue for the legality of poker by claiming that it is not gambling due to its strategical and mathematical nature, the clubs in Texas are taking an alternative route that takes advantage of a loophole in the state's gambling laws. To put it simply, Texas law states venues are not allowed to profit from the game itself nor are they allowed to take money off of the table that is being used in play. These rooms are therefore charging their players a membership or hourly fee, or some combination of both. Other amenities within their facilities are available to patrons that enable them to generate revenue such as the holding of special events, food and drink. While we have seen a model similar to this employed in Asia, this is rather new in the States, at least on a legal level. But these clubs operate in the open and proudly proclaim their legality. This begs the question of whether or not such offers a better model going forward in how live poker rooms should operate. As the pricing is completely different there are many points of comparison that can help us in answering this very question.
As a means of quick review, poker rooms generate revenue by taking a collection from each pot on the table, generally known as a rake or commission. While the rates vary around the world in how much is collected per hand, tables in Las Vegas offer a simple model by which we can compare with this new one. Typically Vegas rooms charge 10% of the total pot capped at $4 or $5 for games of $1-$2, $1-$3 and $2-$5 blinds. For games of $5-$10 and above, a timed rake is taken by which players pay a flat fee every 30 minutes. But it is the former structure taken per pot that will concern us for the sake of this discussion. As I have covered in previous blog posts, a typical $1-$2 or $1-$3 game will generally rake a bit over $100 per hour and each player, assuming it is a full table, will contribute about $11-$13 per hour, depending on the speed of the dealers and whether or not the game is maxed out at 9 or 10 players. A regular player, or grinder, who plays at least 40 hours per week will pay north of $20,000 per year in rake alone as the price of admission in a $1-$2 or $1-$3 game. Players at $2-$5 are charged the same rate in every Vegas poker room. And while pots are bigger in these games and will generate a higher total rake, the consistency in the structure presents a better value for players as the money available to win on the table is also larger. In other words, players in Sin City are rewarded the higher they play.
On the surface, the structure used in Texas poker clubs appear completely different. Instead of taking a certain percentage of every pot from the table, they instead charge players by the hour and usually also a general membership fee. The latter is almost negligible as at a standard rate of $200 to $300 per year amounts to less than $1 per day for a regular player. The hourly fee varies a bit from club to club but the standard rate seems to be $10 to $12 per hour. In this way the fees are very comparable to what a Vegas room would charge and thus offers no real significant advantage. But the number of these clubs have boomed in the past few years and with that comes competition. I saw a promotion on the website of one of these clubs advertising a daily rate of $10 instead of the usual hourly charge. I cannot speak to how sustainable such a rate is and it seems hardly possible that they would do this for every single day year round. But if promotions such as this are offered at enough times throughout the year it could pose a significant savings from what one would normally have to pay in games of $1-2 to $2-$5. This presents an opportunity for these venues to offer for players a greater amount of flexibility in how they are charged to play. One might argue that traditional casino poker rooms can enact similar measures in the way of rake reductions. But in truth such are rarely done on a full table and are only offered at later hours when the game is short handed and near breaking. And even in such situations they hardly offer a discount to the player as with less players the dealers will get out more hands. The room will still meet their hourly quota of $100+, but now with each player contributing a higher amount per hour.
The big question that remains is whether or not these new venues can be significantly profitable using this structure. Every interview that I saw from local TV stations with the owners of these clubs all claimed that they were turning a healthy profit. Much of this depends on how much of a "culture" they can create in the club and get players to spend time within their walls before and after they have played. The other amenities offered will go a long way towards accomplishing this end as if players stay to have dinner, watch the big game or generally hang around to speak with friends and other players the room should generate enough revenue to remain in the black. As I mentioned these clubs have existed in Asia for quite some time, myself having managed one a few years back. We did just about everything to create this sort of culture from offering food and drink, discounted hotel rooms and even an in house massage facility. We were successful for the most part but with the creation of this atmosphere comes another issue that is prevalent in these sorts of clubs. Poker is traditionally offered in casinos where it is a small part of a much larger enterprise. Other games and amenities are offered throughout the casino and people from these other sectors will often populate the poker table. Whether it be the sports bettor waiting for his game to start, the husband waiting for his wife to finish playing slots or those just killing time because they have nothing to do in their hotel room the poker table in a casino is often filled with such players. And with this influx of casual and recreational players, action is created and usually makes for a good game. In contrast, when poker is the sole focus and purpose of your enterprise then you will attract a different clientele. In the end those that are going to be interested in a poker club are going to be those that play the game more seriously than the average punter who stumbles into a casino poker room. The challenge of these venues in Texas will be to provide for their clientele an air of exclusivity and premier membership, while at the same time attracting casual players and keeping the games good enough for those that are there trying to win money.
These clubs appear to be successful by all accounts and have grown in number over the past 3 years in the state of Texas. I can easily see this branching out into different states where similar gambling laws exist, where they would employ the same arguments for their legality. I do not believe though they would ever challenge in states that have a strong casino presence such as Nevada where Vegas reigns supreme. In the end, one cannot beat the foot traffic of a casino and the games are often much better than what you would find in a private or social club. But even if one were to argue that the games are better or can be, the casino lobby is simply too strong in states like Nevada. Poker players are already familiar with how much power corporations such as Caesar's Entertainment or even individuals such as Sheldon Adelson hold in their fight against the legality of online poker in America. While social clubs may not stand a chance in certain regions of the country, it would be interesting to see if they could make a stand in a state like California. The sunshine state does have a gambling lobby, but not one nearly as strong as Nevada. And while poker is popular there as evidenced by venues such as Commerce Casino, state laws are also rigged to structure the rake in such a way that games below $5-$5 are basically unbeatable. California by law takes a flat rake, which means that at least $5 is coming out of every pot no matter how big or small. This essentially makes nearly every game that does not take a time rake unbeatable. They have turned the game of poker into a house game of sorts, where only the they profit. The model of the poker club would be an interesting challenge to such an enterprise and offer real and meaningful competition in a regions that desperately needs it.
Although I currently live in Asia, this development fascinates me not only as someone who formerly played in the States but also because of the possibilities of how this model can be adopted here. As I mentioned earlier I have managed similar clubs here in Asia, but never did we employ such a model like the membership one. I do not believe that casinos here will ever adopt such a model, nor should they. Traditional venues of this nature offer enough amenities and access that a standard rake system is completely justified and still very much beatable. And while a few clubs here in Asia have operated for several years, I have also seen many more come and go by the wayside. The central issue involved with the closure of some rooms has been the one of rake and how much they try to extract from the player base. And while a handful of rooms in Asia can boast that they have been running for years successfully using the traditional rake system, can we say the same for the players that populate their table? How many are truly making a living in these games and while the room marches on, how many players have returned home nearly broke without turning a significant profit. It might behoove everyone to think outside of the box and consider non traditional modes of operation. I ran one such club in previous years as I mentioned earlier and while there were some similarities with the Texas clubs, we too employed the traditional rake system. But if I were to ever venture into this industry again, I would strongly consider a membership model as it may offer the best balance of profit between the players and the very rooms they help to keep open.