Learn about tournament entry fees, tournament ROIs, levels, blind increases, payout structures, and all of the other structural variables that a tournament host could simply decide on without rhyme or reason. Understand how each factor affects your profitability. Determine whether or not you want to play that tournament before you ever buy in.
Tournament entry fees (rake)
Let's talk about tournament rake or entry fees. The rake is the amount of money the casino takes from your buy-in as an entry fee. This section of your buy-in is not added to the final prize pool. A lot of our students at RiskOriented play live poker at a casino, but these games often have a significant rake.
In fact, I once saw a live tournament where the buyin was $25 and the rake was $25. That means half the money being invested into the game is being taken out of the prize pool. It's likely impossible to beat a game with a rake that stiff, even if you're the best tournament player in the world. In this game, you're betting $50 and only getting $25 worth of chips to start out, so you have to make up the other $25 in chips by taking it from other players in order to just break even. That's not easy to do.
A good tournament rake is around 10% of the tournament buy-in, which means for a $100 tournament, $10 goes to the casino (or less). There are lots of online tournament hosts that only charge 5%. Online, between 5% and 10% is common. In live poker, 10% to 20% is fair.
As tournament rake goes up, your return on investment goes down. Playing in a game that rakes 20% is actually more than twice as bad as playing in a game that rakes 10%. It's not just your 10% extra that's being raked, but everyone's (including the fishies'). The RULE OF THUMB I personally use is that I will not play in a game with a rake higher than 20% unless there are significant tournament structure considerations that increase the edge I have in the game.
Return on investment
The rake matters because it affects your return on investment. The interesting thing about tournaments is that your return comes over a very long time and it comes in large sums. For many tournaments, the money you invest will likely be a sunk cost, day after day, week after week. When you win one, which can be hard to do, especially in tournaments with thousands or tens of thousands of players, like the World Series Of Poker, you see a huge spike in your profitability.
In the graph to the right, you'll see it took the player 650 tournaments before cashing a significant profit with a first-place win. Because of his first place win, the player's ROI spiked up significantly, likely over 1,000% for all of the money he had invested all the way to that point. Had he taken second place, that line would only go half as high, and it'd be an ROI of 500%. Had he gotten unlucky at the final table and gone out fifth, he might have had an ROI of just 100% for his 650-game poker career. Still not shabby, but nothing like you see on this lucky player's graph. This graph illustrates that your ROI in a tournament poker game can be very swingy. It's hard to pin down your specific ROI. If you take a first place, it's going to skew your ROI high. If you don't take first place, it's going to skew your ROI low. That's the nature of the beast: the variance makes it hard to analyze.
To the left, a player swung up and down $180,000 over 1,400 tournaments before landing a significant cash. This is meant to be a cautionary tale. You should not play tournaments when you don't have a bankroll that can cover that tournament. Any money you put into a tournament needs to be treated as a sunk cost. We recommend having a minimum of 100 times the buyin to play a tournament with 180 to 300 people. You won't always lose your buyin, even if you don't win (cashing is often worth three or four times your buyin, and making a final table can be very profitable). This is a good estimate because the risk is so high compared to other forms of poker, where you can get away with only 20 times your buyin in your bankroll.
Your ROI for a poker tournament will vary depending on your skill levels, but professional poker players typically playing with a good mix of fish will achieve ROIs in excess of 100%. I often see ROIs between 150% and 200%, which means for every $100 you pay to play a tournament, a poker pro will win, on average, between $250 and $300. A pro's ~$200 profit then can be divided by the length of the tournament to calculate their actual $/hr while playing.
After completing the Tournament Poker series of YouPoker Academy, you could expect an ROI between 30% and 50% in most online tournaments and in excess of 80% in most live tournaments. Simply executing the strategies that we discuss and thinking in the way that we teach you will help you excel past most live tournament players.
Managing rebuys and addons
The rule of thumb in R&A tournaments is to always take the rebuy and addon. If you had an edge going into the tournament, you also have an edge with your rebuy. The exception to this rule is when the addon devalues your chips. For example, at a local casino there are tournaments every night. The first tournament, a $40+4, gives you 10,000 chips to start and offers rebuys for $20 per 5,000 chips. That's a fair price for an addon - each chip costs exactly $0.004. The second tournament, a deep stacked game, has a buy-in of $60+6, and gives you 20,000 chips to start. Unfortunately, the rebuy here is still $20 per 5,000 chips. This means your rebuy chips costs $0.004 per chip but your initial chip stack costs $0.003 per chip. That's a significant difference in equity -- you lose 33% of the value of the rebuy! I always take rebuys in the first tournament, but in the second tournament, I let the other players take their rebuys and I play it like a standard tournament. I win it less often, but I earn equity every time they rebuy.
Of course, if the addon gives you chips at a discount, you are making a significant error not to take these chips, no matter what your stack size is.
As far as your bankroll goes, the general rule is to pretend like the cost of an R&A tournament is five times its buyin. This assumes you'll make a rebuy immediately as the game begins, lose your stack once, and take an addon. This means you typically need 500 times the buyin for a R&A tournament in order to play profitably.
Playing in guaranteed tournaments
Guaranteed tournaments offer a unique value. If the guarantee isn't met, you're making some cash from the poker room hosting the game. If it is met, it means there are likely lots of weak players who are playing for a big prize pool. I always play guaranteed tournaments if they're within my bankroll. They're some of the most profitable games out there. Be sure to calculate the value of the "money added" or overlay before buying in -- a 1,000 player tournament with $100 "added" means each player is earning just $0.10 in overlay value... negligible value.
Blind structures can sometimes make tournaments unprofitable. Tournaments with faster blinds (or blinds that jump significantly between rounds) will typically offer professional poker players lower ROIs. On the other hand, the tournaments end faster, so they can increase your hourly profit. A lot of players will try to have a certain amount of chips at each blind structure. This is bad poker. The only thing that matters are the chips in front of you. If your stack is getting short, you'll play faster and more aggressively than if your stack is large relative to the blinds, but with a single double-up, you might have enough chips to sit back and coast into the money. The key to adjusting to your tournament's blind structure is to figure out how many hands (on average) you'll see at each blind level. In an extreme scenario, say you've got 12 big blinds and the blinds are set to double in two minutes. In a casino, you can expect to see four or six hands before you're down to 6BB. If you're currently on the button and expect to be hit by the blinds the next time they come around, it's high time to shove all in and pick up the pot or double-up in the next couple of hands. The alternative, having just 5BB, puts you in the Red Zone -- you're too short to go all in and push players out.
Fixed-payout tournaments (satellites)
There's a specific type of tournament structure worth talking about: satellites. In a satellite game, a certain number of players will all walk away with the same prize (which might be an entry to a larger tournament or a fixed $ amount. Typically, tournaments that pay out in seats are called "satellites," and tournaments that pay out in dollars are called "double throughs" or "double or nothings.")
In these games, the independent chip model is crucial. There's absolutely no value in taking first. You'll win the same amount for being the chip leader when the bubble bursts as you would for taking third. Bubble strategy in these games is much more important. If you become a very good bubble player, you can make a killing in these games, because a lot of weak players play them with no idea of proper bubble strategy.