He Left A Winner
While most people during the World Series of Poker main event were watching intently on PokerGO, self-described gambler/investor Derek Wolters flew out to Las Vegas on a personal mission to buy action.
However, he was doing something that few people, if anyone, had ever done before. He put together a $1,000,000 fund that he raised from inside the poker world with the intention of “buying action at or near ICM value in the late stages of the tournament.”
In layman’s terms, Wolters was approaching players to buy a percentage of what the ICM value of their stack was worth towards the end of Day 4 and the beginning of Day 5, when just 522 players were remaining from the 9,735-player field.
“If this gets normalized, this could be a game-changer for the large field grinders out there,” Matt Berkey said in response. “So much of an MTTer’s career is spent trying to recoup “owed EV” in massive spots. Having a liquidity pool to layoff risk with is a massive asset for the long-term winners.”
Wolters detailed his rollercoaster journey in his Substack titled “The Synth.” Though he brought a full million bucks to invest, he was actually only able to invest $75,000 into three players.
According to Wolters, there wasn’t enough awareness of his project before the tournament started, and many of the players he approached had already sold a lot of their action. He also pointed out that there are a lot of emotions tied to the tournament, and players were willing to gamble and continue to bet on themselves.
Two players sold to him on Day 6 plus another sold on Day 7. Wolters claims to have lost money on all three players, and detailed how one specific player they invested in was able to double his overall profit by selling just 10% of himself before the beginning of Day 6.
However, despite the lack of action and the losses, Wolters was thrilled by the proof of concept, and was confident that his investment would be profitable long-term.
How Poker Staking Works
Until now, the vast majority of poker staking has worked by having an individual player sell shares of their action for a tournament or a series of tournaments. This is done to both reduce upfront costs and decrease long-term variance. They can choose to include “markup,” a premium charged to investors, to account for their skill edge compared to the rest of the field.
The investor is rewarded with the relevant share of the profits. This is a win-win for both parties, so long as the player is a long-term winner and their ROI in those fields exceeds the markup.
For example, if a player sells $100,000 worth of tournament buy ins at 20% markup, then the cost to the investor would be based on $120,000. So, if a player wants to sell 75% of their action, they would charge $90,000. The player then gets to play a $100,000 schedule and have 25% of their own action, only risking $10,000 of their own money.
If an investor bought the entire 75% and the player made $1,000,000, the investor would make $750,000, resulting in a total profit of $660,000. The player would earn $250,000, a total profit of $240,000. This would be the ideal scenario, as the player can now enjoy a healthy profit and is likely to take larger percentages of themselves in the future.
How ICM Values Work
ICM stands for the “Independent Chip Model” and is a mathematical formula that converts your stack to a monetary value. ICM uses stack sizes to determine the probability of each player finishing in each specific position (1st, 2nd, 3rd… 1000th) and assigns the expected share of the remaining prize pool to each stack. It’s critical to note that ICM assumes every player is of equal ability.
You often hear from pros and coaches that your tournament life is extremely valuable. This is because of your stack’s ICM value. Due to the intricacies of the ICM formula, doubling up doesn’t mean that the value of your stack has doubled. In fact, it’s undoubtedly going to be less.
If you were three-handed at the WSOP main event (1st: $10M, 2nd: $6M, 3rd: $4M), the ICM values would be…
- Stack A (450,000,000 in chips): $9,236,363.64
- Stack B (50,000,000 in chips): $5,381,818.18
- Stack C (50,000,000 in chips): $5,381,818.18
But if Stack B were to double through Stack A to get to 100,000,000 chips…
- Stack A (400,000,000 in chips): $8,832,323.23
- Stack B (100,000,000 in chips): $6,096,969.70
- Stack C (50,000,000 in chips): $5,070,707.07
Notice that Stack B gained $715,151.52 in value by winning the hand. However, if they had busted, they would have lost $1,381,818.18 in value because they would have finished third for $4,000,000. In essence, losing the all in is twice as costly as the benefit of winning.
Also, while Stack B takes over $400,000 in EV from Stack A, Stack B also takes nearly 40% of his EV from Stack C. This is because when Stack B doubles up, Stack C has a far lower chance of coming in second or first.
It’s for these reasons that ICM buying funds could become so critical.
Why ICM Buying Funds Could Change the Game
ICM buying funds could potentially be a win-win situation between stakers and players.
As Matt Berkey pointed out, ICM buying could benefit players because they spend a lot of their careers chasing lost EV. Most of the time, when deep in a tournament, players will bust before they realize their stack’s ICM value. Being able to effectively cash out some percentage for a healthy profit while in possession of a massive stack would allow players to lower variance.
Poker is a game where prizes are extremely top-heavy, with most of the money being allocated for the final table. Therefore, selling even a small percentage of your stack at ICM value could free you up to run over your opponents.
In Wolters’ article, he revealed that he bought 10% of Brandon Eisen before Day 6, when there were 202 players left. Eisen, who started the day in 70th place, unfortunately finished 113th for $70,000. Eisen had sold 50% pre-tournament and sold 10% to Wolters when his ICM value was $315,000.
Including the 40% of himself he had, Eisen made $52,500 in total profit from the tournament, as opposed to the $35,000 he would have pocketed without it. Without the ICM deal, Eisen would have had to finish in 80th place or better to achieve this result.
There is a significant downside for some players, however, who consider themselves a crusher, as they have to pass up their edge on the field to lower variance.
From the investor’s point of view, they get to pick and choose who to buy from and don’t have to pay a markup or any other additional fee. Should they do so intelligently, they get to select players with a perceived edge on the field and only pay for the ICM value of their chips.
The obvious downside to ICM investing is that you need a substantial amount of capital to do so consistently. While ICM buying funds are far from becoming commonplace, perhaps we will see this arena evolve among big-money players and investors in the near future.
Blaise Bourgeois a WSOP Circuit ring winner, poker journalist, and contributing columnist for Card Player. Find him on Twitter/X @BlaiseBourgeois.