The subject of staking in poker, or any gambling related business, is tricky. If it’s handled the wrong way, friendships are broken, money is lost, and nobody is happy. If done correctly, however, it can be a lucrative investment for the backer, and a valuable tool for the one being backed.

Here is what a basic poker staking agreement might look like. The Staker will give(stake) the Stakee a certain amount of money to gamble with. At the end of a pre-defined period of time, the Stakee will pay back the Staker the original “stake”, plus a certain percentage of the profits.

There are two important parts to this agreement. These two issues can lead to one party in the agreement getting a bad deal, even if neither party intends to harm the other. The first part that is important is the amount of time. The second is the percentage of the profits to be paid back.

Some people make the mistake of making the period of time too short. Poker, and any form of gambling, involves luck. Even if you are skilled and have an edge, there is a variable of luck. You won’t always win. Take, for example, the common agreement of someone being staked for one night of play. There is a $200 no-limit hold’em game. At the end of the night, the original stake is paid back, and the profit is split 50/50. The person being staked is a good player, they double their buy-in about 70% of the nights they play, and lose their buy-in only 30% of the nights they play. This would seem like a good proposition for the Staker, but let’s look at the math.

70% of the time, the Stakee will double his buy-in, and have $400 at the end of the night. **dominoqq** The Staker would get his original $200 back, plus 50% of the profits, or $100. The Stakee would get the other $100. So, 70% of the time the Staker profits $100, and 70% of the time the Stakee profits $100.

30% of the time, the Stakee will lose his buy-in, and have $0 at the end of the night. The Staker will take the full $200 loss. So, 30% of the time, the Staker will lose 200, and the Stakee will have lost nothing.

Since 70% of the time, the Staker profits $100, and 30% of the time, the Staker loses $200. His average expected return is (.65)(100)+(.3)(-200) = (65) + (-70) = -5. With this deal, even though the Stakee is a good player and can beat the game 65% of the time, the Staker LOSES money!

If they made the same deal, but instead of splitting the profits after 1 night, the split the profits after 2 nights, then the deal is much better for the Staker. If you look at the math, there are 4 possible outcomes. He could win both nights, lose the first win the second, win the first lose the second, or lose both. The times he wins one night and loses the next, there is no profit or loss, so we can ignore that outcome since it’s zero. The percentage chance winning both nights would be .65*.65 = .4225, or about 42%. The chance of losing both nights would be .35*.35, or about 12%. The rest of the time, it is break-even win one lose one. So, 42% of the time, they will split $400 in profit 50/50. The staker will get $200 42% of the time, for an average profit of $84. He will lose $400 about 12% of the time, for an average loss of $48. His total average expected profit would be $36. So, by simply adding one more day to the time frame, the Staker’s winnings went from -$5 to +$36. The longer term a stake, the safer it is for the Staker. The shorter the term the stake, the larger percentage of the profits the Staker needs to make up for the loss.