Comment by 0x12 | Hacker News Reader

Comment by 0x12 | Hacker News Reader

Bank run in 3, 2, 1...

From the full tilt poker homepage:

"System Update

We apologise but the system is currently down. Please check back later. Please direct all enquiries to support@fulltiltpoker.com."

wsj article:

http://online.wsj.com/article/SB1000142405311190410670457658...

Layman explanation: Full Tilt Poker runs a wallet system, the sum all the users money is smaller than what they have in their bank accounts.

The 'Ponzi' element comes from their ability to attract new players at such a high rate that they can pay the withdrawals.

What makes it doubtful that this really is a Ponzi scheme is that - a bank run excepted - they probably would end up not paying out a very large percentage of the money they owed if operations continue, simply because most of the those playing online poker get fleeced incrementally, every dollar placed as a bet has a rake associated with it and that rake could cumulatively be a large percentage of the total money deposited. I don't run an online casino so I have no clue how often a given deposited dollar passes the tables before being withdrawn.

If there was one part here that is sloppy/criminal then that should be that they overpaid their affiliates.

A typical Ponzi scheme does not have affiliates taking a bunch of money of the table.

"Bank run in 3, 2, 1..."

People have not been getting money offline really since the Department of Justice handed out initial indictments in April.

The messed up thing about this is they had a sustainable money-printing-machine that only became an unsustainable ponzi scheme due to the greed and corruption of the owners.

Affiliates and paying affiliates had nothing to do with their downfall. Affiliates are a standard throughout the online gaming industry.

Thanks for the correction, I missed the earlier announcement.

Affiliates being a standard or not has nothing to do with it, anyhody that takes money out of the deposits will accellerate the process, and affiliates took a substantial portion.

Typically if you deposit $100 a large fraction of that is immediately paid out to the affiliate. You then enter the game and if the total rake on your account ends up being smaller than what is left in your account after the affiliate has been paid then you were a net loss to the company.

Without an affiliate that would be much harder to achieve.

That said, I believe that the players are stupid enough to play until they are bust so that's mostly theoretical, so I agree that they were quite possibly sustainable but it would need some inside figures to be sure.

Affiliates as an industry standard demonstrate that you can run a profitable business with affiliates. In fact, there are affiliates for lots of businesses outside of online gaming nowadays. If businesses couldn't make money while affiliates existed, then affiliates would not exist.

Affiliates do not automatically get a chunk of deposits. Usually there are two options. They get paid a small lump sum for each new player, say $25-50. Or they get paid a % of the monthly generated rake (MGR) minus fees racked up by players.

I've survived for several years based on other players' willingness to play until they bust. But you can look at Las Vegas, Atlantic City, etc. for evidence of the sustainability of gaming.

Edit due to not being able to reply: The rake sucks a lot for everyone. It turns small winners into small losers, or keeps consistent winners from being huge winners. It makes it so everyone gets less play for their dollar.

I know Pokertableratings has done some [very incomplete] tracking on player losses, but they don't have a record of every hand played.

> they get paid a small lump sum for each new player, say $25-50

That's a small lump sum, but with a $100 initial deposit that's 25% to 50%. If that were the only deposit ever made and everybody asked for their money back after folding their first hand they'd be bankrupt immediately.

So the cumulative rake must be pretty high for that to work, unless the stickyness is huge and most people do multiple deposits.

Do you have any figures with respect to total rake vs payout over a sizable sample of deposits? That would be interesting.

The new players have to generate so many "points" which are based on the stakes they're playing and the amount of hands.

They'll basically need to generate the $25-50 in rake before the affiliate can get the bonus.

Affiliates (no longer?) don't get paid based on a straight up deposit, but instead need to have their signups play through to earn a certain amount of FTP points, which are correlated to rake paid. The CPA rates start at ~$75 and go up for those who drive volume. Rakeback affiliates make only 3% of gross rake.

See http://www.pokeraffiliatesolutions.com/full-tilt-affiliate-p... for more

This is incorrect. FTP continued to operate (and process withdrawals) for all non-US customers until the Alderney gaming commission pulled their operating license on June 30.

Excuse my ignorance, but isn't this quite similar to how banks work? I was under the assumption that banks don't have enough cash on hand to pay out all clients if everyone decided to withdraw.

One difference being that your deposit with your bank is insured up to $250,000 (I think) by the FDIC. The bank has to achieve an accreditation to get this insurance and maintain standards.

Though I can't be sure, I'd assume that banks might hold a little bit higher percentage than what Full Tilt was holding.

FTP's case is an exception due to the ridiculously large amounts that the owners and executives were paying out to themselves. Amounts significantly in excess of the actual profits.

Rake adds up quickly. If poker sites only carried enough money to cover player balances, they wouldn't suffer.

Pokerstars is an example of a poker site that successfully paid out to players.

From my quick skim of the complaint, it appears that the problem wasn't just paying insiders amounts that were needed to cover player balances (which would be bad enough). Check out paragraph 113:

113. Beginning in or around August 2010, Full Tilt Poker was often unable to find payment processors to withdraw funds from the bank accounts of its United States players. Instead of disclosing this fact, Full Tilt Poker secretly began to credit funds to players’ online gambling accounts that Full Tilt Poker had never actually collected from players’ bank accounts. As players gambled, and lost, these phantom funds, Full Tilt Poker developed an undisclosed shortfall of approximately $130 million owed to players that Full Tilt Poker had never collected because, in reality, these funds were never withdrawn from players’ bank accounts. The management of Full Tilt Poker, including the FTP Insider Defendants, operated Full Tilt Poker with the hope that only a small number of players would try to withdraw funds at any one time, and that Full Tilt Poker would regularly receive additional deposits in amounts greater than any withdrawal requests.

If I'm understanding that right, it's essentially "We're using the rest of the world's players to give Americans (for whom this service is technically illegal) free money"?

I'm glad I only ever played for matchsticks.

Well, on a very small scale, under certain assumptions, extending credit in this manner might be a net win for the business. Legal casinos offer credit backed by their ability to collect through normal channels. Even offshore/illegal, if the amounts forwarded are small, and the users have shown a propensity to zero their debts after a while in order to deposit new funds without 'burning' their whole account/name, it could make sense here, too. (I didn't notice substantiation of the magnitude of these 'phantom balances'.)

But atop the other allegations, and depending on the magnitude, it seems fishy... like a desperate move to give the insiders a bit more time to withdraw remaining funds or 'gamble for resurrection'.

That's true. It's called "fractional reserve banking." ( http://en.wikipedia.org/wiki/Fractional-reserve_banking ) In fact, most of the money in the economy doesn't even exist as physical coins or bills because of this.

The difference is that a bank invest that money, when it receives the money back it can pay the clients. FT payed it as dividends to it's owners - there was no plan to return it to the players.

banks are allowed to do that and in exchange are regulated and insured

FTP was always going to fall apart, the government investigation into UIEGA violations triggered it sooner. It may have otherwise become a billion-dollar ponzi

I lost money in FTP and was a regular player (I noticed the dodgy merchant names on credit card bills years ago and knew what was up but kept playing)

For banks, customer's accounts are liabilities. When you put money in a bank account, you are in effect lending it to the bank; the bank owes you that money. When the bank itself lends out money to borrowers, those loans in turn are assets from the bank's perspective. For the bank to be solvent, the assets (loans) must exceed the liabilities (current and savings accounts and the like).

If what Felix wrote about FTP was accurate, FTP considered money from customers as assets, not liabilities, so that they could be disbursed to investors. It's a fundamental category error in accounting, and pretty clearly fraudulent, if it's as plain as that.

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