Bankroll Management

[LL] “What do professional poker players and pro athletes have in common?” Leroy the Lion asked everyone at the table.

[YY] “They both make a lot of money just for playing a game”, Yuri the Young Gun responded.

[LL] “Very good. What else?”

[YY] “Um, I don’t know.”

[LL] “Anyone? … A lot of them are really bad at managing their money! How many athletes have made millions or even tens of millions of dollars but declare bankruptcy within a decade of retiring?”

[VV] Vincent the Veteran and Stan the Stat both started to answer, but Vince held the floor. “Lots. Centerfielder Lenny Dykstra, NBA forward Antoine Walker, and NFL linebacker Lawrence Taylor just to name a few.”1

[SS] “All the major sports leagues now provide their rookies some basic financial management training, but sometimes an athlete ends up trusting the wrong person with his money or tries to lift four generations of extended family out of poverty or has twenty kids from fifteen mothers to support”, Stan the Stat added.

[LL] “Pro poker players have similar problems, especially on the spending side. Often though, their major mistake is simply bankroll management. The thrill of the big money game is too tempting, so players get in over their heads. And it isn’t just that they don’t have the skill to compete at that level, either. They could be well above average for the game, but their bankrolls can’t survive the variance inherent to poker. Between the deck running cold and coolers, bad beats and bad reads, even the best, most active online player multitabling to the maximum of his ability can have a losing month or more. Thousands of hands is a drop in the probability ocean.”

[LL] “Depending on your temperament and whether you play mostly for fun or profit, you need a bankroll many times larger than your buy-in to safely play No-Limit Hold ‘Em.”

[LL] “Yuri, how many times have you gone broke online?”

[YY] “Actually, I never lost my first deposit, but I have close friends who’ve gone broke three or four times each. Somehow they don’t mind slumming to build their bankroll back up. It’s almost like a game-within-the-game to them.”

[LL] “What’s your threshold for entering a cash game?”

[YY] “I’d buy-in for no more than five percent of my bankroll.”

[SS] “Poker pro Steve Zolotow says you can take more risk with a small bankroll, like 10% to even 30% on a single buy-in; less risk with a medium bankroll, like 5% to 20%; and even less with a big bankroll (e.g., if you’re a pro), like 3% to 10%.2 Those numbers seem very risky to me though.”

[LL] “Have you ever had to move down a buy-in level, Yuri?”

[YY] “Sure, especially in the beginning when I’d move up as soon as I could. If I lost a couple times, I’d have to move right back down.”

[LL] “What about the entry fee for a tournament relative to your bankroll?”

[YY] “I would never buy in to a tournament that cost more than a fortieth of my bankroll. They’re way more volatile than cash games. Although I might make an exception for something special like if I could ever get out to Vegas for a World Series of Poker event.”

[SS] “In The Poker Tournament Formula 2, Arnold Snyder proposes a very simple equation for how much of a bankroll you need to play in a given tournament3: the square root of the number of players times the buy-in times two. Add in a factor for how conservative you are and another for your skill relative to the field, and that works as well as anything I’ve seen.”

[LL] “So for a $100 buy-in, 100-player event, you need 10 times 100 * 2 = $2,000. A bit aggressive, but reasonable. But for the WSOP Main Event, you’d need about 80 times 10,000 * 2 = $1.6 million. That’s way too high. I guess you’re right about that exception, Yuri.”

[YY] “Exactly. If you played in large, $10,000 events regularly, you might really need a huge bankroll, though maybe not 160 times the entry fee, but one high-variance event a year is fine if you can afford it. I plan to reward myself by playing in a small WSOP event when I’m up to $5,000 and hope to win enough for a Main Event buy-in.”

[LL] “Cool.”

Footnotes:

  1. Business Insider ran an article last October on A Shocking List Of Athletes Who Have Declared Bankruptcy (older article, “How 20 Professional Athletes Went Flat Broke” no longer available as of December 31, 2013).
  2. Steve Zolotow’s advice can be found in Managing Your Poker Bankroll.
  3. He calls it Snyder’s Bankroll Fudge Formula on page 395.

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