I am frequently approached with this question –
“I have a friend / poker buddy / family member who wants to buy me into some tournaments for 50% of my profits. How should we do this? Do we need a contract?”
I’ve never had a contract myself, I wouldn’t deal with someone where I felt I needed a contract and so far no one has felt that they needed a contract from me. If I were to put together a contract for a backing deal, I would be just fine with a plain English email. Judges can read plain English too and you don’t need a bunch of legalese to create a legally binding document.
Either way, you should be aware that you are on the sweetheart side of this deal. Usually this question comes from people who may be strong players in their local game, but don’t have a significant proven track record in bigger events. No matter how good you are, this kind of agreement wouldn’t be profitable for the backer no matter who they were backing. Without makeup, 50% is just an insurmountable margin for the backer, though it will make the player wealthy very quickly.
Don’t Believe Me?
If you want to test this, keep a record of the next fifty tournaments you play. Now put them into a spreadsheet and add up the buy-ins. As an example, we’ll use $200+30 buy-in tournaments with 100 entrants and assume they are all the same. First place would be around $6,000 and 10 spots get paid.
A great player might cash as often as 20% of the time, so our hero cashes ten times in the sample of 50 tournaments, and wins twice as often as the usual player. In fact he finishes in each payout spot twice as often as the usual player, so he finishes in each payout spot exactly once.
We don’t need to do the math in this case (funny that it ended up that way, almost as if someone planned it…) because our hero finishing once in each spot will win exactly the prize pool of the tournament over the course of his 50 buy-ins. After 3% comes out for staff and dealers, he wins $19,400. His buy-ins are only 50 * $230 = $11,500, so he makes a profit of $19,400 – $11,500 = $7,900. Unfortunately, that profit isn’t nearly enough to make this a profitable deal for the backer.
The backer spends $11,500 and gets back half of the $19,400 profit, which comes to $9,700. He loses $11,500 – $9,700 = $1,800. While the backer loses $1,800, the player makes half of the $19,400, or $9,700, for himself. In this very common deal, the player makes $9,700 while his backer loses $1,800. Not a good deal for the backer even though they chose a very strong player who had good results.
Look at it This Way
In single events, it’s better to see this kind of agreement as selling action, where the backer might pay 1.25. If you divide 1 /1.25 = .8, you can see that if you want the backer to put up all the money, then he should get 80% of the winnings if he pays all of the buy-in. I know, that doesn’t sound as good as getting half of the income for no investment other than your time, but it’s about what is fair and it’s what pros do for each other on a frequent basis.
I hope I have shed some light here. Backing isn’t always the right way to go, and in fact it is best to start small and win your way up, but if you must take backing or sell action, now you have some ideas about how it should work.