Bankroll Management Primer

Poker Economy, Strategy

August 29, 2007

Bankroll management is a controversial topic, because the term means different things to different people. For a long time, the term has been used to describe fad systems that claim (incorrectly) to beat various house banked negative expectation games like craps. These methods, such as variations on the Martingale system, are of no real use for any purpose. The reason is simple – no amount of varying your bet size will change a negative expectation into a positive one. If the odds are against you, they will still be against you no matter how much or how little you bet.

The situation in poker is somewhat different. Unlike craps, it is possible to play poker with a positive expectation. In other words, it is possible to make money (and indeed substantial money) by playing the game over the long run if you are a part of the small percentage of players who can beat the game. However, the ability to beat the game is not a guarantee of income for life. In particular, a player needs to have money to sit in games in order to realize their expectation.

That money is the simplest kind of bankroll which is money you brought to play poker in a given session- a session bankroll. For most players, whether winning or not, a session bankroll does not present any substantial management challenges. For non-professionals, coming up with a session bankroll is usually not particularly difficult, as some other source of income is available. Furthermore, failing to come up with a session roll is not particularly harmful – since poker is not a major source of income, not playing it is not a major financial burden.

The situation is different for a pro or semi-pro who derives a good part of their income from poker. For such players, being unable to come up with a session roll means they can’t work. In other words, when you’re a poker player being broke also means being fired, so a level of financial responsibility above and beyond just being a winning player is required to be able to keep winning and avoid that one-two punch of being broke and unemployed. To that end, pros need to set aside a certain amount of money to be used solely for the purpose of playing poker, henceforth referred to as your bankroll. While that money does not necessarily have to be in cash or casino chips, it’s often stored in one of those liquid forms. In theory it is possible to use the same bankroll for poker and other positive expectation gabling activities (such as sports betting or financial trading) at the same time, but in practice I don’t think that’s a good idea – having separate bankrolls for each form of gambling not only makes accounting easier, it makes it harder to delude yourself if some of the activities aren’t actually winning you money. So this primer assumes you’re just playing poker.

Now, proper bankroll management is really part of a larger goal of achieving financial stability as a gambler. That stability has various aspects – not going broke, producing usable income on a consistent basis, and growing your bankroll so you can tackle larger games and thus increase your income and give yourself a sort of “promotion”. These goals are inexorably intertwined, so this is really a primer for professional gambling financial stability, not just bankroll management.

A large amount of material has already been written on the subject of bankroll management, some of it by very respected poker authors. Most of this writing attempts to boil bankroll management down to a theoretically correct construct based on mathematics – random walks, risk of ruin, and Kelly criterion have all been used. While these are fascinating mathematical concepts, by and large they have nothing whatsoever to do with the practical aspects of managing a bankroll. The gap between theory and reality is caused by mistaken assumptions that these authors use. First and foremost amongst these is failing to take into account expenditures & taxes. While it would be very nice to have your bankroll isolated from outside costs, the reality is that poker players have to eat and pay rent and uncle sam just like everyone else. Another neglected issue is that going broke is far more ruinous for some players that others – most semi-pros have an easy means of recovery, while many full time pros do not have good options. Reasoning based on Kelly criterion is often seriously flawed due to the fact that a player doesn’t have control of the size of their bets, especially in NL. Furthermore, most published systems require that a player know both their win rate and variance on a per hand, hourly or 100 hands basis. That’s often difficult information to accurately collect. Furthermore, most published methods assume you’re playing one game, when the optimal behavior is to play whatever game gives you the best expectations and is within your bankroll.

Because of all these differences between theory and reality, existing bankroll management systems are woefully inadequate. here’s an alternative. It has very little math behind it, but I will tell you it’s far more practical and functional than anything published to date.

Do Your Homework

Before you can make use of this system, you need to gather some information:

  1. The amount of money you need to get out of poker each month in the medium term (say, the next two years) to achieve the minimum lifestyle you’re willing to put up with. For those with a monthly budget, this should be a readily available number. Those without a budget should take steps to get a grip on their finances outside of poker. Be sure to include infrequent expenses like medical care, car repairs, house maintenance etc. Pay particularly close attention to your medical insurance situation if you’re quitting a job to play poker.
  2. Figure out what tax rate you’re going to end up paying on your poker earnings. Poker taxes are beyond the scope of this article, but do yourself a favor and get the RBS tax guide for Gamblers.
  3. Analyze the available limits. Assuming you make 1big bet/hour, or 5 blig blinds per hour in a NL holdem game, what is the minimum stakes required to achieve the income in 1. after paying the taxes in 2. with at least 5-10% as a pad? Assume you’ll play 200 days a year, 8 hours a day. Do you have a history of beating those stakes consistently for a long period of time? If not, don’t become a profesional player, because you will likely fail. Instead put in time learning to win consistently at those stakes. You may discover you need to move to a better poker town if your current location doesn’t have sufficiently high stakes poker.
  4. Form a backup plan for what you will do if poker doesn’t work out. Figure out how much money you will need to have on-hand to become financially stable again if this happens. This plan should not involve borrowing money to play more poker! You need to set aside this money, plus about 2 months’ living expenses, before you try to go pro. This is NOT part of your bankroll

The System

The actual bankroll management system is very simple – don’t sit in games that are too big or too small. For this purpose, consider your buyin for a limit game to be 20 big bets, and for a NL game to be the max of (100 big blinds|what you actually buy in for).  This primer doesn’t cover tournament players.  I’ll tackle that in a future post.  here are the rules:

  • Don’t go pro unless you have at least 30 buyins in your bankroll for your minimum game from 3, 50-100 if you’re very conservative.
  • Don’t sit in a game where your buyin is more than a certain % of your bankroll. For normal players, this should be 5%. For very adventurous players, 10% or even 15%. More conservative players may be more comfortable at 2-3%.  Which number you use depends on your tolerance for risk as we’ll discuss in a bit.
  • Don’t sit in games smaller than the minimum stakes required in part 3. above.
  • Play at least 18 8-hour days a month
  • Withdraw your monthly earn from 1. and taxes from 2. every month.

And basically, that’s all there is to it. If things go sufficiently badly that you can’t buy into the minimum game that makes your rate from 2 without going over the 15%, STOP – it’s time to implement your backup plan. Use the remaining cash from your bankroll to smooth the transition or as the start of a new bankroll when you get back on your feet.

However, if things go well and you’re sufficiently skilled that you make money, you may notice that you’re buying in for far less than 5% of your roll each session. In this case, consider moving up, or if the games there are sufficiently hard so as to be less profitable, then take some money out of your bankroll and use it on the rest of your life. if this is happening regularly, you can increase your monthly withdrawals.

Picking a Max Percentage

You’ll notice I left the percentage you buy in for intentionally vague. From a mathematical perspective, it’s usually optimal to buy in for 15% or even 20%, but most players will not be able to stomach the fluctuations that causes, and the constant moves up and down the limits that result. The 5% number seems comfortable to me, but some people seem to thrive on the excitement of playing with a lot of their roll on the line. I don’t recommend it at all, though, especially as a long term policy.

The quality of your backup plan and how close you are to your minimum stakes should also affect your choice of max percentage. People with backup plans that involve tall bridges should be far more cautious than those who will go back to working for dad at the car dealership. Of course most people, when they get close to their minimum stakes, will likely increase the percentage they’re putting on the line each time to try to keep in the game. I don’t really have a problem with that as long as your backup plan is good and you stop at 15%

In contrast, as a roll gets bigger and the stakes you’re playing much higher than the minnimum stakes, the roll and this cushy position become more worth protecting.  As such, it makes sense to become far more conservative with a big roll.

Bankroll Helper

If it starts to look like you’re going to have to use your backup plan, make careful use of your last few buyins.  Specifically, consider adjusting your game selection.  Pick low variance games where you can win consistently with limited risk.  I like to call these games “bankroll helper” because they’re the best way to stop a big downswing and get back on your feet.  Loose low-mid limit Omaha 8 strikes me as the best choice for this since the variance is low and nut-peddling is the correct strategy under those conditions.  Sure it’s mind-numbing, but if it saves your poker career that’s probably worth it.

Also, if you have only a couple of buyins left, consider playing them at a time when the games are particularly good (say, the weekend) when your chances of having a winning session are maximized.

Judgment Required

Notice that this plan makes no attempt to determine your win rate, and relies on you to pick the best games and to avoid games where you expect to lose. The reality is that no bankroll management system is a substitute for judgment. This one just doesn’t bother to pretend otherwise.  But if you employ good judgment and have sufficient skills, these rules should set you on the path to achieving gambling financial stability

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