Imagine playing poker with all your losses covered, but keeping only 50% of your winnings. This is the modus operandi of BadBeat, an experiment in prop trading.
The Financial Times reported last weekend about a new investment trend: poker. BadBeat is a novel trading company whose “traders” are all poker players; in a nutshell, BadBeat provides the entire bankroll for a player and covers the player’s losses while keeping 50% of their winnings. Of course there is more to it: players have daily loss limits, minimum table-hour requirements and an exclusivity agreement.
BadBeat’s highest profile player is probably John Tabatabai, whose face was on international television last year as he battled Annette Obrestad heads up for the first World Series of Poker Europe Main Event bracelet. We all know how that went: Obrestad set a few new records including youngest ever bracelet holder and highest-earning female player. That does in no way detract from John Tabatabai’s achievements as a poker player, especially now that he counts with financial backing, support and structure from BadBeat. In return for that, he has committed “to bring professionalism, namely; discipline, bankroll with management, experience in playing and dealing with the swings to the table.” A talented young online poker pro with a steady bankroll and some discipline is decidedly an unbeatable combination.
This was the idea that originated Bad Beat. Founders Chris Smith and John Conroy told the Financial Times that they felt sure “a talented poker player with a disciplined attitude would win more if bankrolled properly.” And more interestingly for them, “that player would also make money for the people doing the bankrolling.”
Smith started trading on metals when he was just 18, and in 1993 he set up a “prop-trading” company –a company that trades with its own money – called Manro Haydan (strangely, it has no website,) while Conroy had plenty of experience in IT as well as a solid poker play. About three years ago these two men met and hammered out a plan for a poker sponsorship business, and BadBeat was funded with a capital of $5,000,000 Conroy as the first “trader” (the name given to poker players at BadBeat) and full use of Manro Haydan’s office space, IT infrastructure and – most importantly – their risk management standards.
Three years on, the business has grown into a respectable operation. At the beginning, according to the FT, “it was Smith’s risk-management expertise that shaped, steered and strengthened the business,” while Conroy has grown in the meantime into “a poker visionary, developing an understanding of how players can become winners and how the online market can be exploited.” Conroy’s game has also improved significantly: “I’ve improved 100 per cent by mixing with lots of players, and living and sleeping poker,” he said, and cold hard cash backs this fact: in July of this year he won $278,255 for a third place in a big live tournament.
BadBeat’s traders, such as John Tabatabai, are self employed and “trade” from their homes. BadBeat’s greatest asset is its trading team and ensuring that they become – and remain – winning players, but their recruitment methods required a number of trials and errors, resulting in great sums of money lost – John Tabatabai alone lost them $24,000 when he was first hired. Conroy explains, “There are lots of full-time poker players, but not many professional poker players. The first year, we lost money, but we’ve made it ever since. It was a pure experiment and it’s become a proper business.” BadBeat first approached well-known players from the British live poker circuit, but they lacked the discipline and work ethics required of such an approach to poker. Smith and Conroy reconvened, and started approaching the highly-focused, seriously committed online players such as Tabatabai. With some patience, mentoring and discipline when necessary, they finally struck gold.
BadBeat’s system is strict but fair, and it has allowed the company to grow both in number of traders and stakes bankrolled. At the time of writing BadBeat has 250 traders and is still recruiting. Traders come in all varieties: full time pros, part time players, home workers, students and a few talented housewives.
The system is well thought out to cover against variance, downswings and the like: if a player makes a $20,000 profit in a month, they are entitled to keep half of it, but BadBeat will let them have only $5,000 at the end of the month, saving the remaining $5,000 to be paid out at the end of the year, thus insuring both the player and the company against cold streaks and tilt. The company also cuts its losses carefully: each BadBeat player has a daily loss limit determined by their success at their chosen stakes. If a player loses their daily loss limit three times they are moved down to playing half the stakes until they are ready to move back up. This makes plenty of sense when you realize the amounts of money at stake – according to Conroy, “We have players bankrolled from $50 to $100,000 a day. At these top levels, tens of millions of dollars are gambled a day.”
Good play is rewarded in the most enticing way possible: since Smith believes that better players offer a better return on his investment, he is willing to offer them a sweeter deal to keep them onboard. Once a player reaches a certain amount of profit for BadBeat he or she gets to keep even more of the money they earn: the profit split rises from 50/50 to 70/30 in the player’s favor.