I’m just getting around to reading this 2011 paper by Steven Levitt and Thomas Miles.
In the paper, Levitt and Miles use data from the 2010 World Series of Poker (WSOP), a poker “tour” that comprises dozens of separate tournament events every year (there were 57 events in 2010). The authors first created a list of highly skilled players using a variety of sources such as previous years’ top WSOP money and tournament winners, and published lists of highly accomplished players (from BLUFF and Card Player magazines and PokerPages.com).
This investigation gave the authors a list of 720 players who were identified as highly skilled going into the 2010 WSOP season. How did they do relative to an average unranked player competing in those same tournaments? Quite well, thank you. The return on investment of those 720 players was 30.5%, or $1,200 per player per event. That’s an annual income of $68,400 if you’re wondering.What about the rest of the players? They averaged a negative return of 15.6%. In other words, they lost over $400 per event on average. In practical terms this means that in most cases these players did not win back enough money to cover their entry fees.
The paper is interesting throughout. For example:
- “In total, over 32,000 people competed in a least one WSOP event in 2010.”
- “Roughly 90 percent of the players in any given tournament receive no prize money, and thus suffer a net loss equal to their entry fee.”
- In total, the players that were not identified as highly skilled lost a total of $26 million over the course of the year.
- Altogether the 720 skilled players, by contrast, made a profit of $11 million. Remember this profit is winnings minus entry fees. And these fees can be enormous. According to the paper “one individual spent more than $260,000 on entry fees.”
Levitt and Miles also use what they term a “crude” analogy to baseball to demonstrate that poker is indeed a game of skill. I found the analogy quite instructive. Here the authors use the WSOP data to construct the winning percentage of a skilled player versus an unskilled player in a head-to-head matchup. They find that the skilled player wins 54.9% of the time. Comparing this to baseball, since 2007 skilled teams (those that made the playoffs the previous year) defeated unskilled teams (those that did not) 55.7% of the time. So the skill involved in being a good poker player is roughly analogous (in a relative sense) to being a playoff-quality team in baseball.
Lastly, I enjoyed this chart the authors included that shows the cash payout structure of a typical WSOP event.