Average ROI and Interest Rate

A banker friend of mine who plays poker casually in some home games and I recently had a discussion regarding poker ROI (Return on Investment). I was telling him that an average ROI of around 8% to 10% for the SNG grinder is quite good.

He responds by telling me that he has some securities and bank instruments that earn more, 15% on average on an annual basis. I laugh out loud and tell him that the average ROI is on a per game basis and he says "what's the difference since its an average?"

I didn't have time to explain fully so I told him to read my blog and I'll post an example for one to understand better. I also decided its a good topic as there are some misconceptions as to what ave ROI and Overall ROI is in the poker world.

Let's assume 2 friends, Jim and John. Jim has $1000 and John has $500 and both of them decide to invest this money. Jim deposits his money in a time deposit that offers a high interest rate of 15% per annum while John decides to use the money as a bankroll for his newest hobby - online poker. John is a casual but fairly good SNG player whose average ROI is hovering around 10% at the $10 SNG tables. He is also very conservative so a 50x buyin bankroll is just right for him.

So which one earns more at the end of one year ?

Actually the answer is it depends on what limits and how many games John plays for that year. I know this answer is kind of vague, so let's make an actual example.

1. Jim assuming simple interest with no compounding will earn $150 for his $1000 investment for an overall ROI of 15%. Not bad considering the very low interest rate being offered by banks nowadays.

2. For John, we need to assume some things. He just plays $10 SNGs and he only plays one game a day. Let's say he was sick some of the time and he even went on a vacation a couple of times so that he only manages 300 games for that year. How much does he earn ? With an average poker ROI of 10% ( this means that for every $10 game he plays, he earns $1), John earned $300 or an overall ROI of 60%.

Do you get the difference ? Average ROI for a SNG poker player is on a per game basis. If an SNG game takes 1 hour to finish. Then it is similar to saying that he is earning 10% per hour on his investment. Multiply this amount when you multi table and the number of hours you spend and the numbers can be quite high.

Of course, my banker friend will say that the difference is that I just sat down and let my money earn interest. While you had to sweat and stress out the $300.

That is true to some extent, but that is why I made John the epitome of the low limit risk averse casual player. Not seriously playing for profits, only for fun and 300 SNG games is easy to achieve in a year. So its like John had fun and earned 60% on his investment at the same time.

Cool, huh ?