The REAL Story of the Current Situation at the Merge Network
What is REALLY going on at Merge?
Disclaimer: I have done a lot of research on this matter over the past few days, and have come up with what I believe is a pretty clear picture as to what is REALLY going on at the Merge Network. This was derived from a few different sources, all of which have proven reliable in the past. It is possible I have some small details wrong, but I believe that the overall picture presented below is correct.
Introduction
The Merge Network is a poker network of over 30 sites worldwide. Sites on Merge share tables, so basically everyone plays together as if they're all on the same site. The sites feeding into Merge are known as "skins". Merge is the biggest network that currently serves US poker players. Some skins are large (i.e. a lot of players), and some are very small. You can see a list of skins by clicking here and scrolling down.
In late October, the Merge network announced that they would be ending player-to-player transfers as of November 1, 2012. This alarmed and angered many players, for the following reasons:
1) It is difficult to deposit and withdraw money on Merge for US players, so the player-to-player transfers made this much easier, especially since non-US players could deposit and withdraw relatively easily. This change would make it difficult for US players to get money on and off Merge.
2) Some suspected that this move was made because Merge was cash-poor, and on the brink of disaster. Such fears are reasonable, given the debacle that occurred last year at Full Tilt.
3) There was some theorizing that this was a "power play" move by Merge in order to force players to play on the larger skins, while killing off the small ones. This would be possible because the larger skins will likely have an easier time moving money on and off the site, given their much higher budgets.
There was a lot of arguing, fighting, and mistrust going on regarding the situation at the 2+2 forums. Everyone was accused of having an angle. Merge defenders were accused of being affiliates with an incentive to keep everyone happy with Merge. Merge detractors were accused of either lacking knowledge or purposely trying to steer traffic to another network.
I am neither a Merge defender nor a Merge detractor. I played on Merge as recently as October. I have never had a major problem with them. At the same time, this site has no sponsors, and I am not an affiliate for anyone. I am completely independent and unbiased. This is a fair and even-handed report, based upon the facts presented to me.
How the Skins and Merge Pay Each Other
Prior to the decision to remove player-to-player ("p2p") transfers, everything was NOT going smoothly behind-the-scenes at Merge.
Before I describe the problems, it's important that you understand the way the Merge Network distributes/collects money to/from its skins. After all, if you're a player on Carbon Poker and win a pot against a guy on RPM Poker, how is that handled on the Merge backend, given that technically both players are on different sites? It's done through a process called "reconciliation", which occurs once per month.
Reconciliation is a process where Merge takes all of the money ADDED to player balances by the skin (deposits, positive adjustments, tournament overlays, rakeback, etc) and separately adds up the money SUBTRACTED from player balances by the skin (withdrawals, negative adjustments, rake). If the ADDED money is greater than the SUBTRACTED money, the skin owes Merge money. If the SUBTRACTED money is greater, Merge pays the skin.
Obviously Merge, being the bigger and more stable entity than its skins, is taking the greater risk here of the other side failing to reconcile. If a skin finishes the month owing Merge a lot of money, and they can't pay, Merge has little recourse other than to kick the skin off the network. Merge was willing to take this risk when the potential amount owed was small, but sometimes got nervous when the amount was large. For example, Merge got very nervous earlier in the year when former-skin Lock Poker held a Lock-only tournament series with $2 million in guarantees, meaning that Lock could be responsible for huge overlays if the tournament didn't draw enough players. If Lock failed to pay, Merge would have been on the hook, so Merge canceled the tournament series, causing a lot of anger on Lock's side. (Lock, with its own bad history, left the network shortly thereafter.)
Rakeback and "Poaching"
Merge restricted its skins from offering more than 35% rakeback, even if the skins felt they could afford more and still be profitable. This was to prevent "rakeback wars" between skins, resulting in "poaching".
"Poaching", in online poker terms, is the act of one skin stealing another skin's players with promises of better rakeback and/or benefits. For example, if I was playing on Carbon Poker at 35% rakeback, and someone from Black Chip Poker quietly offered me 50% rakeback (the initial 35% plus 15% under the table), it would be a no-brainer for me to stop playing on Carbon and start playing Black Chip. Obviously a dedicated grinder would want the greatest rakeback possible, and would not care about the behind-the-scenes battles or rules involving the way skins are supposed to treat one another.
Poaching became a huge problem at Merge, and created endless battles between skins. I will describe the poaching issue in more detail shortly.
The "Big Nine" Skins on Merge
While Merge had over 30 skins, most were very small and were relative non-factors in the grand scheme of things. These small skins were still a risk to suddenly run up a large tab and fail to make reconciliation, but they were not large enough to become a major factor in the poaching situation. There were nine skins that fed the vast majority of players into the network.
The Big Nine consisted of the following:
1) Carbon Poker. Carbon was once the flagship site of the Merge Network, as Carbon technically owned Merge. This was not made public, but it was the case. As a result, Carbon was the largest skin on Merge. Carbon eventually sold Merge to sportsbook.com, but remained on the network and stayed on very good terms with the new ownership. Carbon felt it was large enough not to care much about the poaching, but eventually they also became irritated with it.
2) Lock Poker. Lock used heavy marketing and engaged in blatant poaching to quickly grow to be the #2 skin. Some reports have them as #1 at their peak, but that's not really important in regards to the current situation. Lock also got itself into a lot of well-publicized scandals over time. You can read about those here: http://pokerfraudalert.com/forum/sho...ck-Poker-AVOID ... Lock was hated by other skins for their aggressive poaching and unapologetic win-at-all-costs business mentality. Many battles between Lock and some of the other skins took place, but Lock seemed to emerge victorious, as Merge repeatedly decided to avoid taking much action against them. Lock left the network in June, 2012, and is currently NOT a factor in the situation today.
3) Aced Poker. Aced Poker is owned by Carbon, and is essentially the same as Carbon, except it operates as if it were an independent skin.
4) PDC Poker. PDC Poker is also owned by Carbon, and is essentially the same as Carbon, except it operates as if it were an independent skin.
5 & 6) PlayAces at sportsbook.com and playersonly.com are two different skins, owned by the same company that currently owns Merge (sportsbook.com). Since these were simply skins of the Merge ownership, poaching was less of a concern to these skins, since Merge still makes money from players on all skins.
7) Black Chip Poker. Black Chip Poker should have been named "Black Ops Poker", as they derived most of their player base through secret poaching and giving insanely high rakeback (over 60% in some cases). Black Chip also would do "backdoor" processing of withdrawals for many of its players, bypassing the slow (and limited) Merge cashout process. After Lock left, the other skins turned their wrath onto Black Chip, who was very effective at identifying the highest-volume cash grinders and getting them to switch. At one point, several skins were threatening to leave the network if Black Chip's actions were not stopped. Black Chip did not have many players, but the ones they had were typically very high-volume.
8) RPM Poker. A decent-sized skin, RPM generally played by the rules and was frustrated by the poaching situation. RPM did come under fire somewhat for buying player funds through 2+2.
9) Hero Poker. Smaller than RPM but still substantial enough to matter, Hero also generally played by the rules and was also frustrated by the poaching.
Skins and Your Money
While Merge held all of the money (thus shielding players from the heartbreak of a shady/unstable skin going under), skins did have the ability to directly make adjustments to your account.
For example, let's say you saw the owner of a skin at a live cardroom and handed him $5,000 cash. He could go home and add $5,000 to your balance on his site, without having to go through the normal Merge deposit procedure. In fact, he could add money to your account for any reason at any time, and nobody would question it. He would just be on the hook to pay Merge for whatever he added, come reconciliation time.
They also had the power to subtract from your balance. While this could potentially lead to skins stealing from their players, the once-a-month reconciliation procedure basically guarded against that, as a player who had money removed without his permission would likely raise issue about it before the skin actually got paid by Merge. This was actually never a problem, to my knowledge. Money was typically only subtracted in the case of "backdoor" withdrawals. Merge's standard withdrawal process was slow and had a $2500 limit per month. "Backdoor" withdrawals could be for any amount, and would be processed by the skin itself. For example, you would request a wire for $20,000, the skin would remove $20,000 from your account, and they would send you the $20,000 themselves. Merge knew about this occurring, and did not stop it, as it tended to be done only for a small handful of players (basically the big-winning grinders), and most skins did this at some point. Obviously this was mostly a victimless action, since it simply led to players getting their money faster. Problems only came into play when certain players would prefer skins that would agree more easily to backdoor withdrawals, thus penalizing the ones that were less willing to do this.
Feltstars
I'm not sure where Feltstars ranked as far as size on the Merge Network, but they came up with a unique idea to bring players onto their skin: Staking.
Basically, if you could show Feltstars some evidence that you were worth staking, they would stake you themselves. The concept was simple: Feltstars would give winning players the money to play on their skin, generate lots of rake, and survive on that business model. I am not sure how much they kept for themselves when players won, but the main purpose here was to bring quality, active players over who just didn't have the bankroll (or want the risk) to play on their own dime.
It is not clear how much was staked or where it was staked (tournaments or cash), but one thing is certain: This stakehorsing model failed miserably, and Feltstars went broke.
When it came to reconciliation time, Feltstars could not pay. Remember, they added a LOT of money to their player balances (and tournament tickets) through these stakes, so they owed a lot to Merge when it came to settle. Unfortunately, their stakehorses performed very poorly (supposedly because Feltstars did a poor job choosing who qualified for stakes), and that money was lost.
Feltstars went under. Merge had to cover the losses, and they were pissed. This just occurred last month. The Feltstars website admits they are finished, but does not give the real reason for why it happened: http://www.feltstars.com
The Problems at Merge
So back to the problems at Merge. After months of infighting between skins and Merge getting nervous about exposing themselves to various risks, they identified the following problems at the network that had to be immediately corrected:
1) The poaching issue was getting more and more contentious, and had to be dealt with.
2) Feltstars was an expensive lesson in risk management. Merge could not let this happen again with another skin. The reconciliation model had to be changed.
3) The whole "skin" thing was starting to look like more trouble than it was worth. Merge really wanted to find a way to direct all or most of the players to either Carbon/PDC/Aced or one of the PlayAces (Merge owned) skins.
4) There was some concern that the ease of p2p transfers would make it easy for criminals to launder money, thus making Merge a target for United States Department of Justice action. This is especially a concern because sportsbook.com is obviously a sportsbook, and sportsbooks tend to be even bigger DOJ targets than poker sites. Many sportsbooks don't allow p2p transfers for exactly this reason.
Merge decided that they could accomplish all of the above through four simple actions:
1) Kill p2p transfers on all Merge skins.
2) Disable the ability for skins to manually add and subtract money from the player balances.
3) Develop separate cashiers for the Carbon and Sportsbook skins that make it easier to deposit/withdraw money, and don't make that cashier available to the other skins. Previously, the general Merge cashier handled every skin.
4) Pass the withdrawal and deposit fees onto skins (if they are using the Merge cashier).
How would these actions solve the problems at Merge?
Poaching would become more difficult. Skins were paying players secret rakeback either by a p2p transfer from a house account, or a manual adjustment to the player balance. Without either of these features, skins could no longer pay the secret rakeback via Merge. They would have to either pay players directly (through check or wire, which is risky) or pay them on another network (which is inconvenient and often tough to do on a large scale). In addition, the skins would also likely have to wait a month for reconciliation before being able to afford this, which would be even more inconvenient. This, combined with an earlier-implented $20,000-per-player fine for poaching, is likely to completely eradicate the poaching issue.
Risks of another Feltstars situation would be eliminated, as skins would no longer have the ability to "borrow" from Merge by manually adding money to accounts.
Smaller and medium-sized skins -- basically all of the ones except Carbon and Sportsbook -- would lose all of their advantages, but would have major disadvantages. Secret rakeback would now be inconvenient and risky to offer. Staking deals such as what was seen at Felstars would now be impossible -- at least without the skin putting up their own money up front. Depositing and withdrawing would be much more difficult on the smaller sites, as the lack of p2p transfers would require everyone to use the standard Merge cashier, which sucks. Backdoor withdrawals would also be impossible, due to the lack of ability for skins to manually adjust the balances. While other skins would have the option to develop their own cashiers, that would be prohibitively expensive for smaller (and perhaps even medium-sized) skins. Eventually players would realize the smaller skins no longer have any of their previous advantages (secret rakeback, backdoor withdrawals, staking), and now have major disadvantages (inferior cashier). Merge realizes that would drive most players to Carbon and Sportsbook. In addition, passing on the fees for deposit and withdrawal is also hurting the skins' bottom line and ability to run at a profit.
Money laundering would be much tougher, due to the lack of p2p transfers. It could now only be done through chip-dumping, which would be easy to detect and stop.
The wheels are already in motion. The rules have already been implemented. Merge is already offering to buy unhappy skins at a steep discount.
The basic Merge plan is to kill off every small skin within 6 months. By that point, expect Merge to simply consist of Carbon/PDC/Aced, PlayAces (Sportsbook), and perhaps RPM and Hero, if they manage to survive this carnage without electing to switch networks.
Is Merge Cash Poor?
The good news is that your money is probably safe for the moment at Merge -- or at least there's no reason yet to believe there's anything wrong.
I can't say this for sure because I haven't seen their bank statements, and they have offered no proof that their funds are segregated.
However, I can say with high likelihood that these recent actions are NOT a result of financial problems at Merge. Again, it is possible they have financial problems separate from all of this, but I have seen no evidence of that, and in fact even insiders that hate Merge quietly admit that Merge is likely financially sound at the moment.
The downside is that, unless you are on Carbon/PDC/Aced/PlayAces, it is going to be a bitch to withdraw your money if you have a lot of it on Merge at the moment. This is because you won't have p2p transfers back, and the existing check limits (which aren't likely to change) are $2500/month. There are rumors that the new cashier on Carbon/PDC/Aced will offer a wire option, but that is not confirmed at this time.
If you have less than $2500 on a smaller Merge skin right now, you can probably withdraw the whole thing fairly easily, provided you can wait a month or two for the check to arrive.
At this time, it does NOT look like another Full Tilt situation, but rather a network that is restructuring their business model.
Conclusion
This situation sucks for the player, because we got caught up in the middle of it. In an attempt to strongarm the smaller skins off the network, as well as protect against poaching/staking/backdoor cashouts/laundering, Merge has made abrupt changes that leave players -- especially middle and high-stakes ones -- in the lurch.
Many counted on p2p transfers in order to cash out more than $2500/month. This was important to these players' livelihoods, and now they can't do it. Some kept large sums of money on Merge, knowing they could easily get the money off (again, via p2p transfers or backdoor withdrawals) quickly if needed. That rug has been pulled out from under the players, and frankly it isn't fair.
Unfortunately, this is a post-Black-Friday environment, so our choices these days are very limited. Continuing to play online poker in 2012 and beyond is going to provide many challenges and headaches for US players, and this is just one of them.
Fortunately, while Merge is engaging in questionable business practices, it seems that they are not broke, and the sky is not falling, so at least we probably aren't going to live another Full Tilt sequel.
I knew that it was just a matter of time before all of the infighting between Merge skins blew up in everyone's faces, and indeed that time has come. Merge proponents are insisting that these changes will lead to a "stronger, better, and more reliable" network, but we'll have to wait and see if that's true.
I really do feel bad for the smaller/medium Merge skins, especially the ones that played by the rules, as they really got the short end of the stick here, and appear to have been dealt with in an unethical manner.
If anyone has any corrections or comments, feel free to post them.
