When we win or receive something we experience positive emotions. When we lose or forced to give something we experience negative emotions. Negative emotions are bad for people’s health, businesses and sales, that is why many businesses offer cashbacks, rebates and other initiatives to reduce negative emotions of customers during payment processes (see [1-3]).
In two previous posts (see [4-5]) we considered what friendly arbitrage is and how to practice it. Friendly arbitrage is a game controlled by one of the participants (organizer), not a third party. All funds are redistributed among players and there are no payments to third parties. An organizer always has a profit regardless of an outcome of a game, as a compensation for the administrative work.
In this post we consider how to introduce cashbacks/rebates into friendly arbitrage to reduce negative emotions of players, who lost in the game. Also we compare profitability of “play to earn” games.
A simple way to introduce cashbacks/rebates into friendly arbitrage is to distribute 50% from the winning pool to those who lost in the game.
In the examples (see [4]) there are three cases where there are losers.
In the first case, the optimist lost $50 and the winning pool was $50. 50% from the winning pool is $25 which should be given to the optimist as a rebate/cashback.
In the second case, the pessimist lost $50 and the winning pool was $50. 50% from the winning pool is $25 which should be given to the pessimist as a rebate/cashback.
In the third case, the optimist and pessimist lost $100 each and the winning pool was $200. 50% from the winning pool is $100 from which $50 should be given to the optimist and $50 to the pessimist as rebates/cashbacks.
Now we compare “play to earn” games and friendly arbitrage from point of view of returns on invested time.
First of all, we need to distinguish three stages in “play to earn” games. The first stage is when a gaming company for promotional or marketing purposes distributes the promotional fund among new players. For example, a company has $1,000,000 in the promotional fund. If 10,000 new players sign up for new accounts to play, they will receive on average about $100 for a couple of hours of playing. An average hourly rate in earning is about $50, which is equivalent to $400/day or about $12,000/month. The company only paid $100 per player, but can advertise that players can earn about $12,000 per month in playing games. The second stage starts when there are no more promotional dollars. Some companies continue to pay new players from income generated by those players, who pays to play the games. The payments are significantly lower than in the first stage. Finally, the company stops paying to free players. This is the third stage.
This strategy is not new. Online casinos, bookmakers, etc. also use such strategy. The fact is that an average player can not earn stable regular income to cover living expenses, despite advertisements that claim the opposite.
Let us calculate how much a gaming company must have in profit to give to each of 10,000 new players $12,000 per month. It must be over $120 million per month or more than $1.44 billion per year.
Let us look at Zynga Inc. company. It had revenues over $2.8 bln. in 2021. But we should look into incomes to figure out how much money it can pay to players, in the long run and be profitable.
In 2020 and 2021 there were loses of $405 and $8 millions. In 2018 income before tax was $26 millions and in 2019 it was $47 millions. As we can see, that even well established gaming companies with revenues in billions of dollars do not have $1.44 billion in income to pay new players. Now ask yourself this question: Will a small startup company be able to pay such sums to new players?
From this simple example follows, that gaming companies can not regularly pay to new players. Therefore, it is not possible for majority of players to get stable income from playing games.
In friendly arbitrage there is a stable income for the organizer, per each game. Therefore, friendly arbitrage does give stable stream of income to the organizer. In the example of the previous post (see [4]) there were five cases with incomes of 1, 50, 200, 50, 1. If we assume that probabilities of all cases are equal then we have that an average income per game is (1+50+200+50+1)/5=60.4.
Monthly income depends on two variables: an average profit per game and a number of games per month. These variables completely controlled by players and no third party is involved.
In the table below are estimates of monthly income per month for the organizer, based on these two variables.
Income table (without rebates)
As we can see, friendly arbitrage can generate more income than many regular jobs. If we consider 50% rebates then the income will be lower, but still stable and regular.
Income table (with rebates)
Conclusion
From point of view of financial returns on invested time in play to earn games, friendly arbitrage is a better option than many other games, even in the case with rebates to players. Parameters of the game are controlled by participants and no third parties are involved.
In the next post we consider a simple way to create a generated on demand (GOD) offline nano wallet.
References
[1] Why The Psychology Of Rewards Confirms Cash Back Is King
[2] What Are the Emotional Drivers Behind Customer Experience?
[3] Customer frustration in loyalty programs
https://www.researchgate.net/publication/37475076_Customer_frustration_in_loyalty_programs
[4] A simple way to make money by means of friendly arbitrage
[5] A simple procedure to practice friendly arbitrage.
