Large poker tournaments usually work like this. A bunch of people buy-in for some fixed amount. That total amount of money from all the entrants is called the prize pool. That prize pool is allocated amongst the top finishers of the tournament—basically, the people who last the longest in the tournament.
A typical tournament might distribute the money amongst the top 10% of the finishers, so if, for example, there were a hundred tournament entrants, the top 10 finishers in the tournament would get the money. The percentages of the prize pool for each spot ramp up dramatically, so that first place usually earns a much larger amount than second place, which earns a much larger amount than third place. The poker players play until there is a single winner, or until the players left want to make a deal of some sort, splitting the remaining money in some way that the people left agree upon.
Large poker tournaments attract a lot of weak poker players. Tournaments are more popular for many amateur players than cash games are. This is because of the event-nature of the games; the fact that there is an actual ending and a prize to aim for. Large buy-in tournaments have a lot of weak, amateur players for two main reasons:
1) Smaller “satellite” tournaments allow smaller-stakes players to win entry to the larger tournament. For many larger tournaments, this is the source of a lot of entrants, many of whom are not very good or experienced.
2) Large tournaments attract rich amateurs who don’t mind spending a lot of money on a poker tournament. Many of these players are not very good.
The high percentage of weak players in these large tournament are what attract good players to play in them. There is a lot of “dead money” in these tournaments; this is a way to say there are many players who have virtually no shot at doing well in these tournaments. The more well-known the event is, the more people are attracted to it. This is especially true with World Series of Poker events; there are many celebrities and rich people who come out to play these tournaments for the thrill of it. These and similar events offer professional poker players an even better ROI (return on investment). Of course, to restate, there is no guarantee that a good player will do well in any specific event, but the high percentage of weak players does increase the likelihood of a good player doing well, while increasing the prize pool at the same time.
Good poker players win over the long term in tournaments, but in any given tournament there is obviously a lot of luck. Poker tournaments, as with poker in general, is a game of big numbers. Assuming that a player is better than most of his competition, the more poker he plays, the more money he makes.
Because there is a lot of variance (ups and downs) in poker tournaments, and because some of the buy-ins for many tournaments are so high, many players sell “shares” of themselves as a way to even out the variance. This is a very common practice in large buy-in tournaments; most professional poker players don’t want to put down a significant chunk of their net worth on a single tournament, no matter how big of an advantage they feel they have over the field.
Buying a “piece” of a player (also called ‘staking’) in a poker tournament is equivalent to investing in a company. One or more investors can buy percentages of a player that will equal percentages of that player’s winnings. So, for example, someone might buy 10% of someone in a $5,000 event for $500; if that player ended up placing 5th for $100,000, the investor would get 10% of that win, or $10,000.
Some established players tack on additional mark-up when they sell pieces of themselves. For instance, a player might charge you an additional 10% for whatever piece you buy of him. So if you bought a piece of him for $500, he might require an additional $50; this helps him pay for tournament costs like entry fees, travel costs, hotel stay, etc. If he is very well-known, he might also be charging mark-up because he is such a favorite in the game.
Because there is a lot of variance in individual tournaments, though, players will often bundle together several tournaments and sell pieces of the total “package.” This is sort of like bundling together diverse investments to form a more stable deal. Just like the behavior of a single investment or loan might be subject to variance, buying into a larger package helps lower the risk for investors. So, for example, for this WSOP, I hope to play in 9 WSOP events, and I’ve bundled those into a package deal. Anyone who buys a percentage of me is buying a percentage of my action across all of those tournaments, not just my action in a single tournament.
If you’d like to see other examples of poker players who sell pieces of themselves in bigger buy-in events, just Google “selling pieces wsop tournaments” and you should see a lot of examples. Here’s one example: http://forumserver.twoplustwo.com/184/staking-selling-shares-live/2013-wsop-shares-limit-hold-em-events-1314093/
Here’s a pretty good overview of why winning poker players seek to get staked (although a lot of these don’t really apply to tournaments): http://pokerstakes.com/articles/winning-players-taking-backing
Finally, to get a sense of how large the prize pools can be, take a look at this synopsis of last year’s WSOP and the first-place amounts.