Jackpots are rather complicated promotions.
Does the casino give out the bad beat jackpot at a set amount or do they collect from rake to build the jackpot?
Generally speaking operators of a poker game will take a drop that is separate from the rake to fund promotions. From this promotion fund they will fund a bad beat Jackpot. They may alternatively fund the jackpot from the rake. Exactly how they can fund it may be subject to a complicated set of procedures regulated by a local gaming authority.
In Nevada they do not collect from the rake for a promotion fund, it is collected exclusive of the rake. A promotion fund is not subject to the same taxes as the regular rake is. The promotion fund is "fenced", meaning that it is separate from revenue, and their are regulations defining what one can use it for. The reg's generally say they can use it to pay players certain types of promotions such as Bad beat jackpots, aces cracked, etc., generally things that happen at the poker game where you get some kind of prize at the poker table.
The exact scope of this is hard to define, because exactly what the scope of these "promotions" are vary. I have seen the money used to pay players for hours played, to add money to tournaments, fund freeroll tournaments and a few other things that don't seem to exactly jive with the regulations in Nevada that I have read.
It may also be true in some places the operators are allowed to take some percentage of the jackpot drop for administrative purposes. Do not know this for sure, just scuttlebutt stuff.
Does only the player who lost the hand receive the jackpot?
In a word no.
Typically the player losing the hand will receive a large part of the jackpot and the player holding the winning hand will receive a smaller share. Ratios vary and are usually posted in writing someplace in a typical card room. The casino may also offer a table share, where the other players at the table also get a small share, and this can be extended to players at other tables in the room getting a share. At Statin casinos in Las Vegas they extend the share to all of their poker rooms. (one morning I won a share over 900 at the Red Rock when the bad beat hit at Boulder Station, as a nice example.)
What is the minimum hand that has to be beaten in order for the jackpot to be given out?
That depends. When Jackpots first started showing up, in the seventies or eighties, not sure maybe sooner, it was simply aces full beat. They kept a jackpot fund that was usually progressive. They quickly figured out that the larger the jackpot was the more customers came in, so things have evolved over the decades.
I simple aces full jackpot might reach a few thousand dollars before being hit. Make that any aces full beat by four of a kind, it gets bigger. Add other conditions like both your hole cards must play in holdem and the Jackpot gets even larger. Progressive jackpots now get to hundreds of thousands of dollars.
How does a bad beat jackpot work?
They mostly work badly. They are a few upsides to playing at a house that offers a promotion drop, but they are far outweighed by the downsides of promotions.
Let me use a bit of a retail metaphor to lay some context. Three miles from where I live is a Walmart. less then a mile from where I live is also a CVS. CVS has prices that are generally higher then Walmart's prices. But CVS gives me a receipt that is two feet long all full of specials like five dollars off my next purchase, and other coupons. I am sure I could work the CVS special and maybe if I get lucky I will get a great coupon for something I need at the time, and maybe I will save a little money over Walmart prices. But I don't want my simple shopping so complicated and don't want to add "standard deviation" to my basic shopping needs.
Playing jackpot poker is akin to shopping at CVS compared to Walmart. It at best complicates things to get a deal. You need a little luck to get the things you need on sale. Its just not a straight up price compared to another retailer that just competes on price.
Just like at CVS you can play a jackpot game and with a little work you can get a deal so to speak. There are some upsides to a game that offers promotions. The players that are attracted to promotions are generally not great players. Situations come up like betting 95 into a player holding a bad pair of aces when a $100 aces cracked promotion is active, or players calling big preflop bets with small pairs because the jackpot is so big. But none of these things will likely overcome the extra buck or two that comes out of every pot you win to pay for the promotions. Unless of course you get lucky and win a Jackpot.
However, winning a jackpot is not a zero sum game. If you play a lifetime of poker, your not likely to hit a big jackpot. Even if you hit a big jackpot, when you consider the amount of money you already put down the hole, that jackpot does not nearly have the net you wish it did. Add the tax liability, a big tip for the staff, and your way below zero sum.
Jackpots are easy to rig, and promotion money is easy to steal. This erodes the zero sum fallacy of promotions even further.
A story and a video. First the story, maybe two stories. Across the street from a card room I was working at the cardroom manager was fired for stealing promotion money. He stole a few hundred at a time, by late at night just filling out the paper work for the Royal flush bonus money and pocketing the cash. He did it for a long time before getting caught. Cameras did not catch him, auditors did not catch him, a dealer that did not like him brought it to their attention. The thief went down the road and dealt blackjack for 6 months before he was able to get his job back. This was not long ago, and his wife whom was a really bad player, stopped playing for while when he was fired and then back playing after he got his job back. It was not a high paying poker manager job. Two plus two was not hard to add up.
I was once sitting next to a Vice President from the Stardust a very long time ago and we were talking. The stardust at the time had a any ace full beat progressive jackpot that usually hit around a thousand give or take. During the course of our conversation he shared with me, that 70% of the jackpots were won by graveyard dealers. They may of just been falsifying paper work or loading a deck, who knows cameras were crap and few back then, stealing a small jackpot was nothing difficult to do. In 2000 there where somewhere between 500-700 poker rooms in the US, who know now. However, there are still plenty of places to keep the floating cheats in business.
The video: Lets watch a blind man in front of Penn and Teller load a deck and deal a bad beat.
That is how easy it is. Add a few other things like get all your own guys at the table, and someone has stolen a jack pot. It does not take many people stealing jackpots around the country to really put things askew for you. And many people are.
As an aside, I don't get how Penn and teller were fooled by this. This guy could deal seconds, from the bottom or anyplace he would like. If Penn or teller had picked up the deck and squared it up they would of found strippers. Not nekkid woman, but cards that are modified to be slightly wider or thinner then the other cards. The first trick he did, shuffling the deck then spreading it in perfect order was simply a pull through shuffle. Watch not easy to spot. If you watch some of the other P&T videos you will see some great slide of hand tricks, and it might dawn on you that any time a practiced mechanic wants to they can put a loaded deck in, right in front of your eyes, like between the shuffle machine and the spot on the table were the deck is cut, or whom knows when, a shuffle machine is not going to spit out a loaded deck. This is only one of thousands of creative ways that someone can rig a game.
I am not saying you can't be a winning poker player if you are playing in houses with jackpots and other promotions. I am saying the money that goes down the JP drop is a horrible bet and a huge drag on your win rate. You don't see really smart players, by that I generally mean high limit players, attracted by poker room promotions. They know there is no win there, they know it is anything but zero sum, it is a simply a drain on their win rates.
There is no way to know how large your negative return is on promotion money. It is safe to say you will not get a positive return unless you are extremely lucky, or you are cheating. So if your really interested in beating poker via promotions and Jackpots, learn to cheat. Personally I prefer lottery tickets to the upside of poker promotions.
I personally avoid Jackpot games and poker rooms that have a lot of promotions. For the reasons above and these other reasons below.
Even if they are many and small promotions that your likely to break even on, no big jack pots or anything like that, and nobody is stealing, promotions still suck for a lot of reasons.
It adds complexity to the game. And while it could be argued complexity is good for those whom can be complex, it still changes the fundamental ways people play the game. It usually kills action as player tend to chop blinds more, conspire to wait for promotion worthy hands etc.. Its just to much soft play and BS that surrounds heavily promoted games. Players stop playing poker and start playing the poker promotions lottery. Poker is exciting enough witho0ut all the BS surrounding promotions.
To much money is sitting in the cage waiting to be won that could be in players pockets and in play. I worked a small 4 table room, where we had a bunch of lame promotions. We had one game on dayshift, may be two games on swing and on weekends we might get four games for a few hours. We had 35K in the cage which we had not figured out how to give away yet. To me that was 350 hundred dollar bills people could have in their pockets for a buy-in. I suggested that we just get rid of the promotions and see what happens. Suggesting we put dirty movies on the TV's instead of sports would of gone over better.
When someone hits a big bad beat, that money often never sees a poker table again. Old argument, but they go buy houses, new cars, milk for the baby, dinner for the wife, or even worse quit a job for awhile, and we never see that money again.
Bad beat jackpots and player funded promotions are bad. They are bad for the players, they are bad for the games, they are bad for the industry in general. It is a shame, almost a scam that they exist at all. It is really a shame that most players do not have an alternative to these kind of crappy poker games. I am pretty sure that if the promotions and jackpots went away that poker would do much better. I am sure the more a poker player avoids these games when they can the better they will be. They will be able to loose less and play longer.