In the movie, Robin Hood wins. But at the poker table, the cards sometimes fall the Sheriff of Nottingham’s way.
That’s the fate that befell David Einhorn at last summer’s Big One for One Drop, a fund-raising tournament that’s become the most lucrative event in poker and one of the biggest money-raisers in the charity world. Einhorn, founder and president of hedge fund Greenlight Capital Inc., is an accomplished poker player — in 2012 he placed third in the inaugural Big One, bagging $4.3 million for the Robin Hood Foundation, a favorite charity of the hedge fund set.
Playing for the foundation again at the 2014 Big One in July, Einhorn landed a randomly selected seat as one of two talented amateurs at a table of particularly tough pros. In short order, Einhorn found himself face to face with one of them — Sam Trickett, a 26-year-old former plumber who started playing poker online in 2005 after an injury ended his soccer career. Trickett was playing for himself — and he happened to be an Englishman from Nottinghamshire.
Their match-up made poker history. In a series of bets that poker aficionados described as incredibly risky, Trickett kept upping the stakes until both players had wagered all their chips. It paid off. The Englishman held the better hand, and Einhorn was sent home early without a Big Drop pot for Robin Hood.
The other amateur at the table was John Morgan, CEO of Winmark Corp., a publicly traded franchisor of stores for secondhand sporting goods, designer clothing and children’s gear. He’s also an avid poker player — a card-carrying member, you could say, of the high-stakes tournament circuit where entry fees run as high as $1 million. “It was a bad beat,” says Morgan, using one of the poker world’s more self-evident pieces of jargon. “He was devastated.”
No top player wants to suffer such a defeat, least of all a fund manager as competitive and successful as Einhorn. But the prospect of losing hasn’t stemmed hedge fund managers’ willingness to play poker on behalf of charities. In fact, participating in fund-raising tournaments has become de rigeur for the investment elite — Bloomberg TV even sponsored a charity tournament in 2013 at an Atlantic City casino called “Poker Night on Wall Street.” The players included Einhorn, as well other top investors such as Mario Gabelli of Gabelli Asset Management and legendary short-seller Jim Chanos of Kynikos Associates, who describes himself as a natural-born skeptic, a vital talent in a game where bluffing — as Einhorn found to his dismay — can make the difference between winning and losing.
What attracts investment titans to charity games? Quite simply, poker happens to be a great fit with their day jobs. It’s the ultimate “me” game, where success is determined by the same factors that determine the outcome of major investment bets: superior math skills, disciplined analytical thinking and unbounded self-confidence. And by playing poker to raise money for charities, hedge fund managers, who are not exactly known as altruists, have found a way to use their skills to move into the world of “we.” This reflects a broad social dynamic. With poker now firmly ensconced in ESPN’s broadcast lineup and online poker rooms running 24/7 on the Internet, the game once relegated to the back rooms of casinos has entered a digital era that promises to be every bit as transformative as algorithmic trading strategies on Wall Street. And while poker had become a fixture of the charity fundraising landscape, major poker businesses are betting that they can use social media to attract a mass consumer audience by appealing to the “me” instinct in everyone — the desire to hit the jackpot in the face of seemingly insurmountable odds.
Ambush and Long Odds
Trickett’s defeat of one of the sharpest minds on Wall Street was big news for poker enthusiasts. James McManus, a successful player himself, reported the event in his gambling column on Bloomberg View. The dean of poker writers, McManus teaches a course on poker culture at the School of the Art Institute in Chicago. “Positively Fifth Street,” his chronicle of his own climb to a fifth-place finish in the 2000 World Series of Poker Main Event, is an urtext for fans of the game. Trickett’s play, he said, was an incredibly high-risk move demonstrating that “tournament poker, in which only the last few survivors make any money, is a game of elaborate ambush as well as long odds.”
That’s proven to be a potent combination, and it has fueled poker’s growth from a game devised by itinerant Texas gamblers into a global digital entertainment business, increasingly distinct from the traditional casinos that spawned tournament poker as a marketing gimmick to attract tourists to high-margin slot machines and games of chance. Along the way, poker has become one of the most popular charity fundraising techniques in the country, used by political legends, entertainment titans and alumni associations alike. Its worldwide popularity with amateurs and professionals has spawned an international federation that promotes poker as a sport along the lines of Olympic competition, and USA Today carries weekly poker standings from the Global Poker Index, a database run by The Hendon Mob, four London players who’ve parlayed their knowledge of the game into a media conglomerate.
Lately, it seems Wall Street can’t get enough of poker — the game is an essential part of the training program and culture at one of the largest trading firms, and some premier investment banks recently financed the purchase of an online poker company in a $5 billion deal that’s opened the next chapter in the game’s digital future. Poker businesses know the stakes are rising. Not content with revenue from its industry-leading live championship series, the World Series of Poker this year anted up on a new deal with Frito-Lay that moves poker marketing into the consumer mainstream. The Ruffles campaign, timed to run with the 45th WSOP finals broadcast on ESPN, offered consumers the chance to use the WSOP’s social-gaming app to win $10 million by guessing the championship winner’s final hand.
While a chance to guess the winning hand might attract interest to a social-gaming app, guesswork doesn’t play much of a part in tournament poker. According to Amarillo Slim Preston, an early winner of the WSOP who brought poker into American living rooms with a dozen appearances on TV’s “The Tonight Show,” poker is a precision game. “Part of the hustle may be pretending not to be smart, but behind every gambler is a razor-sharp mind,” Preston, who died in 2012, wrote in his autobiography “Amarillo Slim in a World Full of Fat People.”
In fact, professional gamblers sound a lot like successful members of any C-suite — they’re committed to their jobs and responsibilities, disciplined in planning and implementing their strategies, and they’re able to cope with and handle ambiguity as risks and opportunities wax and wane. That’s the upshot of a 2013 study, “Professional and Pathological Gamblers: Similarities and Differences,” by researchers at Saint Louis University led by psychologist Jeremiah Weinstock.
It turns out that professional gamblers differ from compulsive gamblers in several key dimensions. Professionals predominately played cards, mostly poker, for money. The pros gambled frequently — on about 70 percent of days in the three-month study period — and they achieved positive outcomes, reporting annual income from gambling-related sources of about $125,000. The study also confirmed Preston’s insight about gamblers’ keen minds: the pros clocked high IQs, averaging over 125. In short, gambling is serious work for the pros. Weinstock’s team found professionals carefully controlled their gambling behavior, while motives such as “excitement or to cope with negative affect do not appear to be reasons for gambling.” And professionals virtually never buy lottery tickets.
Preston’s description of the mental posture adds another element — confidence. “You see, friend, when I make a wager, the bet has already been won,” he said. A math whiz, Preston completed third and fourth grades in a single year on his way to Peabody Academy, a prep school on the campus of the University of Arkansas for gifted students. “I had a knack for arithmetic as a kid — as most professional gamblers do,” Preston wrote. Fortunately for poker, Peabody had one teaching tool that steered young Slim toward his ultimate career — a snooker table. “I learned more about life from poolrooms and casinos than I ever did in the classroom.”
The first lesson was to “find a game where you can win.” For Preston, that turned out to be Texas Hold ’em. A variation of poker that emerged during the 1930s, it’s now the game played in tournaments worldwide. Preston summarized the game crisply: Each player is dealt two cards, called hole cards or pocket cards. The dealer then “flops” three cards face-up; players can use these community cards to make their hand. A fourth card called the “turn” continues the action. “Then — and this is where many a man has been drowned — comes a fifth community card, called the ‘river,’ ” he wrote. A round of betting ensues each time cards are dealt, and players fold, raise or match others’ bets to stay in the hand until one player remains.
The goal in tournament play is to accumulate the most chips; each player starts with a fixed amount and can’t buy any more as they can in cash games popular in Macau. Success is a matter first of survival, requiring each player to continuously calculate his or her odds of winning the hand as the dealer reveals each card. The key skills, says Morgan, are money management — estimating the size of the bet needed to win each pot while balancing that against your own chip count, and risk assessment — using the face-up community cards to evaluate the probable strength of your hand compared to the hands held by competitors.
Texas Hold ’em incentivizes players to fold bad hands early to preserve capital. And major tournaments have no betting limits. If players survive to later stages, the preferred approach is to “move in,” that is, bet all their chips when they believe they’re holding a winning hand. “As far as I’m concerned, if you can’t move in on someone,” says Preston, “then it’s not real poker.”
Susquehanna Rides The “River”
Weinstock’s research team was encouraged to explore the behavioral or cognitive strategies professional gamblers use to manage their wagering activities and control their losses, such as placing loss limits or caps on the percentage of their capital committed in each session. In fact, there’s already a live lab for the project — Wall Street.
In the age of high-frequency, algorithmic trading, the mathematical rigor that spells success at the poker table is also woven into the fabric of the investment industry. Susquehanna International Group, one of the largest quantitative trading firms in the world, uses complex algorithms to trade its own capital in almost all financial products. But before they play with real money, SIG traders “participate in extensive training to hone their quantitative ability by improving their decision-making, game theory, and quantitative modeling skills.” At SIG that means playing poker. The firm uses poker to “teach new hires about decision making under conditions of uncertainty. SIG traders make risk decisions based on the limited information they get from the markets and relate that to the expected value of each trade.” There’s continuing education, too: SIG holds in-house lectures by poker pros, and runs an annual companywide poker tournament that starts with an exhortation to almost 800 staffers to “raise your game.”
The firm even employs a tournament player, Bill Chen. With a Ph.D. in math from the University of California, Berkeley, Chen balances his day job in SIG’s statistical arbitrage department with competition in numerous poker tournaments. He’s also the co-author of a book on the game, “The Mathematics of Poker.” The book applies computer science and mathematical tools to develop a quantitative approach to the game that’s fast replacing the traditional method of deducing other players’ hands from their betting patterns and visual cues.
The quant approach is integral to online poker, which has become a path for players like Trickett to play their way into major tournaments. “Online poker especially has basically become a different game,” says Vanessa Selbst, in the inaugural player interview in Global Poker Index, a new magazine published by The Hendon Mob. Not lacking in academic bona fides, Selbst attended the Massachusetts Institute of Technology, transferred to Yale University for a degree in political science and earned a law degree from Yale in 2012. “Advanced game theory and high-level stats analysis are now almost necessary” to win online, says Selbst. And the success of online players has impacted live play. Previously, top pros could observe opponents’ weak spots and exploit them. But with the influx of statistically adept players schooled in online poker rooms, “a lot of the game at a high level is focusing in on one’s own game to become less exploitable to others,” she says.
In effect, digitally savvy young players from overseas have brought the global poker boom that started in Texas road games back onshore, and they’re now regularly taking out talented amateurs and American pros alike in the big-money face-to-face tournaments that were made famous by — and long dominated by — Americans. “Players are much more aggressive in Europe,” says Selbst. While that doesn’t mean they’re necessarily better, she adds, the more aggressive style of play makes it harder to win consistently. “You’re forced to play bigger pots and gamble with bigger percentages of your stack,” she says.
Game of Stilt Walkers and Presidents
While game providers battle in the commercial space, poker has enjoyed an easy ride in the philanthropic sphere. Hedge fund managers, traders and businesspeople alike love to play poker to raise money for their favorite causes. A classically American game, played by presidents from Washington to Obama, poker encompasses the country’s unique tradition of self-made entrepreneurial spirit and private charity, a paradox of self-interest and altruism that’s helped the game develop into a multibillion-dollar global enterprise.
The Big One for One Drop charity tournament, for example, is the brainchild of Guy Laliberté, the cofounder and CEO of Cirque du Soleil. Perhaps not surprisingly for a stilt-walking fire-eater, Laliberté is also a high-stakes poker player. He started the One Drop Foundation in 2007 to fight poverty by bringing clean water to people in underdeveloped areas, and worked with the WSOP to stage a major fundraiser — the Big One — as a companion event to the WSOP Main Event summer playoffs. The foundation receives about 10 percent of the buy-in fees, and at $1 million per player for 40 to 60 entrants, that’s a tidy sum for any charity.
Former President Bill Clinton has tapped the game’s popularity to raise money for the Clinton Foundation. The foundation’s twice-yearly tournaments in New York and Los Angeles carry buy-ins of up to $20,000 per person, according to some players. And they’re professionally run — the WSOP says it has provided consulting and staff for Clinton events, including tournament directors and advice on game structure and chip counts. Those who can’t muster the World Series to run their game can hire turnkey tournament operators. Aces & Angels, a Las Vegas company, produces the Alumni Poker Tour, a fundraising format approved in all 50 states, as well as major events, including the annual Hold ’em for Heroes Celebrity Poker Tournament at the Super Bowl, held this year on the U.S.S. Intrepid in New York Harbor.
A Long Way From Amarillo
Poker’s digital era will create new winners and losers among game providers. Morgan, who turned Winmark into a successful franchising company by folding weak brands and doubling down on winners, says the WSOP is a great franchise — the kind of asset that could fetch a good price and help the Caesars resort company reduce debt as it restructures.
Last summer’s big online gaming deal set a new marker for the value of poker properties. Ty Stewart, senior vice president of Caesar’s Interactive Entertainment and executive director of the company’s World Series of Poker, expects more consolidation among the major gaming entities and admits the WSOP “makes an interesting fit with some of the bigger players in the online space.” But there’s another hand to be dealt, and “that story is still to be written,” he says. But what is clear at this juncture is that Texas Hold ’em has come a long way from Amarillo, Slim.
John Morgan Bluffer
Face-to-face tournament poker is a game of deception — and bluffing is the sine qua non of winning strategy. Winners confound their opponents, changing the pace of the game with a pause before betting or making a big wager when the cards say the odds are dismal.
John Morgan, the 73-year-old CEO of franchising company Winmark, knows a thing or two about bluffing. An accomplished tournament player, Morgan had secured a successful business career before today’s young poker pros ever signed in to an online game. He cemented his place in poker history in 2012, with an epic bluff in the Big One for One Drop tournament, the $1-million buy-in fundraiser for clean water that runs alongside the World Series of Poker’s summer playoffs.
Facing Morgan was Russian businessman Mikhail Smirnov. Smirnov held a quad — four eights. Poker strategy site Sun TzuPoker.com says a quad is a 400-to-1 shot that can be topped only by a royal flush — the best hand in poker — or its close cousin the straight flush. With cards on the table indicating that he just might have a straight flush, Morgan coolly pushed all his chips into the pot. To this day — out of respect for his opponent — Morgan won’t say what cards he held. But his audacious bet — worth about $3.4 million — had the intended effect. Smirnov folded, stunning the audience when he revealed his four of a kind.
Poker in Asia is a paradox. Expansion by the World Series of Poker and its chief rival the PokerStars Asia Pacific Poker Tour has created a glut of live events that’s slowing growth in the region. To induce top players to trek to Asia, the WSOP rescheduled its Asian tournament to springtime in Melbourne, Australia, and alternated its major Asian event with its European tournament. It’s a long way to travel, and busting out of an Asian tournament early could leave players with hefty travel costs and scant winnings — a risk-reward bet most players would decline.
But there are big games and aggressive players in Macau, where cash games dominate — players can buy more chips if they lose their initial stakes, a stark contrast to the tournament format where players strive to capture the lion’s share of a limited chip count. It’s a style of play fueled by the influx of cash-rich Chinese and other Asian entrepreneurs.
Macau is also the front line for big casino-resort companies looking for new markets to offset falling demand for gaming in the U.S. Most are doubling down on Macau, planning a new generation of mega-resorts and ultra-luxury shopping venues centered on casinos. But that’s just intensifying competition — especially at the lucrative upper end of the market, says Ben Lee, managing partner of Macau-based gaming consultancy IGamiX. “Macau’s gaming industry has been driven by a VIP market predominantly consisting of Hong Kong players,” says Lee.
Casinos roll out the red carpet to attract high rollers, enticing them with free suites, food, shopping vouchers and luxe transportation. All that’s expensive, and with every casino pursuing the same pool of VIPs, Lee is advising clients to start marketing to Chinese consumers. “With ever-increasing numbers of VIP rooms opening as each new property is completed,” he says, “there is a great realization of the importance of the mass market today.”
Asia’s gaming frontier is also moving north — to Vladivostok. Goldman Sachs says Summit Ascent Holdings, a Hong Kong–listed casino operator, has a leg up. “As a first mover in the Vladivostok gaming market, Summit Ascent will enjoy a three-year monopoly until 2018,” Goldman says. Its first property — aimed at mass-market players — is slated to open in late 2014. And in a move suitable for a game of long odds, Summit is in negotiation with the top junkets in Macau to bring VIP players to Vladivostok by mid-2015. With Macau tour agents ferrying Chinese high rollers to play Texas Hold ’em in the home port of the Russian Pacific Fleet, poker’s next chapter could spark a new era of Great Power collaboration.