Dispatches From The World Series Of Poker

What do you do when you’re a mid-20s male that dropped out of college to play online poker for a living, and the government suddenly cuts off your source of income? The answer, it seems, is move to Mexico. That’s right; apparently there is an expatriate community of American online poker professionals that have relocated to Baja California, just across the border from San Diego. A larger group is centered in Cabo San Lucas, which is much nicer but also more expensive and farther from the States. Hundreds of players have made the move and resumed playing on Pokerstars and the smaller European sites. However, right now it is June, and that means poker players live or online are in Las Vegas for the World Series of Poker. I was curious to see the long-term repercussions of the government’s crackdown on internet poker last April. Unsurprisingly, it seems like the live poker industry has contracted. Overall, Americans had $150 million stuck online in the now-defunct Full Tilt Poker, and removing all that cash from the poker economy was bound to hurt the live games. From what I saw, most of the cash games at the Rio were small-stakes No Limit Hold ‘Em or Pot-Limit Omaha. There were a few bigger-stakes mixed games but nothing above $50/$100 limit. As for the WSOP itself, the number of entrants to most events has fallen off dramatically year-over-year. Last year, the first $1,500 no limit tournament had 3,157 entrants; this year it had 2,101. A dealer told me that Harrah’s overestimated the player pool and hired a lot more staff than was necessary. The fabled ‘big game’ with Doyle Brunson et al no longer runs regularly in Las Vegas. Amazingly, the biggest games in the world have now moved to Macau, where the ultra-high-limit players are competing with Chinese businessmen in No Limit games with blinds of HKD$10,000/HKD$20,000($1,300/$2,600). Probably the biggest story from this year’s WSOP was Phil Ivey nearly winning another bracelet. Ivey didn’t play last year’s series due to the Full Tilt debacle, but this year he’s back and five-bet bluffing as usual. First-place money in a preliminary WSOP event has long since ceased to matter to Ivey, as he regularly plays in games with million-dollar swings. However, he’s got huge side bets that pay off if he wins a bracelet. The rumors going around place the odds for these bets at either 2-1 or 3-1, and the amounts are likely in the millions. In other words, if Ivey wins a bracelet, he gets the first-place money, but he also gets several million additional dollars from the side bets. He’s come close twice already – he took 3rd in the $5K Omaha 8 event and 2nd in the $10K pot limit hold ‘em event. In the latter tournament he was defeated in heads-up play by a former Wall Street equity trader. The next big thing at the WSOP is the million-dollar-buyin tournament coming up on July 1st. The event is capped at 48 players, and it seems likely to sell out. Nearly every confirmed entrant so far is a professional poker player, many of whom have likely sold off big pieces of their action. There are a couple of confirmed non-professional players including an “anonymous hedge fund manager.” For the next few years, it doesn’t seem likely that the WSOP will reach the size that it did in 2006, when the number of entrants to the main event peaked at 8,773. The live poker boom of the mid-2000s was always fueled by internet poker. When the major sites were shut down, the WSOP lost a major feeder source of new players. Americans still have $150M in funds locked up on Full Tilt, and it remains doubtful that any of that money will come back. The only hope for a revival for the struggling industry is the legalization of online poker in individual states. In a supremely ironic twist, the Justice Department changed its mind about internet poker last December and cleared the way for regulated intrastate poker. Nevada has already passed legislation and will probably have games up and running within a few months; it seems likely that other states will follow.
Author:
Publish date:

What do you do when you’re a mid-20s male that dropped out of college to play online poker for a living, and the government suddenly cuts off your source of income? The answer, it seems, is move to Mexico. That’s right; apparently there is an expatriate community of American online poker professionals that have relocated to Baja California, just across the border from San Diego. A larger group is centered in Cabo San Lucas, which is much nicer but also more expensive and farther from the States. Hundreds of players have made the move and resumed playing on Pokerstars and the smaller European sites. However, right now it is June, and that means poker players live or online are in Las Vegas for the World Series of Poker.

I was curious to see the long-term repercussions of the government’s crackdown on internet poker last April. Unsurprisingly, it seems like the live poker industry has contracted. Overall, Americans had $150 million stuck online in the now-defunct Full Tilt Poker, and removing all that cash from the poker economy was bound to hurt the live games. From what I saw, most of the cash games at the Rio were small-stakes No Limit Hold ‘Em or Pot-Limit Omaha. There were a few bigger-stakes mixed games but nothing above $50/$100 limit.

As for the WSOP itself, the number of entrants to most events has fallen off dramatically year-over-year. Last year, the first $1,500 no limit tournament had 3,157 entrants; this year it had 2,101. A dealer told me that Harrah’s overestimated the player pool and hired a lot more staff than was necessary. The fabled ‘big game’ with Doyle Brunson et al no longer runs regularly in Las Vegas. Amazingly, the biggest games in the world have now moved to Macau, where the ultra-high-limit players are competing with Chinese businessmen in No Limit games with blinds of HKD$10,000/HKD$20,000($1,300/$2,600).

Probably the biggest story from this year’s WSOP was Phil Ivey nearly winning another bracelet. Ivey didn’t play last year’s series due to the Full Tilt debacle, but this year he’s back and five-bet bluffing as usual. First-place money in a preliminary WSOP event has long since ceased to matter to Ivey, as he regularly plays in games with million-dollar swings. However, he’s got huge side bets that pay off if he wins a bracelet. The rumors going around place the odds for these bets at either 2-1 or 3-1, and the amounts are likely in the millions. In other words, if Ivey wins a bracelet, he gets the first-place money, but he also gets several million additional dollars from the side bets. He’s come close twice already
– he took 3rd in the $5K Omaha 8 event and 2nd in the $10K pot limit hold ‘em event. In the latter tournament he was defeated in heads-up play by a former Wall Street equity trader.

The next big thing at the WSOP is the million-dollar-buyin tournament coming up on July 1st. The event is capped at 48 players, and it seems likely to sell out. Nearly every confirmed entrant so far is a professional poker player, many of whom have likely sold off big pieces of their action. There are a couple of confirmed non-professional players including an “anonymous hedge fund manager.”

For the next few years, it doesn’t seem likely that the WSOP will reach the size that it did in 2006, when the number of entrants to the main event peaked at 8,773. The live poker boom of the mid-2000s was always fueled by internet poker. When the major sites were shut down, the WSOP lost a major feeder source of new players. Americans still have $150M in funds locked up on Full Tilt, and it remains doubtful that any of that money will come back. The only hope for a revival for the struggling industry is the legalization of online poker in individual states. In a supremely ironic twist, the Justice Department changed its mind about internet poker last December and cleared the way for regulated intrastate poker. Nevada has already passed legislation and will probably have games up and running within a few months; it seems likely that other states will follow.

Related

Real World, B-School: The Casting Special

Today we introduce you to the all-stars of my MBA program and yours. We seek only the top tier of characters that can singularly steal the show (and maybe $1.2 billion dollars in segregated customer funds on the side). The Questions Guy

 - The guy that everyone loves to hate. In any setting -- be it the classroom, company-sponsored information session, or networking circle -- The Questions Guy always has something to say. And while it technically always ends with a question mark, we understand the sentence to have the primary purpose of demonstrating some deeper knowledge of the material at hand. Sometimes these “questions” are insightful; however most times, we blame him for wasting classroom time, stealing our thunder, or dumbing everyone down with his trifling. We envy the fact that he’s clearly getting his money’s worth of his tuition … and ours. The Open Mouth Learner - Formerly some kind of nonprofit hero, the Open Mouth Learner’s jaw dropped with his first exposure to supply/demand curves, and he has remained captivated ever since. He brings up his non-traditional background at every opportunity, even if totally irrelevant to the conversation at hand. Professionally, he drops the phrase “non-traditional background” assertively in introductions, in order to ask questions in finance networking circles. At school, he drops the phrase defensively, in order to shirk the number-crunching parts of group assignments. The Open Mouth Learner is quietly both ashamed and proud of the fact that he has gotten through life this far without ever learning fractions.

Write-Offs: 06.18.12

$$$ Clogged Credit Weighs on Fed Policy Makers [WSJ] $$$ Ex-Expert Network Consultant Pleads Guilty in Insider Case [WSJ] $$$ TCI is trying to guilt the FSA into forcing Lloyds to redeem TCI's holdings of Lloyds contingent capital bonds at above-market prices [FT] $$$ Homeowner Aid Boosts Big Banks [WSJ] $$$ World's population is 17 million tons overweight [MSNBC] $$$ Do you have plans on July 17? Do you fancy yourself a poker player? A really good poker player? Do you think you could beat David Einhorn, even if he’s working the table like it's Lehman Brothers circa 2007/2008? Do you think it would not be so awkward that the two of you could then enjoy a meal together and talk shop after which he picks up the tab? If David's not your thing, do you think you could envision yourself in the same scenario but with Bill Ackman? If you answered yes to most of the above and also consider yourself a fan of humanity, helping others and all that jazz, you should most definitely clear your schedule next Wednesday and sign up for a World Poker Tournament benefiting the Rewarding Achievement (REACH) program, which was co-founded by Bill Ackman and Whitney Tilson and gives inner-city high school students academic support and scholarships for passing AP exams. The event is taking place at Gotham Hall in New York and Einhorn (your competition) will be playing, as will Ackman and Tilson. Prizes for winners include the aforementioned meal (a lunch), with Bill, David or Seth Klarman, five nights at a “world-class private beach home in Lamu, Kenya,” a private poker lesson with 2011 WSOP bracelet winner and 2011 WPT Player of the Year, Andy Frankenberger and more. Alternatively, if you’re not one for cards but still want to help kids, you can also just register for the cocktail hour. $$$ Would you be interested in a job as a credit team director at a distressed-focused private equity firm in New York? What if I told you it's at Patriarch Partners? [DBCC, also available] $$$ Likelihood of Grexit Still 50-75%: Citi [CNBC] $$$ Alvarez Says Fed Hasn’t Seen Other JPMorgan Risk Problems [Bloomberg] $$$ Millionaire Parents Say Their Kids Are Unfit to Inherit [CNBC] $$$ New Jersey Man Allegedly Calls 911 From His Pillow Fort, Demands To Speak To Tim Tebow [DeadSpin]

Maddeningly Bad Luck

March Madness has been a disaster: two of my best customers, who know each other, combined to go 2-for-39 on the first two weekends. Faithful Assistant has been laughing at their tought breaks, but I've been trying to soothe them. I need these guys to keep playing, losing, and paying. Their luck really has been atrocious. 18 of the losses have been by three points or less. One of them asked me if I'd ever heard anything worse. I guess there's Tsotomu Yamaguchi. Yamaguchi was on a business trip in Hiroshima when the A-bomb dropped. Wounded, he figured he'd better get out of Dodge ASAP, so he barrelled home the next day – to Nagasaki. I reminded the client that his bad luck paled in comparison to Yamaguchi's, and that Yamaguchi lived another 65 healthy years...plenty of time to make more bets. But now I'm dealing with more than bad luck. These guys have now declared that sports are rigged. This month's point-shaving scandal at Auburn hasn't helped, and it brings others of recent years to mind. The NBA has Tim Donaghy. Overseas, it looks like half the Turkish soccer league is going to jail, and half of Italy has already been. I actually believe that most of sports are on the level. Disagree if you want, that's OK. But what really gets my goat are the people who think the bookies want the games rigged. We don't. If people think the games are fixed, and thus become afraid to bet, I'm out of business. It's the same story for the guy running a poker game or the CEO of a retail brokerage. No faith, no business. There's a really simple reason somebody with the available cash or credit can get down a $500,000 bet on the NFL, but might not be able to easily bet $50 on Wrestlemania: the market can take the $500,000 football bet, adjust the price slightly, and bettors will come for the other side. There is no market for Wrestlemania, because nobody trusts it. So these clients are generally miffed, but also fixated on one game: Syracuse vs. Kansas State. The price started moving 20 minutes before tip when a K-State star was ruled ineligible. These guys took the new price on K-State thinking they got a deal, when it was just the market reacting to information. Well, Syracuse rolled and now it's allegedly a “fix”. Of course it's not a fix—it's just betting dumb with less info than everybody else. They should have checked why the spread was moving. Emotion trumps reason, though, and there was no reasoning with these guys. And maybe that's why these guys bet with me instead of going online somewhere—they're so Old School, the building probably only had one room. If you want to be a pro gambler these days, there's a ton of free information all over the Internet. I'm not saying it's easy to win over time—it's not. But there's a bucket of info out there on any game you want to study, and all sorts of arcane stats to help inform your decisions. And since everyone else is studying, you better too. When I worked in Chicago, we had a good customer who worked at O'Hare. He would bring us out-of-town sports sections that travellers left behind as they boarded planes. We got useful injury information from beat writers in other cities that the rest of the Chicago market just didn't have. That was 20 years ago, but when I tell that story to Faithful Assistant, he usually asks if Orville and Wilbur Wright were flying the planes. He's been on the Internet since middle school, and pretends he can't remember life without it. So I'm not sure what to do with these guys—they bet six times a day, but haven't called since Saturday. I think I'll give them a free bet equivalent to what they lost on Kansas State. I know I don't have to, but I'm not willing to risk losing the business. That's the worst part of all this—and the reason why I'm trying to get out of this racket. I don't just need the customers to lose, I need them to lose slowly and have fun doing it. I'm not a psychiatrist trained to actually convince people that betting really is a random thing for the vast majority of gamblers and losing streaks just happen. I wonder if I should join the Army. I'm not much for getting shot, but I hear the poker games are good. Baseball starts next week and the guys who just bet bases are much easier to deal with. They understand the nature of a game where the very best teams win 65% of their games and the absolute worst teams still win 35% of the time. I can't wait. Anybody know if Tim Tebow needs someone to take his action? He's on every channel, everywhere.

Football? Yep. Oscars? OK. The VIX? Really?

I was scoring up the Super Bowl (small loss) when Ocean called. Ocean is a good customer. He had a couple questions, and I told him fire away. First he wanted to know if we were doing the Oscars again this year. Of course we are. I'm not thrilled about it –I'm half paranoid about inside information bubbling on the Internet, but I'm learning to embrace the inside mis-information. Most importantly, we do it as a service, so the customers won't start betting online with bookies in Costa Rica. Ocean was pleased. For what it's worth, he likes The Artist at very short odds. He watches rom-coms. With his wife, he says. His favourite movie though is Love Story, and he cries shamelessly every time he watches it: he truly believes that love means never having to say you're sorry. I've never figured that out. I'm forever apologizing to my wife for doing boneheaded things and saying stupid shit. And apologizing is a necessity But whatever. A happy customer is a beautiful thing. And I thought the phone call was over. And then Ocean said it. “What do you have on the VIX for this summer?” I asked him what the hell he was talking about because I didn't compute what I was hearing. He then said how he had been watching CNBC. He went to his mutual fund guy determined to buy the VIX, and the salesman blew him off with “Oh, that's just gambling”. So, hey, I must surely book the VIX, right, because I take bets from gamblers? Well I totally had my pants down and started mumbling about monthly contracts and the need to be a sophisticated investor and how there were a few products out there and...he cut me off. He understood how “the 1% were trying to make this complicated” and he just wanted a near-even-money type bet that the VIX would be over 30 at the end of June, as per the top of the screen on CNBC. I gave him the bet. 30's a pretty big number, and I figure this'll make me learn about trading the VIX instruments so I can lay it off if I want to. (I've never done anything more sophisticated than buy a put spread when I was afraid of a downturn. Go ahead, laugh.) 30's a lot. So I let him have it at 6-to-5. He was only expecting even money or slightly worse, so he was pleased. Ten minutes later I was using this episode as an object lesson for my Faithful Assistant, a guy who is muddling through an MBA while living in his parents' basement. Garage loft, I stand corrected. Anyway, good customers need to be kept happy, good customers lose, and happy customers pay. The Hollywood-movie days of kneecapping customers who stiff you were over before I was born, if they ever even existed, and—and the phone rang again. Ocean again, wanting an over/under number on where Apple would be in a couple months' time. Oh, and Facebook. I told him I would have to call him back. I started throwing coffee cups and in between my screams my Faithful Assistant told me he'd just pretend I have Tourette's. He's cold. Then he asked me what was going on. And after I told him, he smiled, and tried to give his boss an object lesson of his own: “This is great. You trade the odd option. All my electives are Finance. We just set the over-under price, I mean you KNOW he's going 'over', high enough that we can buy calls a couple strikes below that number. We use his bet to buy the calls, if he wins we clean up, and we're covered.” And when I asked what would happen to Ocean's bankroll over time, the answer came back that we would sodomize it. I just shook my head. My young friend may well end up in a business career where the necessary m.o. is to grab-it-all and grab-it-now, but that's not how my business works. I actually want my customers to win 45-50% of their bets, lose fairly small amounts over time, and never lose so much in one fell swoop that they can't pay or that they decide to stop playing. There's a purpose behind all that languid ritual at the Baccarat table in the high-limit room at the casino: try to keep the House's earn slow-and-steady. It makes the news when a whale beats Vegas for $10 million, or drops $10 million, but the casinos tolerate those lumpy earnings—aside from a little ink, they don't really want them. The casinos want everybody playing dollar-slots, losing three cents a spin. His eyes kind of glazed over, so I thought, what would Suze Orman do to get her point across? I figured Suze, to make the young'uns understand, would probably Go Gangsta. So I said “Look, we make money by drawing blood from our customers.” His eyes lit up as I continued: “We're blood collectors. We need a nice orderly blood bank. What you're proposing, is a drive-by.” (Well, I actually said “drive-thru”, but we sorted it out after a little confusion.) So we've told Ocean that these bets are going to be for peanuts and we're going to have fun with them. He's on board, and he's all excited. Faithful Assistant is going to make the numbers and I told Ocean to give us some requests for stocks he thought would go lower. “Oh you mean I could bet 'under' too? Not just 'over'?” Yep, 'under' too. February's a shit month in the bookie biz—the regulars are there, but football's over and it's a ways before March Madness. Ocean's stockpicking is going to keep me interested.