
The Man Who Broke Atlantic City - mikexstudios
http://www.theatlantic.com/magazine/archive/2012/04/the-man-who-broke-atlantic-city/8900/?single_page=true
======
po
This stuck out to me:

 _Made famous in books and movies, card counting is considered cheating, at
least by casinos. In most states (but not New Jersey), known practitioners are
banned. The wagering of card counters assumes a clearly recognizable pattern
over time, and Johnson was being watched very carefully. The verdict: card
counting was not Don Johnson’s game. He had beaten the casinos fair and
square._

Card counting is not cheating, at least if you can do it without an external
device. That's like saying that you can play this game but only if you don't
think about it really hard. Even with card counting the casinos have a slight
edge against you. They swap the shoe out frequently so that you have to reset
your count.

The reason it's not illegal in NJ is because someone sued them and won. It
_should_ be legal everywhere.

~~~
dantheman
I thought card counting was legal, and according to wikipedia it
is(<http://en.wikipedia.org/wiki/Card_counting>)

As of January 2012, there are no federal, state or local laws which prohibit
card counting in the United States as long as no external card counting device
or person assists the player in counting cards.

BUT:

In all parts of the United States, with Atlantic City being the sole
exception, casinos may ban any player for any reason including card counting
as long as the Federal laws against discrimination based on race, creed, sex,
national origin, age, or physical disability are not violated.

\--

I think that a casino should be able to kick out anyone that they want for any
reason, including card counting, being extremely lucky, being a jerk, etc...

~~~
jurre
Yes I think you're right, it is legal but it can hardly be used anymore
because most casino's use an automatic shuffling machine where they refill the
cards after every deal and that continually shuffles.

------
nostromo
The short version:

Because of the recession casinos are desperate for high-rollers. To lure them
in they offer perks. Some of those perks include slight modifications to the
rules and a "loss discount" -- for example: losing $500k only costs you $400k.

This guy negotiated rules that changed his odds to 50/50. Then he negotiated
an 80% loss discount, which meant for each $1 of upside, his downside was
$0.80.

So to pull this off, you need $1m to put down, great negotiation skills, even
better blackjack skills, good luck, and a very sophisticated understanding of
stats.

~~~
TylerE
No, that still doesn't make sense. The loss discount was on a per-trip basis,
not per hand, so basically if at the end of the week you were down $100k, you
only owed $80k.

The rules were generous but NOT totally even. The house still had around
0.25%, which is low, but not unheard of. Even on the Vegas strip you can find
Blackjack games open to the general public under 0.50% house edge. Of course,
that's with optimum general strategy, not "playing your hunches", which could
easily open the house edge to 10% or more depending on how dumb you're
playing.

My guess is that he _was_ card counting, but not with a traditional system,
and he wasn't using it to size his bets, just to make strategy decisions,
which would be harder to detect.

The odds of beating 3 separate casinos, over a reasonable number of hands,
even against a very low house edge, are quite small.

~~~
ImprovedSilence
I agree, but it appears that while he doesn't "count", He plays a more general
"averages" game. Per the article: "More useful, for his purposes, is running a
smaller number of hands and paying attention to variation. The way averages
work, the larger the sample, the narrower the range of variation. "

Edit: I would guess he's developed some algorithm for keeping track of swings
and general variation, so he plays not hand by hand the way counting goes, but
rather "batch" or "streak" While will also have wild swings of him making and
losing lots of money, but if he keeps tabs on these variations, he can swing
them in his favor over time.

~~~
gamble
Probably the best evidence for your argument is the fact that he apparently
negotiated a hand-shuffled shoe. I'm amazed anyone would agree to it, since
it's pretty much a giant warning sign that the guy is planning to exploit poor
shuffles.

~~~
dsrguru
The shuffles needn't be poor. The existence of the hand-shuffled shoe just
means he has the opportunity to count or shuffle track. The former is
impossible if they use a continuous shuffle machine and I imagine the latter
is either impossible or too difficult to use effectively. I agree it makes no
sense for the casino to agree to that if that's outside their normal rules. I
guess they want high rollers to think they've got an edge, but the casinos
realize that most high rollers don't actually know how to count fast enough to
realize that edge. And until this guy, they've always been able to identify
the successful advantage players (not counting group players a la the MIT
blackjack team) before losing millions of dollars...

~~~
danbmil99
another factor: as an inside guy, he probably knew their precise algorithm for
catching counters. I suspect he does count, but knows exactly how to vary his
play to keep just south of the model targeting him as a counter.

~~~
thesis
What are you talking about? A CEO got fired because of this. Anyone and
everyone was watching this guy.

~~~
danbmil99
What I'm saying is, they have mathematical models that they follow to decide
whether someone is counting. I suspect this guy was in fact using information
about cards played to vary his future bets -- in effect counting, but he was
doing it in a way that did not fit the house's models for what card counters
normally do.

He clearly knew more than the people who were watching him, so the fact that
all the 'experts' were paying attention doesn't mean he wasn't following a
winning strategy.

------
nl
_“They began offering deals that nobody’s ever seen in New Jersey history,” he
told me. “I’d never heard of anything like it in the world, not even for a
player like [the late Australian media tycoon] Kerry Packer, who came in with
a $20 million bank and was worth billions and billions.”_

Kerry Packer's gambling is pretty legendary.

There's a story about how he was in a high-roller room in Los Vegas and there
was a Texan (oil?) millionaire boasting about how big his ranch was.

Packer was annoyed at how noisy he was, so he walked over.

Packer: "So how much is this property worth then?"

Texan: "'bout $20 million"

Packer (pulls out a coin): "toss you for it"

Apparently the Texan didn't like that idea much...

Packer successfully invested a lot in building casinos in Australia and Macau.
His son has taken over his empire and invested even more, though not as
successfully.

~~~
jacques_chester
His best ever gamble was selling Channel 9 to Alan Bond for $1 billion, before
getting it back a few years later for $250 million.

He later said "You only get one Alan Bond in a lifetime ... and I've had
mine".

------
harryh
There's a lot in this article that doesn't add up. For example this quote:

"So my philosophy at that point was that I can afford to take an additional
risk here, because I’m battling with their money, using their discount against
them."

If he's already up significantly (battling with their money) the discount
isn't likely to come into play. And he's still playing a negative expectation
game so every hand he plays he should expect to give back a little of his
gain.

I don't think we're getting the real story here.

~~~
fragsworth
I agree - they state the following:

“You’d never lose the million. If you got to [$500,000 in losses], you would
stop and take your 20 percent discount. You’d owe them only $400,000.” ... So
when Johnson got far enough ahead in his winning sprees, he reasoned that he
might as well keep playing.

I don't quite see how this makes any sense - if you get far ahead in a winning
spree, the value of your discounted loss diminishes significantly... doesn't
it? For instance, if you won $2 million, the discount is now $100k on a $2.5
million loss, which is only 4% (much smaller than the initial 20% discount of
$100k on a $500k loss)

~~~
acak
He went in with $1M, odds of 50/50 and a 20% discount once the losses are over
$0.5M. Lets assume for simplicity that all hands he plays are equal ($0.1M
according to the article)

Because the discount kicks in at $0.5M of losses, he should plan to lose bets
for $0.5M first. This is a setup.

Now he needs play to win the bets for remaining $0.5M he has.

Because the odds are 50/50, after a few rounds of playing with the $0.5M he
has, he's going to have lost half the hands, and won half of them. While he
gets 2x for his wins, he gives up only 0.8x for his losses.

Net = 2x - 0.8x = 1.2x. He just had to rinse and repeat with the $0.5M he was
left with. Though I'm sure he brought in a lot more money once the $0.5M loss
kicked in the discount.

Just note that this explanation is a simplification. 50/50 odds (technically
49.75/50.25 according to Johnson) have to be accompanied by an even
performance on double-downs and splits.

------
alpad
The article is a bit confusing. If I take it correctly, a few casinos offered
him nearly 50:50 odds, and a discount on his losses if he lost more than
~500k. In other words, a great deal, worth ~$50k. And then he proceeded to
have amazing games, winning millions by sheer luck. The article doesn't talk
much about the luck this requires, and one wonders if he does have something
else going on.

~~~
krschultz
The negotiation on the rules of the game is key. For example the difference
between a 'soft 17' and a 'hard 17' is worth a few percentage points, and
those points are valuable.

~~~
TylerE
No it's not. Soft 17 is worth approx. 0.25% on the house edge. Even in Vegas,
it's not hard to find 0.50% edge blackjack, even at low stakes.

~~~
corin_
I've literally never been in a casino where a dealer can hit anything soft, or
where a player can't. Admitedly I've never been in a US casino.

------
dustingetz
hey guys, i actually think he might have positive expectation:

he negotiated a .25% houe edge (roughly half of normal perfect play) and if he
loses 500k he gets 20% back, each session independent.

check this analysis. he is +EV by martingaling his wins - 7/8 times he loses
400k with a 20% discount (400k x 7 x .80 = 2 240 000), 1/8 times he wins 400k
x 8 with no reverse-discount = 3 200 000, so that's a mil in EV. if he pushes
his martingale as far as he can his expectation grows superlinearly, which is
why he martingales his wins until they cut him off.

is this math right? if he was -EV, the house would let him keep playing, hence
telling him he can continue to play under normal rules. note he refused.

update: an easy way to see this (gross oversimplification) is if he plays only
one hand/session he stands to win 100% of the money 49% of the time and loses
80% of the money 51% of the time.

~~~
gojomo
This explanation seems most consistent with the limited information in the
article.

We don't know whether he had several -$400K sessions before his big run.
Gamblers and non-gamblers talk more about upswings than downswings.

There could be some other unmentioned factors that aided him a little, but the
capped downside, a lucky run, and selective reporting are probably a
sufficient explanation.

~~~
corin_
That's funny, I much prefer the story of mybiggest loss in an hour of
blackjack than any of my winning stories, just seems more entertaining and
less boastful perhaps.

------
ap22213
It seems that every once in a while an enticing story comes out about a person
(or team) who beats the house and wins big.

I spent a short time in the 'gaming' industry building electronic slots and
other types of games. The word on the street was that the industry encouraged
these types of stories. And, while maybe they didn't directly sponsor them,
they looked favorably on them. These types of stories perpetuate ideas of the
little guy beating the house.

The profit of the gaming industry comes from the average person thinking that
they can beat the house, when, the fact they can't. When the average person
begins to believe that they can't win, casino profits go down. As such,
casinos put billions of dollars into R&D and marketing to give the average
person the illusion that they can win.

I wasn't involved long enough in the gaming industry to be an expert, and I'm
sure there are some exceptions. But, generally, to average people, of which I
would classify 99.9% of the population, even those of us terribly smart
people, the house advantage always wins.

------
dfc
The description of his odds system did not make a lot of sense to me;
especially in light of the statement that he does not count cards. Can anyone
elaborate?

 _"Many casinos sell laminated charts in their guest shops that reveal the
optimal strategy for any situation the game presents. But these odds are
calculated by simulating millions of hands, and as Johnson says, “I will never
see 400 million hands.”

More useful, for his purposes, is running a smaller number of hands and paying
attention to variation. The way averages work, the larger the sample, the
narrower the range of variation. A session of, say, 600 hands will display
wider swings, with steeper winning and losing streaks, than the standard
casino charts."_

~~~
gibybo
The charts are maximizing EV without taking into account the discount he
negotiated. With the loss discount, it becomes more profitable to increase
short term variance beyond what the chart strategies would lead to.

~~~
dfc
I'm sorry but your answer neglects the second paragraph that I quoted. That
seems sort of important...

------
CurtMonash
The article is clear on only one point, but it's not an explanation for his
winning. That point is that if he loses $500K, he only has to pay $400K of it.
I'm pretty sure that if you bet $100K a hand, and stop whenever you hit the
first of +$500K or -$500K, and get a $100K rebate if you hit the lower number
... well, the whole plan would seem to have a positive expected value. And
perhaps the same would be true even with a bet increment of $10K or less,

Second, it is strongly implied (without details being given) that he has
negotiated rules giving him an unusually favorable expected value per hand --
either a very slightly negative one (which would explain why Tropicana is
willing to keep playing with him), or perhaps even a positive one that they
keep overlooking. The only rule I saw in there that sounds odd to me is
"calling the hand" -- is that a recent twist to blackjack or something?

~~~
corin_
You're talking about this, right?

> _It was the dealer’s turn. He drew a 10, so the two cards he was showing
> totaled 15. Johnson called the game—in essence, betting that the dealer’s
> down card was a seven or higher, which would push his hand over 21. This was
> a good bet: since all face cards are worth 10, the deck holds more high
> cards than low. When the dealer turned over the house’s down card, it was a
> 10, busting him. Johnson won all four hands._

Pretty sure that by "betting that the dealer’s down card" it means that this
was the logic behind his betting on the four hands, not that there was a
seperate bet on it.

"Calling the hand" most likely refers to the kind-of-tradition of cheering on
what you want ("come on facecard... COME ON FACECARD!!")

------
corin_
The line that annoyed me most in this was about card counting, saying

> _"The tactic requires both great memory and superior math skills."_

Not honestly true, at least about the maths skills. Memory... isn't how I'd
describe it, though I suppose it's sort of right.

In my opinion, the most difficult thing is concentrating on multiple things at
the same time (1. Keeping the running count 2. Counting how many cards have
been played 3. Following the game itself and deciding what to do 4. Chatting
with dealer / other players) - so this can perhaps be called "memory" as you
have to remember these things all at the same time.

But for each thing you need to remember, it's a very simple thing on its own.
Counting isn't about remembering the order of every card that's come out, it's
not even about remembering what card has come out.

If you were to watch a video of a Blackjack game, i.e. you were left in peace
and not doing anything yourself, few people would be incapable of counting the
cards.

~~~
nikcub
exactly. the best blackjack dealers (for the house) are those that can keep
you distracted.

~~~
corin_
As far as I'm concerned they're the best dealers for players too - I don't try
and count cards in the casino, and find that both winning and losing sessions
are much more enjoyable with a friendly dealer.

------
grepherder
I skimmed over the comments, and I'm surprised to see no mention of it here.
Maybe I missed it.

The house always wins, and they still won. This is, for each of them at just a
few million, very cheap advertising. Consider how poker/holdem was hyped
during the last decade, this is just the same in a different setting.

They will easily win those few millions each back and more. For every smart
person such as this guy, there are thousands of idiots out there. The article
itself mentions they're trying to lure in high-rollers. This looks rather
obvious.

Thus, the title, how Atlantic City supposedly "got broke" by a man, seems very
misleading in this context.

Still, maybe I'm missing something here.

------
dkrich
Even taking into account his negotiated edge, which is impressive, it isn't
enough mathematically to account for such substantial winnings over such a
short period of time. I agree with what others have said and think he must
either have had a counting system or had a terrific run of luck.

Great runs are rare of course, but not unheard of. The reason people don't
hear about them often is that very few players play at such a sophisticated
level to minimize the house advantage to a paper-thin margin, and even fewer
do so at a high-stakes table where this would make big news.

------
danbmil99
Classic ringer's game: they underestimated his ability, including the meta-
ability to calculate odds and stay unemotional. Most players, even high
rollers, get into the game and start to make hunch bets as play goes on. He
was disciplined enough to trust the math and not waver his strategy.

------
signalsignal
I thought casinos were mostly fronts for money laundering, but since this has
a story to it, there is credibility that a growth industry like gambling has
real credibility in the startup scene. Therefore, there should be more gaming
startups in YCombinator.

------
seanp2k2
Just goes to show that the world is still human in some regards, and
communication and negotiation skills are still king (pun def. intended.)

------
3am
I can't be the only one who thought this was about Donald Trump before I
clicked through...

edit: I am completely serious

------
tucson
Great PR for the Atlantic City Casinos? could that be the explanation for this
great winning streak?

------
maeon3
Calling card counters cheaters is like calling people who get good grades on
tests cheaters because they discovered the solution to the problem during the
test with their mind by eliminating the wrong answers using statistics and
probabilities.

Card counting is a code phrase that translates to "if you don't let the house
win, we won't let you play".

------
shareme
What is surprising is how easy it is to compute the odds..its just
permutations and combinations..not that hard its a 100 level math course in
most colleges.

What makes it different is that we needed two things to leverage the $1
million he put up per Casino and the Casino management being fool-hardy enough
to believe that they computed the odds on the change in rules and discounts
correctly.

It would be like say oh stacking the deck in that the founders get one class
of stock and everyone else another class which allows the founders to retain
ownership control of a start-up.

You do not need to card count as he changed the rules to only have hand
shuffled six decks in the shoe..I can with a certain memory system compute the
odds on cards dealt from that shoe and so can you..its not hard..its simple
math..

~~~
pellias
How does hand shuffling six decks in the shoe give the player an edge compared
to the normal machine shuffling of the same six decks ?

~~~
hudibras
There is some debate about this (to say the least) but the theory is that "hot
sections" of the deck are propagated between shuffles of the decks when hand-
shuffled. So if you run into a streak of good cards at the beginning of one
shoe of cards, then that means you'll have another streak of good cards mid-
way through the next shoe (or whatever). Then you can plan your bets
accordingly by placing small bets to minimize your losses during the cold
sections and then upping your bets during the period of hot cards.

