Old Gambler Yells at Clouds

Or, why I think we were better off in the shady days before DraftKings and FanDuel

Today’s post will be a little change-of-pace. I want to talk a bit about gambling.

pictured: me

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This diatribe is spurred by a December 2003 WIRED article, “CodeFellas.” It’s a fun little piece of writing — a first-person account from someone working in tech support for an underground (illegal) sports-betting operation in NYC.

Here’s the bit that stands out:

When a so-called mobster gets caught, the cops always lie, and the journalists believe what they're told. The cops will say that millions of dollars move through offices like mine, and that all of the money goes to some big crime family. It makes great headlines, but it's laughably untrue. Perhaps we move millions of dollars over the course of a year, but we keep only a small percentage of that - "the juice." The rest gets paid out as winnings, at better odds than you'll find in any legitimate game of chance.

And look, I’m not sure how reliable this narrator is. The closing paragraph is a haze of red flags, where he insists he could be making $150,000 as a programmer for a legitimate company, but instead is pulling in 1/3rd of that so he can live below the radar and avoid paying taxes. (Sure you could, buddy. Sure you could.)

But what strikes me is that those numbers are just really… tiny. The illegitimate gambling economy circa 2003 was shady and inaccessible. The standard argument during the intervening decades has been, essentially, “let’s legalize, tax, and regulate all this gambling. That will be better and safer for everyone.” And thus we got DraftKings and Fanduel, and an avalanche of sports betting that just further turns the whole damn economy into a casino. And, I dunno, I don’t think it has gone so well.

Not to sound like a cranky old man, but I think we were better off in the shady, inaccessible olden days.

It didn’t have to turn out this way. Legalize/tax/regulate makes a lot of sense, so long as the regulatory scheme is going to maintain a ton of friction within the system. (I think this approach has worked out much better with marijuana legalization, for instance.) But it turns out that if you legalize sports betting while simultaneously deconstructing the regulatory state, things will predictably go badly. (Because of capitalism. Duh.)

Legalizing and barely-regulating sports betting has led to a marketing bonanza, aimed at convincing people with poor impulse control that they can have fun and make money beating the odds.

What I’m saying is there’s way too much gambling these days. That was my takeaway from the article. We were better off when the gambling economy was shadier and less legitimate. Those underground gambling parlors couldn’t get too big, because that’s how they got busted. DraftKings and FanDuel can chase limitless growth, in direct partnership with the NBA and NFL.

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I actually speak with a bit of authority on this topic. Part of what appealed to me in the CodeFellas article was that it triggered some deep sense-memories.

From 2004-2007, I was a semi-professional poker player. Half my income came from a meager graduate stipend that the University of Pennsylvania would pay doctoral students ($15,000/year). The other half came from playing cards online, and in Atlantic City, and in a handful of underground card rooms in the Philadelphia area. Grad school covered my rent. Poker covered my coffee/beer/meals.

So I recognize the scenery. I remember arriving at those nondescript doorways, ringing the buzzer, being admitted upon recognition. There were guys in those rooms you could joke around with, and guys who you should definitely keep your mouth shut around. The whole thing wasn’t exactly illegal, but it wasn’t strictly legal either. The main club I hung out in was officially a “backgammon and bridge” club. Those games were legal, and it was legal for them to deal poker too, so long as they didn’t charge people. (Of course they did charge people, but the police had bigger problems to worry about.)

The big loser in those games was a nice guy. He owned a couple businesses. He was going through a divorce. Poker was how he blew off steam. He didn’t mind paying to chase that inside straight draw. On the nights he was playing, the game was good. I would tell myself that this was his entertainment. And he could afford it. And if I wasn’t taking his money, it would be someone else instead. That was all true. It wasn’t healthy for him. The guy seemed to be burying himself in a gambling habit as an escape the rest of his life. But I was, what, 25 years old? That was somebody else’s problem. It couldn’t be mine.

Do you want to know the secret to being a profitable small-stakes card player? It’s simple: Table selection. You don’t have to be better than the professionals you see on television. You just needed to play in games with people you know how to beat.

There's an old saying in poker, memorialized in the classic 1998 film Rounders. "If you can't spot the sucker in your first half hour at the table, then you are the sucker." 

It’s a good line. But, at the stakes I played, if there was only one sucker at the table, that’s a bad table. Everyone has exploitable flaws in their games. The real sharks build up a bankroll and move to the higher-stakes games (either because they like the thrill or because it's just too hard to grind out a living when the most you can win or lose is a few hundred dollars per hand).

I’m still a profitable recreational poker player today. Ever since the pandemic, I don’t get out to the casino much anymore. But when I do, I follow that same golden rule of table selection rule. If I’m at a card table and I can tell there are more than a couple other players who are as-good-or-better than me, I ask for a table change. There are, of course, other nuances to how you win at poker over the long term. But that’s the biggest one. Just… don’t play against people who are more talented than you.

I nearly wrote about this point a couple weeks ago, in the Dumb Money Squared essay. Because that, more than anything, is what makes the poker economy different than the day trading economy. Day traders don’t get to table select. They’re the top-of-the-funnel of the financial speculation economy. They are playing in the same game as the hedge funds and the high-frequency traders. They’re kidding themselves if they think they have any edge in that game.

Probably the biggest difference between 2003 and today is how much easier it is to gamble. I don’t bet on sports. But I see the advertising everywhere. If I had a gambling problem, those ads would get me. We legalized and regulated the gambling economy. But those regulations went into place while we also dismantled the regulatory state. The result is that we’re just constantly removing friction, making the gambling economy more appealing, more accessible, and bigger overall.

That means there are more people burying themselves in a gambling habit to escape the problems in their lives. What else could it possibly mean? Those are the people that feed the broader sports betting economy. We’ve invited private corporations to try their best to make this stuff seem glamorous, addictive, profitable. Of course they are maximizing profit in ways that exploits vulnerable people. That’s where the money is!

So I can’t help but pine for the good-old-days, when gambling was shady and at least borderline-illegal. You could bet on sports or play cards if you knew where to look. But you had to put effort in. You had to look hard. That social friction was a good thing. It limited the effects to people who were already pretty seriously intent on putting their money on the line.

In retrospect, it’s only a good idea to legalize vice if you’re also going to take regulation seriously. The rapid expansion of the gambling economy is, I think, a cautionary tale of what happens when we don’t.

…Kids these days, I tell ya. We aren’t gonna stop them from getting into trouble. But maybe we could go back to the times when trouble wasn’t so glamorized, advertised and optimized.