Costly Addictions – IV

The overall theme of last week’s discussion was investing vs. speculating vs. gambling. But one of you — Dan H. — got me sidetracked (it is so easy to do that! I will be headed in one direction and then a bird flies past my window and I start thinking about birds, and the poor birds that can’t fly — ostriches! — and that gets me going on low-fat red meat [ostrich burgers have even less fat than turkey burgers] and before you know it . . . ) with the message heading “You can gamble and WIN.”

So I dutifully printed Dan’s contribution (it seems that at video poker you really CAN gamble and win), and then just as dutifully made fun of it. In the long run, I explained, even if you went to all the trouble to learn the system and fly to Las Vegas or someplace to test your skill, you’d likely make just $2 an hour before expenses. “And that’s not gambling, that’s work,” I concluded.

“Another drawback to that video poker scenario,” writes Fred Barotz: “If a 0.5% advantage [over the house] translates to $2 per hour profit, then one would have to bet $400 per hour on a quarter machine to achieve this, correct? So, even if the machine takes a maximum of, say, five coins per hand, you would need to play 320 hands per hour to bet $400. This is about one hand every 11-12 seconds. So, it seems you not only have to be perfect, but lightning fast as well. (Sounds a bit like my day job.)”

Well, hang on. It’s crow-eating time. (How much fat in crow, I wonder?) Or at least partially so.

Dan H. again: “Gary Catlin wrote the video poker tutor program which calculates the optimal play and odds. There are others, but his company, Panamint (pan-a-mint), is the only one whose base program version can be downloaded on line for free (www.vid-poker.com/vptutor.html). If you want the full-featured one that allows you to configure and calculate odds for different video poker machines, then you have to pay $25.

“I’ve met Gary, and he has a great story about finding a progressive video slot in Vegas with a 2% advantage over the house, but it was a $25!! machine. You could play up to three “coins” per play, so the actual bet was $75 per play. Good video poker players play at up to 500 hands per hour. That’s betting more than $35,000 per hour in hopes of statistically making (over the long run — at least hundreds of hours of play) $700/hour. Gary and a friend of his who is CEO of a moderate-size software company played for more than 10 hours, at the end of which they were a few hundred dollars ahead.”

And exhausted, one would think. But if even Gary could come out only a few hundred dollars ahead on this ideal machine after 10 hours, it sounds as if you or I would never come anywhere close to $700 an hour. Even he might have been earning barely fifty bucks an hour.

“Counterintuitively,” Dan continues, “the odds can be better on quarter machines than on dollar machines because casinos figure that nobody bright enough to do it is willing to go to all this effort to play optimally for $6 an hour. For a dollar machine, that’s more like $25/hour, which can be a decent living for people so inclined. Consequently, they make the odds worse for those machines. The $25 machine was an anomaly which the casino doubtless figured nobody would ever play the way that Gary and his CEO buddy did.

“The casinos are well aware of the situation, but so far it hasn’t taken enough of a slice out of them to care. What’s more, they make up for it by people who think they are playing optimally but really aren’t. (A few moderate mistakes will really kill your return.)”

The thing that has always impressed me about easy money is how very hard people will work in hope of getting it. Look at Humphrey Bogart in Treasure of the Sierra Madre. Or look at all the hours the alchemists put in back in the Dark Ages. (A boring, colorless account of this stretches for 158 pages in the classic Extraordinary Popular Delusions and the Madness of Crowds. But the first 100-or-so pages of that 1841 classic are more or less required reading, and I will be posting them here on this web site one of these days if you — who have already waited 158 years — care to wait a little longer.)

Anyway, through the marvels of Internetry, it was not long before I heard from Gary Catlin himself:

“Your discussion has come to my attention. Your correspondent Dan H. overstates the difficulty of learning to play near-perfect video poker, and also fails to mention some additional benefits. One is that many casinos have a small ‘cash-back’ program that can add up to 0.5% to your total return. [Dan actually hadn’t failed to mention it; I had edited it out for space. Mea culpa.] Another is that casinos provide ‘comps’ which are free rooms, meals, shows and merchandise based on the amount of play. Plus many players can play more quickly and at a higher coin level (i.e. dollars instead of quarters) than mentioned. The result can be a potential average ‘hourly rate’ in excess of the $2 mentioned.

“I was playing video poker in Las Vegas last fall, and started chatting with a fellow sitting next to me. I did not mention who I was, but he began to tell me all about my own software. It turns out he spent many months practicing and perfecting his play. Then, he and a partner drove out from Cleveland with a plan to spend six months in Las Vegas, playing video poker full time. The goal was to test the theory and see if they could make enough to support themselves free of their regular, oppressive jobs. I finally introduced myself, and elicited a promise from the gentleman to contact me at the end of the six month experiment. Well, I heard from him recently, and learned that he returned briefly to Cleveland to pack up his things — the move to Vegas and the new ‘career’ were to become permanent.

“This is not an isolated story. There is a small community of ‘professional’ video poker players in Las Vegas. And there are many thousands of recreational players (like myself) who have more conventional means of support, but enjoy coming to Vegas, staying in free rooms, eating free food, enjoying the shows and sights, and getting a chance to gamble at a game we expect to show a profit on. I should stress the profit is only likely to be shown in cumulative lifetime play, and that serious bankroll fluctuations must be expected on any given trip.”

Well, fair enough. The thought of bright, talented people wasting their productive lives this way — Profession? “Video poker player” — depresses me. But Gary sounds like a decent, sensible fellow. And as a computer-Scrabble addict (and not even paid for the pleasure), who am I to throw stones?

Tomorrow: Back to gambling in the stock market, which is where all this began before that bird flew past my window. (Just 2 grams of fat per patty, versus 16 for a hamburger!)