In Defence of Gambling (Part 1)
"There are few things that are so unpardonably neglected in our country as poker. The upper class knows very little about it. Now and then you find ambassadors who have sort of a general knowledge of the game, but the ignorance of the people is fearful. Why, I have known clergymen, good men, kind-hearted, liberal, sincere, and all that, who did not know the meaning of a "flush". It is enough to make one ashamed of the species." ~ Mark Twain
Poker Machines are giving gambling a bad name. As a regular poker player, I find myself unwilling to talk about my passion for the game in polite company. A lot of people – those who know little of the world of gambling outside of footy tipping, or the lotto, or the Melbourne Cup – conflate playing poker with dumping money in poker machines or spinning it upon a roulette wheel. Most of these same people don’t even recognize the fact the footy tipping or buying a ticket in the lotto is gambling. Harmless, recreational and enjoyable no doubt, but gambling nonetheless.
The same people who turn their nose up at a poker player or sports better will happily buy a scratchy every week, or put their life savings in a hedge fund (where you pay someone else to do your gambling for you). Even though – as you will see later in the article – both of these activities have far lower returns than playing poker, or making an informed pick on a sporting contest. This article is going to set the record straight. There are forms, I would say most forms of gambling, that are enjoyable, have positive effects on the community, and reflect an intrinsic part of our national character; while there are others – like the pokies – which are mindless, socially destructive, and utterly irredeemable as a recreational pastime.
But let’s start with the gamble in Australians. We are the biggest punters in the world, on a per capita basis. This also unfortunately means we are the biggest losers. On average, we lose about 1300 per person, per year, on gambling. That is number one on the planet. Singapore comes in second at about 1150 per person; Ireland is a distant third at about 550. Further down the list you’ll find Hong Kong on about 450 a year and the good old USA – home of the gambling mecca of Las Vegas – losing on average 280 per person each year. So we’ve either got the most gamble or are just the worst gamblers in the world, depending on how you want to look at it; but whichever way you slice it, it’s clear we have more freedom to gamble than just about anyone.
So yes, this is a statement of the obvious: Australians love to gamble. Any country that gives out public holidays for a horse race clearly has some enjoyment of the flutter in the cultural DNA. But not all gambling is created equal. Some of it, for those of us in the know, isn’t even gambling. If a poker player shows a consistent return of 25 per cent on every dollar they put in poker tournaments over ten years, is that gambling? Certainly, in the short term, the result of a bet will tend to be influenced more by luck than skill – which is the essence of gambling. However, in the long term, skill is paramount in poker, and the poker professional will have a very accurate idea of his or her long term expected profitability. A professional sports bettor will intensely research every aspect of a particular game and the teams playing it, and may even develop computer simulations and algorithms to get an edge. Yet they will both be dismissed as gamblers simply riding the vicissitudes of luck.
Well, let’s look at this luck versus skill debate briefly. Take the US State of Florida, as one example. Nearly all forms of gambling are currently illegal in Florida, and yet, there is a proliferation of poker rooms. Why? Well, the Florida Supreme Court ruled that poker was primarily a game of skill, that it could not rightly be put in the same category as zero-skill games like roulette and craps. Similar rulings have been brought down in other US States (Kentucky, South Carolina Pennsylvania and many more), and indeed the Courts in a number of countries in Europe – France, Sweden and others. All have determined poker to be primarily a game of skill.
There’s a saying in poker ‘in the long run, the cards even out, but the chips don’t’. Over a large sample size you’ll get the same amount of good cards and bad cards, lucky breaks and crushing bad beats. But in the end, some will have all the chips and some will have none. That’s not luck; that’s the discipline and skill you need to beat the game. And money, well, that’s just the means. As Lancey Howard tells a defeated opponent at the table in the classic movie, the Cincinnati Kid: “to the true gambler, money is never an end in itself, it's simply a tool, as a language is to thought.”
I have another word for someone who wagers on events with an uncertain outcome, but in the long run expects a profit. It’s called an investor. Let’s look at the derivatives market. Derivatives are not about investing in the traditional sense: it’s not about building a company or supporting a new business or innovation, it’s wagering, pure and simple. A derivative, by definition, is not a real thing, but a speculation on the underlying value derived from a real thing. What traders do is bet on these values, and in a way that looks very much like gambling. They bet on the over / under of a stock value by a certain date, they bet on whether products will go up or down in price, they hedge their bets (which gamblers called ‘laying off a bet’) to mitigate losses. Derivatives trading is a trillion-dollar proposition betting scheme that operates under a veneer of respectability never credited to the common gambler.
However, unlike a professional gambler, a trader tends to bet with other people’s money. When a gambler has a bad month at the tables, they go home with nothing; a trader goes home with their salary intact and a bonus management fee of around 2% on the bets they made. When a professional gambler continues to make risky, ill-considered investments, they end up broke; when a trader continues to make risky investments with other people’s savings or retirement funds, the government bails them out and they keep their rolled-gold salaries. Broke gamblers, as a rule, tend not to get bailed out by governments. In relative terms, at least gambling is an honest profession.
Let’s look at some of the hard numbers around gambling. The following table expresses immutable house odds against the player until you get to ‘Hedge fund’- after which, skill becomes the dominant factor:
Game Game version / Comments Percentage + / –
State-run Lottery Average for US state lotteries -50% and worse
Keno -25%
Pokies (Queensland) -15%
Pokies (Victoria) -13%
Caribbean Stud -5.30%
Roulette Double 00 -5.26%
Roulette Single 0 -2.7%
Pai Gow -1.5%
Baccarat Player -1.24%
Baccarat Bank -1.06%
Black Jack Basic Strategy – 0.5%
Black Jack Card Counter Positive expectation
Hedge Fund Average return (2000 – 2009) +6%
Racing Professional +4 – 5%
Sports Betting Professional +4 – 5%
Tournament Poker Professional +10 – 20%
First, an explanation lest I be accused of misrepresenting the reality of wagering: clearly all of the returns on hedge funds, poker and sports betting are skill-dependent, and a minority of recreational punters will be seeing a profit. I should also point out that the return for the hedge funds does not include fees made from profits, which can range between 10 and 50%, plus a standard 2% management fee no matter whether the trader wins or loses. Return for racing and sports assumes a competent mid-stakes professional who is able to overcome up to 9% rake on average for sports betting, and the far higher rake for racing. The return for poker is also for a professional; however, a precise number is harder to nominate as there will be numerous players with an average lifetime return on investment of less than 10 per cent, while a number of the best players will be running at far higher than 25% over a large sample size. For example, in an article published in the Economist Magazine, they discussed a recent study on the 2010 World Series of Poker that found that over a large sample of tournaments, the skilled players (professionals) made an average return on investment of over + 30% over the series, compared with -15% for amateur players.
In analyzing the figures from the table above, the first thing that should be abundantly clear is that not all gambling is created equal. The second is that the lotto is a mug’s game. The third is that poker machines are 30 times worse than blackjack, 10 tens worse than baccarat and 6 times worse even than roulette. Furthermore, pokies enable you to bet more an hour than any of these games. Spins on a pokie machines are in the hundreds per hour (over 600). Games like baccarat would give you about 40 bets per hour. Of course, you can place bigger bets on the other games, but they tend to lack the ‘hypnotic’ quality of the poker machines that leaves people mindlessly spinning away their pay-packets for hours on end.
Let’s be clear– most recreational punters will be moderate life-time losers on their racing or sports bets, or at their regular poker games. That’s fine, as long as it stays recreational and the losses are manageable. Those bets are providing entertainment, an enjoyable social experience, and a tax bonanza for state governments. While problem gambling is not common in the fields of wagering (in poker it is particularly rare) it does happen. In Australia, according to the Productivity Commission Report on Gambling, an astonishing 80 per cent of problem gamblers are addicted to poker machines. Of the remaining 20%, about 9% is on ‘wagering’ (in particular the races), about 2% on the table games in casino and about 2% on lotteries, with the remainder spread out on the remaining forms of gambling. How one becomes a problem gambler on the lotto is unclear to me and I was surprised when I saw it included in the statistics. Although it does bring back memories of my recent holidays – every day I went down to the local newsagent to buy the newspaper, and every day there were always, always, pensioners lined up to buy handfuls of scratchies and lotto tickets.
But anyway, next time some middle-aged, Hillsong-church going, BMW driving baby-boomer with a large derivatives portfolio and a fantasy football team turns their nose up at you as a gambler – well, you should punch them right in the mouth. Because people like that are just insufferable. Oh, and as an aside, you should point out their rank hypocrisy.
People like this often compare gambling to drug use, intending to cast it in the most negative of lights. Ironically, they are more right than they think – in Australia nearly every adult is a drug user. Most of us enjoy a good glass of white or a lager after all, and alcohol is a widely available and legal drug. So if you want to compare gambling to drug use, then the races are like a Carlton draught; poker a fine bottle of scotch; keno, (where one can sit back in a deep soft couch watching the hypnotic spiral of the numbers) are like a big fat joint; then the pokies like crack cocaine. While it is certainly possible to go off the deep end in on beer or liquor, it doesn’t compare to smoking a few rocks of crack. And unlike crack, the pokies are legal.
Part 2 of 'In Defence of Gambling' will investigate the impact of poker machines on the community, the reforms that have been proposed and nominate some people who need to give themselves an uppercut.
