The King of Online Gambling(forbes.com)
forbes.com
The King of Online Gambling
http://www.forbes.com/sites/nathanvardi/2014/12/01/the-king-of-online-gambling-is-34/
12 comments
That's some leverage!
I was hoping this was going to be about David Walsh. He made hundreds of millions by creating "statistical models that allowed them to exploit mispricings in betting odds wherever they could be found."[1]
He spent a lot of his money on building the (Tasmanian) Museum of New and Old Art[2], which is everything an art museum should be.
Anyway, I'd call him the real king of online gambling.
[1] http://www.afr.com/f/free/blogs/christopher_joye/david_walsh...
[2] http://travel.cnn.com/sydney/visit/mona-worlds-most-far-out-...
I was hoping this was going to be about David Walsh. He made hundreds of millions by creating "statistical models that allowed them to exploit mispricings in betting odds wherever they could be found."[1]
He spent a lot of his money on building the (Tasmanian) Museum of New and Old Art[2], which is everything an art museum should be.
Anyway, I'd call him the real king of online gambling.
[1] http://www.afr.com/f/free/blogs/christopher_joye/david_walsh...
[2] http://travel.cnn.com/sydney/visit/mona-worlds-most-far-out-...
From my understanding, the money wasn't made from the odds per se, but from the rebates that the betting agencies offered because of the amount of money being wagered. When all the maths was done, the limited downside (losing the stake) and unlimited upside (winning much more than the stake) combined with the rebates to give a payout, win or lose.
http://www.afr.com/p/national/the_gambler_GwoSmf5IXaVFjmpyYX...
http://www.afr.com/p/national/the_gambler_GwoSmf5IXaVFjmpyYX...
Here is the recipe for guaranteed "gambling" success, from the linked to article. Quotes used, because it is not gambling, since profit is guaranteed by the odds (ie. you are effectively part of the house):
http://www.afr.com/p/national/no_humbling_great_gambler_1Rah...
It is a great system, although the smartest aspect of it was not the maths or computers. It was the psychology.
As former card-counting blackjack players, Walsh and Ranogajec knew the house will always seek to maintain its advantage.
In its crudest form, this involves barring those who become too successful. And so over the longer term, being able to stay in the game becomes almost as important as winning. For the syndicate, that meant being “with” the house rather than against it. In both Keno and “parimutuel betting” via the TAB, the house can’t lose, as it takes a fixed percentage of the overall pool.
And so by pumping huge amounts of money through Keno and the TAB, the syndicate was inflating the profits of the house rather than taking money from it.
It was a symbiotic relationship, but one that neither side wished to publicise as it was ordinary punters who lost out. For Walsh and Ranogajec, their Keno exploits in Tasmania were hugely ironic.
In other words:
1) Pick a game where the jackpot accumulates, for example, the "Jackpot growth pool" in Keno, and the house takes a fixed percentage of turnover.
2) Cut a deal with the house for a rebate that swings the total odds (including the accumulated jackpot) in your favour.
3) Gamble as much money as possible, so you have a significant chance of capturing the accumulated jackpot before anyone else, thus reducing the odds of an average punter winning an accumulated jackpot.
4) Effectively, you will be acting a a proxy for the house, allowing it to reclaim jackpots (via their percentage on your turnover), that would otherwise go to the average punter, and collecting your own percentage for your trouble.
The house makes a profit on the additional turnover that you generate. You make a profit by collecting jackpots at odds+rebate that guarantee a net payout. The average punter loses as they are unlikely to win the jackpot before you do, so their average payout is reduced.
http://www.afr.com/p/national/no_humbling_great_gambler_1Rah...
It is a great system, although the smartest aspect of it was not the maths or computers. It was the psychology.
As former card-counting blackjack players, Walsh and Ranogajec knew the house will always seek to maintain its advantage.
In its crudest form, this involves barring those who become too successful. And so over the longer term, being able to stay in the game becomes almost as important as winning. For the syndicate, that meant being “with” the house rather than against it. In both Keno and “parimutuel betting” via the TAB, the house can’t lose, as it takes a fixed percentage of the overall pool.
And so by pumping huge amounts of money through Keno and the TAB, the syndicate was inflating the profits of the house rather than taking money from it.
It was a symbiotic relationship, but one that neither side wished to publicise as it was ordinary punters who lost out. For Walsh and Ranogajec, their Keno exploits in Tasmania were hugely ironic.
In other words:
1) Pick a game where the jackpot accumulates, for example, the "Jackpot growth pool" in Keno, and the house takes a fixed percentage of turnover.
2) Cut a deal with the house for a rebate that swings the total odds (including the accumulated jackpot) in your favour.
3) Gamble as much money as possible, so you have a significant chance of capturing the accumulated jackpot before anyone else, thus reducing the odds of an average punter winning an accumulated jackpot.
4) Effectively, you will be acting a a proxy for the house, allowing it to reclaim jackpots (via their percentage on your turnover), that would otherwise go to the average punter, and collecting your own percentage for your trouble.
The house makes a profit on the additional turnover that you generate. You make a profit by collecting jackpots at odds+rebate that guarantee a net payout. The average punter loses as they are unlikely to win the jackpot before you do, so their average payout is reduced.
The AFR linked provided by your parent contains a quote that dispute this:
> Walsh says this is incorrect because they do not get rebates in most of the gambling they undertake.
> And even when they do, the “profitability of our system is statistically significant in their absence”.
> Walsh says this is incorrect because they do not get rebates in most of the gambling they undertake.
> And even when they do, the “profitability of our system is statistically significant in their absence”.
So they basically took PokerStars and IPOed it for them, since the owners didn't want to, as that would mean they would get stuck in the business.
For the previous owners there was never a point in taking the company public because they didn't need additional funds and it allowed them to do things that public companies like party gaming could not do for legal reasons.
Another reason for the sale was the fact that they were never able to convince US regulators that isai Scheinberg had nothing to do with the company anymore ( mark had taken over on paper ) which prevented them from getting a new jersey license.
Another reason for the sale was the fact that they were never able to convince US regulators that isai Scheinberg had nothing to do with the company anymore ( mark had taken over on paper ) which prevented them from getting a new jersey license.
At first glance, it seems like they bought at 10x EBITDA, and the combined entity is trading at 43x P/E. That's a deal well put together.
Why did Blackstone agree to go through this shady guy rather than just make the deal themselves? What does he bring to the deal?
Why wouldn't they? They might not have been able to get the deal on their own, nor did they necessarily have the right experience or a CEO ready to run it.
Don't forget, there is _a lot_ of capital in the world. We're talking trillions. To get the returns Blackstone is after, things need to move fast. It would be foolish to spend 6 months looking for a CEO when a suitable one comes knocking on your door. Especially when he might be the only one who can do a deal.
Don't forget, there is _a lot_ of capital in the world. We're talking trillions. To get the returns Blackstone is after, things need to move fast. It would be foolish to spend 6 months looking for a CEO when a suitable one comes knocking on your door. Especially when he might be the only one who can do a deal.
I suppose they need someone with a clean name to run the company. And he's probably also serving as an abstraction layer between them and online gambling issues.
Why is a one year old article featured here? Pretty old story.
I'm rather sure the Scheinberg family (the founders and previous owners of PokerStars) engineered the takeover due to the bad outlook for online gaming in general (market segmentation via government regulations everywhere in combination with high taxation) and it had little to do with Baazovs business acumen.