Here's an article about that poker law from the Seattle Post Intelligencer, which talks about how poker is bad. Then here's one of these trade organizations, the American Gaming Association, so if you Google the American Gaming Association, you might find this article. I can email a copy of this if you want, if you're interested in where these stats come from that I'm putting on some of these slides. They're one of the organizations that gathers data on that industry. So here's a story.
There was a businessman a few years ago, about five years ago. And he raised $50 million in investments for a company that was supposed to be on the verge of obtaining a patent for a lucrative new tooth whitening product. Raised $40 million. There was such a product, but this guy had no connection to it. He was a swindler. In fact, he had seen this product advertised on the shopping network. So he started raising money for it, claiming he had a patent and that he was going to sell it to Proctor & Gamble. Well, he spent $10 million of this $40 million to buy homes, condos, nice cars. And he gambled away all the rest of it, $30 million betting on baseball at an offshore casino. So he went completely broke. The investors started asking for their money. He promised them 100:1 return on their investment, and he didn't have any. So he got busted, he declared bankruptcy, he was sent to prison. So the victims of the swindle retained a law firm that specializes in recovering funds from bankruptcy cases. So they got the homes and the car seized and got the money back from that-- they got a few million bucks back from that. Enough to pay the attorney fees, basically. Then they filed a lawsuit against the casino. They said a bunch of things. One, they said the casino wasn't doing its due diligence. They should have known this guy was a swindler. This was all done online and by telephone. They said with this kind of money and stuff, they should have checked up. Well, in fact, the guy was betting directly by wires from the Bank of Montreal that were sent into the offshore account. So the Bank of Montreal was equally culpable. So they sort of gave up on the due diligence argument. So then they alleged in this lawsuit that the online casino has to return the money because that the casino was either cheating the swindler, or the casino was involved with the swindler in a money laundering scheme. In other words, the swindler wasn't really losing this money, he was just feeding it to this offshore account, and he was going to later split it with the guy who ran the casino. Well, the guy who ran the casino had pretty good records and he could show that he was keeping that money for himself and wasn't going to share it with anybody, especially some guy who just got out of jail and was working at a gas station. So they decided to focus on this. If the casino had given the swindler proper betting odds, he couldn't possibly have lost $30 million over a two year period. In other words, the result couldn't have been due to chance. Sort of what I was talking about before with the good strategy. In other words, the swindler's losses were just too extreme to be explained by chance. Well the swindler was betting on baseball games. He was betting on 10 games a day, 15K a game. And when the baseball season wasn't on, he was betting on hockey. So if you translate that, $15,000 a bet, 10 bets a day over two years, you get about $110 million in betting action, which is called churn. So that's how much betting action we have from this guy before he finally got busted. He didn't go broke, he just got busted. I guess he was pretty much broke at the time. So the question is how much on average will a gambler lose when he bets $110 million in relatively small increments over time? And of course, the answer is it depends. It depends on the bets. In particular, it depends on the house edge, which is sometimes called the hold percentage in sports betting. So with roulette, the house edge is 5.3%. So if the gambler makes roulette bets with a house edge of 5.3% at that rate, 10 bets a day, $15,000 a bet, you'd lose an average of about $6 million. In fact, you can also compute a probability here for roulette. The chance of losing $30 million or more making those kinds of bets is less than 1 in 1,000. So it's really unlikely that if this guy was playing roulette he would lose that kind of money. As we've seen, sports betting is different from roulette, but still you can talk about the hold percentage. Well, in baseball betting, just real quickly, there's something different than a point spread, it's called the money line, and the money line is just another way of stating payoff odds. So the favorite has a negative money line, which means you have to bet more to win a certain amount.
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