Poker and Business - A cash game perspective

By: Daniel Laidlaw

Tim Napper recently wrote an articulate but fundamentally misguided piece in which he proposed that the nature of poker, in particular cash games, explains why poker players are so bad at investing and handling money. Essentially, he argued that because a cash game player’s income is largely dependent upon the result of a handful of sessions against whales, the infrequent high rewards he experiences ingrains him with a “get rich quick” mentality, which frequently proves disastrous when applied to other fields.

This is mistaken for a few reasons. First, poker players aren’t that different to anyone else – everyone, generally speaking, is bad with money. I would argue this is one of the effects of a long-term project of deliberate mis-education (you’re not meant to be rich, you’re meant to be an obedient consumer trained to make an elite minority richer – now shut up and go play with your iPad), but I won’t get in to that here.

More specifically, Napper’s premise is wrong, and demonstrates a misunderstanding of cash games. A whale dumping a few buyins here and there doesn’t contribute as much to a cash game player’s overall earn as he thinks it does. Yes, the majority of a professional’s income comes from fish, so we are dependent on recreational players enjoying the game, but apart for some extremely rare exceptions (in line with Napper’s high-profile examples), no individual session against a whale is that relevant to one’s long-term hourly rate.

Whales never provide a “lifetime’s winnings in a single night”. This is because the pros who play them at the stakes they want to play are either 1) already successful high stakes players, so whatever the whale loses won’t represent a significant proportion of the pro’s net worth (unless they are under-rolled degens) or 2) lower-stakes players who have sold a lot of action to play in the games, and hence are not usually making that much more for themselves than grinding their regular stakes anyway.

Still, it is true that poker players are typically bad with money (the number of high-profile players who are backed and broke is interesting), but I think the main reasons for this, apart from the more general point about education, are ego and variance-related.

If you’re not mindful, success in one field can easily lead to inflated perceptions of your ability in others. Some people who play high stakes are intelligent, successful businessmen, who over-estimate their ability at cards (or just enjoy the game). Yet, ironically, some pro poker players have a tendency to assume they will automatically be successful in business! In reality, everyone starts out as a fish in a field new to them, and there’s no reason why this shouldn’t be true of poker players in financial matters.

(As an aside, there are also environmental dangers that contribute to poker players being bad with money, whether it’s baccarat, sports betting, or as is sometimes the case with tournament players, cash games at stakes they can’t beat.)

A failure to understand variance can contribute to a perception that your upswings are more significant than they really are, and hence lead to an unjustifiably reckless attitude towards money and other investments when running well. Professionals are accustomed to handling sums of money and experiencing regular swings disproportionate to their hourly rate – it’s normal to swing thousands of dollars every session, even with an hourly of ~$200.

However, this is even truer of tournaments, in which a player’s returns come in large chunks way out of line with their true hourly. Any cash game pro knows it’s all about the long term, so it’s really the tournament scene and the lure of that “one big score” that is most representative of the mentality Napper describes.

No cash game player sits down dreaming of getting rich quickly – unless he is daydreaming about that big tournament that comes to town each year, the one he realises doesn’t yield him that much more EV compared to cash games, yet does indeed carry the tantalising prospect of getting rich quickly.

For these reasons, it’s wrong to say that “poker players can’t be trusted to run a poker site”. I’d be way more inclined to trust a site run by a Tom Dwan or a Phil Galfond than some business leader. It’s more accurate to say that you can’t trust a capitalist to do anything other than what’s in his self-interest, to the extent that society allows him to get away with it – as countless examples from the corporate world demonstrate. New generations of sheep are always getting skinned, because the herders of the flock continually promise them that it’s a “new era” or that “your funds are safe with us”, when of course it’s never true.

With that said, here’s to binking a quick $2m in the Aussie Millions main event!

Follow Daniel on Twitter @Choparno