magazine article about poker

[Liz L.]

From Business 2.0:

The Card Sharks From Silicon Valley

An unlikely collection of computer jocks and math whizzes have been coming up aces in high-stakes tournament poker, the hottest new spectacle in televised sports.

By Paul Keegan, November 2003 Issue

Don't rush, Paul Phillips tells himself. Even when you're burning up under the television lights, $1.5 million in poker chips is at stake, and you're facing one of the most feared players in the world -- an old Texas road gambler named T.J. Cloutier, who has just opened the betting with $60,000.

So Phillips goes into his routine, cocking his head as though straining to hear a distant sound, rolling his eyes, placing a finger to his forehead, now two fingers. He always performs some version of this act, up to 20 or 30 seconds each time, just to make the other guy sweat. But, as it turns out, Phillips is the one who should be sweating. When the Legends of Poker tournament, held at the Bicycle Casino in Los Angeles, is finally broadcast on TV next spring, hundreds of thousands of people will be yelling at their screens, "Fold! Fold! Fold!" Miniature cameras will reveal that although Phillips has a pair of 7s -- a decent hand in no-limit Texas Hold 'Em, the game of big-time poker -- that crafty coot Cloutier is impassively sitting on a pair of jacks.

Giving the home viewer such thrilling inside information has suddenly made this old-fashioned card game gripping entertainment for the masses. Until the World Poker Tour began airing events like this one on the Travel Channel in March, television audiences couldn't see players' hands, making for tedious viewing. ESPN quickly caught on in July, using the same trick at the 2003 World Series of Poker tournaments, and its ratings soared.

But as Phillips continues his routine, cupping his hands over his cards for another peek, the complex workings of his mind reflect subtler ways that technology is transforming the world of poker. Call it the Invasion of the Geeks. Phillips was hired as vice president for technology by Web portal Go2net in 1996, right out of the University of California at San Diego, and later made millions as chief technology officer. When InfoSpace bought the company for $4 billion in 2000, he made poker a full-time obsession and joined a small group of like-minded computer science jocks using academic esoterica such as game theory and statistical analysis to separate fellow gamblers from their money.

That's why Phillips's battle with Cloutier is about more than just 7s vs. jacks. Nearing midnight, after 22 hours of grueling competition over the past three days, only three players remain from the original field of 309 -- the Silicon Valley nerd against two old-timers from the analog age: Mel Judah, 56, whose psychological insights into the game come from 15 years as a ladies' hairdresser for Vidal Sassoon, and Cloutier, 64, a former derrick man in the Texas oil fields who learned about Texas Hold 'Em, Stud, and Omaha High from guys with names like Little Red and Artichoke Joe.

"All in," Phillips says. Next spring the home audience will gasp. He's practically bet the entire tournament -- some $422,000 of his chips -- on that pair of 7s. You don't have to know anything about realization weight variables to see that Phillips is in trouble. Having lured the kid into his trap with his $60,000 open (small potatoes in this game), Cloutier quickly calls with all his chips, bringing the total money on the table to $853,000. The betting over, he shows his jacks.

Phillips is screwed. But in poker, no less than in real life, one can always hope for divine intervention (sometimes called luck). Now comes the "flop," when the dealer turns over the first three of five cards to be shared by both players. Judah, who has folded his hand, watches smugly from behind his own giant stack of chips.

Deuce of diamonds. Ace of diamonds. Five of clubs. Garbage -- nothing to help either player. Remaining to be flipped over are the fourth and fifth cards, known respectively as the "turn" and the "river." Cloutier and Phillips eye the green felt, waiting for the gods to deliver their verdict.

"About half of these guys are wannabes," Phillips says, watching the chaos in the main tournament room just minutes before play is scheduled to begin. Looking tanned and relaxed in his flip-flops, baggy pants, and bright red shirt (having spent the afternoon playing golf), he's not talking about that tall guy in sunglasses, Phil Hellmuth Jr. -- 1989 world champion and author of a popular how-to book -- or Phil Ivey, "the Tiger Woods of poker." He means guys like Ben Affleck, who makes a surprise appearance and gets knocked out of the tournament in about an hour, then loses another 50 grand playing no-limit games at the public tables until 9 a.m. (reportedly making J-Lo blow a gasket).

The pros call these guys "fish," and the schools of them swarming around the Bicycle Casino are the reason poker pros love the sudden glamorization of their game. Fish get excited by watching tournaments on TV, teach themselves poker using simulation software, then start betting online with real money (see "Virtual Smoke-Filled Rooms"). They went crazy in May when one of their number, Chris Moneymaker, a 27-year-old online player who had never entered a live tournament before, won the $2.5 million prize in this year's World Series of Poker. Now live tournaments like this one -- open to anyone willing to pay the $5,000 buy-in -- teem with wannabe Moneymakers, whose main contribution to the game is that they create million-dollar pots for the real sharks to devour.

The Legends, for example, has gone from a sleepy $175,000 affair with 35 players just two years ago to a frenetic free-for-all this year. Affleck and fellow celeb Lou Diamond Phillips were among the small army of contestants who sent the pot soaring to $1,545,000. Everyone's goal is the same: Play until you lose all your chips or you win everybody else's.

The difference between the computer-trained hordes and poker geeks like Paul Phillips, of course, is that instead of following instructions from a software program, the geeks can reverse-engineer it blindfolded. An example is Chris "Jesus" Ferguson, a tall, 40-year-old computer science Ph.D. who is attending the tournament in his trademark black cowboy hat over shoulder-length hair. His skills in probability and statistics have made him one of the world's best players and the 2000 winner of the big one, the World Series of Poker Championship. "A lot of the younger guys, like Ferguson and myself, approach the game from a mathematical angle," Phillips says. "It's game theory. Basically, it comes down to modeling your opponent, assessing percentages of the time they do particular actions, and then applying the exploitive counterstrategy."

On the first day, for instance, Phillips is dealt mostly garbage hands, but he bluffs and bets well enough to turn his $5,000 buy-in into a stack worth over $28,000. Old-school players like Cloutier rely on intuition and experience to accomplish feats like this, but Phillips leans more heavily on mathematical probabilities -- the likelihood, expressed in percentages, that an opponent will have a better hand under a mind-boggling variety of circumstances. At home he spends a great deal of time researching new theories and arguing endlessly with other poker geeks on the Usenet newsgroup Rec.gambling.poker.

All this preparation pays off for Phillips near midnight on the second day of the tournament during a fight to the death over the sixth and last seat at the final table, which will be taped for the World Poker Tour broadcast. It certainly helps that he is dealt a great hand; sitting on a pair of queens, Phillips knows there's a 98 percent chance he has the best hole cards at the table. When Phillips finds himself up against 1996 world champion Huck Seed, a tall 30-something in shorts and a T-shirt, he falls back on his models of Seed's behavior, which suggest that Seed will move "all in" (bet all his chips) if he thinks his opponent has nothing.

So Phillips bets $40,000, hoping to make Seed think he has a weak hand. Seed lunges at the bait and goes all in. Phillips quickly calls and, the betting done, flips over his two queens. Seed shows king-jack and has to hope for a miracle. The flop comes -- a queen and two fours -- making a full house for Phillips. Seed grabs a king on the river, but it's not enough: He ends up with just two pair.

Seed hastens off, and Phillips gleefully counts his stack. He finishes the day with a staggering $657,000 in chips, twice as much as second-place Cloutier. Yesterday he'd given himself only 1-in-25 odds of making it this far. Now he's the favorite to take first place and $579,375 -- far more than all his career winnings combined.

At 2 a.m. in the casino cafe, Phillips's mind is still racing as he describes his key hands and complex theories, swilling gin-and-tonics and barely touching his omelette. Heady with a gambler's high, he can't help but boast that he and his nerdy peers are on the verge of taking over. "The new generation of poker players is dominated by people with a significant mathematical understanding of the game," he says. "And we're much better. There's no question."

As Phillips, dressed in a dapper dark suit and purple tie, walks through the Bicycle Casino the next day with Kathleen, his beautiful red-headed fiancée, it's understandable why people mistake him for movie hunk Matthew McConaughey. And also why the crowd gathering in the corridors to watch the big showdown tonight will root more for Cloutier, a 6-foot-4, burly man with frizzy gray hair who, in addition to working the oil fields, was once a tight end with the Canadian Football League's Toronto Argonauts and a night manager for Wonder Bread in San Francisco. That rich, smart, handsome kid with all those chips is just too damn perfect.

"Yeah, there's a new group of 'em that're gonna take over when old dinosaurs like me are gone," Cloutier chuckles, sitting at the casino snack bar. Since starting out 47 years ago, he says, he's become the top tournament money winner of all time, though he can't come up with an exact figure. Ten million? "It might be 10 million, total," he says, but notes that his record will soon be broken by some youngster because today's pots are so huge.

Cloutier has heard his geek challengers' algorithmic trash talk. "We all know the math, the probabilities of this and the probabilities of that," he says, waving his hand. "We don't have to talk about it." But he says he has something much better than opponent modeling. "I have a photographic memory," he says. "If you and I played a hand 10 years ago, I wouldn't remember your name necessarily, but I'd remember your face and how you played your cards in every situation. You can't learn that on the computer."

As game time approaches, the old gambler hoists himself up from the table and wanders to a far corner of the casino, where a TV game-show set has been constructed behind a black curtain. The World Poker Tour is the brainchild of Steve Lipscomb, 41, who abandoned his law career a few years ago to make documentary films and hit on the idea of broadcasting a series of major poker tournaments. Gambling tycoon Lyle Berman, CEO of Lakes Entertainment in Minnesota, invested $3.5 million, and the show became an immediate hit when it first aired on the Travel Channel in March, reaching an average of 840,000 viewers.

When the final round begins under the glare of the klieg lights, you can understand why the broadcast is so popular. The stakes are high, the skills extraordinary, and the battles fierce. One by one, players are eliminated: Phil Laak, nicknamed "the Unabomber" for his hooded sweatshirt and sunglasses, is followed by a bald Iranian named Farzad "Fred" Bonyadi and then Chip Jett, who wears an earring and slicks his blond hair back like a back-alley punk.

Judah, the former hairdresser, is nearly knocked out too, but it's not wise to underestimate someone who has won more than $3 million in his career -- without a whit of computer skills. ("I'm very slow at pressing buttons," he explains.) Donning shades, Judah makes an astonishing comeback from a low of $33,000, winning several all ins against both Cloutier and Phillips to suddenly take over the chip lead with $658,000.

Now the Silicon Valley kid and the old gambler are fighting like cats to bust each other out, setting the stage for their climactic final hand. As the cards are dealt -- Phillips gets his pair of 7s, Cloutier his pair of jacks -- their approaches to solving the mysteries of their game expose the intellectual fault line now dividing the poker world.

Phillips's mind is a beehive of mathematical computations, most of them worked out well before game time, that progress something like this: Cloutier opened the betting with $60,000 -- that's a clue he probably has a fairly good hand. But is it better than mine? Probably not. Knowing how T.J. plays in a head-to-head battle, I figure there's only a 7 percent chance that he has a higher pair than my 7s. Also, there's a high probability that he'll fold if I go all in. If he does, I win the $99,000 pot with no further risk.

What are the precise chances he'll fold? Very good. I'd guess there's only a 20 percent chance that T.J. would risk the tournament by calling an all-in raise. If he does, there's still a 45 percent chance that my pair of 7s will win. So overall, the odds are heavily in my favor if I go all in. (See "Would You Go All In?")

Of course, with the TV cameras running, Phillips doesn't calculate all these numbers on the spot. But when he's not playing, he practices poker the way a basketball player drills his fade-away jumpers -- over and over, relentlessly, until the process becomes automatic during a game.

Cloutier, of course, dispenses with the mumbo jumbo. Like everybody else in the room, he knows that two jacks is a great hand, so his main concern is not tipping off Phillips. A small open can backfire, making an opponent think, "He's got a big hand but doesn't want to scare me off, so he's starting off slowly." But Cloutier's instinct tells him that at this particular moment, the kid won't suspect a thing.

He's right. Phillips goes all in. Cloutier quickly calls. When they flip over their cards, Phillips discovers that, in fact, the math has been against him all along. Damn! Too bad he couldn't have been watching those mini TV cameras. As the flop begins, his 7s make him a 4-1 underdog to Cloutier and his jacks.

At times like this, many people begin to pray. But Phillips is a strict empiricist. All he can do is try to keep his cool as the dealer unveils his fate. Here come the cards ... nothing but garbage on the flop, then a 7 of spades on the turn -- wait, a 7 on the turn? Phillips can't believe his eyes. The only way Cloutier can beat three 7s is with another jack on the river, but the odds of that happening are ... There's the last card! A 6 of diamonds!

The crowd goes wild. The poker geek guns down the road gambler in an old-fashioned shootout, his stray bullet bouncing off the water tank, caroming off the saloon chimney, and somehow hitting the old gunslinger right between the eyes. "Thank you for all the support," Cloutier mumbles to the crowd, then quickly departs. Phillips breathlessly gathers up his chips, suddenly on top with $900,000. Ferguson, who is watching from the scorer's table and whose faith in numbers perhaps exceeds that of Phillips, says under his breath, "Paul got lucky."

A short while later, Phillips's luck runs out. On hand 128, Judah moves all in and gets a 7-high straight on the river, which beats the kid's 6-high. The audience erupts, and a new champion is crowned. However, much of the drama had already been lost if you'd been watching closely: During a TV break before the final showdown, the two finalists agreed to divide up the difference between first- and second-place prizes -- $285,825 -- based on their chip count at the time. So Phillips loses but actually walks away with more money ($453,000) than Judah ($427,000).

Such deals happen frequently and are perfectly legal. No one knows better than professional gamblers how large the element of luck figures when it's down to two players -- so why risk $285,000? On the other hand, the off-camera agreements are a particularly nasty wrinkle the World Poker Tour and ESPN will have to iron out as they try to dress poker up for prime time and keep their Nielsen ratings climbing. (The WPT vows to ban such deals.) Trying to take advantage of the huge TV market Lipscomb discovered, ESPN has caught up quickly. The network averaged nearly 1.3 million viewers for its initial World Series broadcasts last summer. In September, a seven-hour replay averaged 400,000 viewers -- in the middle of a workday.

Higher ratings mean lots of new fish and even bigger pots, which Phillips and Ferguson expect will lure ever-greater numbers of talented programmers, engineers, and other math-and-science types to the gaming tables. "The analysis of the game is in its infancy, really," Phillips says. "If you go to Rec.gambling.poker and dig up posts by some of those guys, it'll give you a hint of the degree of sophistication they bring to the game. It goes far beyond all of the published material. It's just not well understood by 99 percent of the poker-playing population."

Cloutier still doesn't buy it. He's heard more cockamamy theories and fool superstitions than he can count -- and all this math, he believes, is just another one. "I want to see what a player can do for 10 to 20 years, not a two- to three-year period," he says. "Shoot, these guys are not doing anything that people didn't do 20 years ago. And 20 years from now, they'll do the same thing. It's just good poker."

In the meantime, he'll be spoiling for a prime-time rematch with Phillips to prove his point. Stay tuned.


Sidebar:

WOULD YOU GO ALL IN?

At the Legends of Poker tournament in Los Angeles, veteran T.J. Cloutier opens with a $60,000 bet. (Antes and required bets of $39,000 are already on the table.) Ex-dotcommer Paul Phillips ponders going "all in" -- betting virtually all his chips. In simplified form, here's how he decided.

T.J. probably has good cards, or he wouldn't have opened. But he doesn't know I have a pair of 7s.

If I raise him "all in," he'll have to either bet all $422,000 of his chips or fold. My guess is, he'll fold unless he has a pair of 5s or better, or very high face cards.

WILL T.J. FOLD?
Of all the hands he might have opened with, 80% are likely worse than a pair of 5s or very high face cards. That means there's an 80% chance he'll fold and I'll collect $99,000.

WHAT IF HE CALLS?
A call would put $853,000 on the table. Hmmm. But if I read him right, there's only a 20% probability his cards are good enough for him to call, and even then, there's a 45% chance my 7s win.

So my overall expected value* is $71,570, or nearly 5% of all chips in the game. I'm going for it.

"ALL IN"

*Expected value (EV) is my chance of winning multiplied by the dollars in the pot.

If T.J. folds,
EV = 80% x $99K = $79,200

If he calls,
EV = 45% x $853,000
= $383,850
- my $422,000 bet
= ($38,150)
x the 20% chance he'll call
= ($7,630)

Overall EV = $79,200 - $7,630
= $71,570

Sidebar:

HACKING THE GAME

Poker's top tier is newly flush with mathematically trained players who see it as a probability and risk-management exercise. All six of the wonks below have at least one win in top tournaments or leading World Series of Poker or World Poker Tour events.


ANDREW BLOCH
Former chip designer, Digital Equipment
MS, electrical engineering, MIT
One win, four top-three finishes in the past year

DIEGO CORDOVEZ
CEO, Advanced Global Applications
MS, industrial engineering, Stanford University
Wins in the 2000 World Series and 2002 Los Angeles Classic

CHRIS "JESUS" FERGUSON
Independent software developer
Ph.D., computer science, UCLA
Wins in five World Series events, including a 2000 championship

ALAN GOEHRING
Former junk bond analyst, CSFB
MS, finance, University of Wisconsin at Madison
2003 winner, World Poker Tour Championship

PHIL GORDON
Former lead engineer, Netsys
BS, computer science, Georgia Institute of Technology
2001 winner, World Poker Tour, Aruba

SPENCER SUN
Software engineer, iPost
BSE, computer science, Princeton University
2000 winner, Tournament of Champions

[TruePoker CEO]

Thanks for the post, the article is much better than most
"poker" writers' efforts