Last Tuesday, I heard Don Johnson (DJ) speak at the World Game Protection Conference in Las Vegas. In case you don't know who he is, DJ is the guy who beat several Atlantic City casinos out of over 15 million dollars in late 2011 and early 2012 by exploiting their loss-rebate programs. Here is a great article about DJ's exploits in "Atlantic Magazine." But that wasn't his only trick. Indeed, by the end of his talk, DJ's blackjack exploits sounded like an after-thought. It was clear early on that DJ's real passion was horse racing. By the time 30 minutes had passed and DJ was still talking horses, I observed some in the audience squirming: DJ was supposed to talk about blackjack, right?
By coincidence, “D” and “J” were also the initials of the first person I was blackjack teammates with back in 1997, when I left my position as a professor of mathematics at Ohio University and ventured into the world of blackjack card counting. To avoid confusion, I’ll call my old teammate “DJ2.” I met DJ2 in 1983 when I first joined the mathematics faculty at Ohio University. At the time, DJ2 was an un-tenured assistant professor of Computer Science who didn’t like students very much. He was also knock-your-socks-off brilliant. He was exceptionally strong at strategy games and was one of my earliest chess (and drinking) buddies. He only lasted two short years in academia. In 1985, DJ2 sold almost everything he owned, packed the rest into his new red sports car, and drove off to Silicon Valley in California. He landed in the right place at the right time and thrived in the early days of the high-tech boom.
Fast forward 11 years. In late 1996, I got a call from DJ2 out of the blue. It was after midnight, and it was clear that he was very drunk. But he couldn’t stop talking about how he had proven this mathematical theorem that could be applied to horse racing. He explained that if he had enough data from enough races, together with the real-time odds at the tracks (and a lot of other variables), he could give odds that were much more accurate than the posted odds. Anytime a horse was paying substantially more than its true odds, money could be made by betting on that horse. The idea was to wager a fraction of the bankroll on each horse in proportion to the edge his model predicted. Kelly betting. In a given race, there could be multiple horses on which to make a bet, or none at all. It was all about the model and the data. With his unique access to the data-highway in Silicon Valley, he was well-positioned to clean up.
As he conducted his mathematical research, DJ2 had many of his questions answered in early online message boards (the newsgroup rec.math.statistics, for example). DJ2 then explained to me that he had been contacted by someone who had heard about his research second-hand from the newsgroup threads. The person (and I’m probably not remembering the details correctly) either wanted to buy the system from DJ2 or wanted to pay DJ2 to not use it, I don’t recall which it was. But, either way, I do recall that the fee they wanted to pay DJ2 was $90,000. I then learned that a syndicate in Hong Kong had been using a similar model for some time.
In early 1997, as the internal politics of the Department of Mathematics at Ohio University were making me too sick and angry to continue working there, I considered blackjack as a reasonable alternative source of income. I had never seriously gambled before, but that didn’t stop me from dreaming. I got in touch with DJ2 and the two of us decided to meet up in Las Vegas to try our hand at card counting. The high-rolling MIT team was in its heyday while DJ2 and I considered the implications of a $15 minimum bet on our $4000 team bankroll. We made a couple of trips to Las Vegas, a trip to Reno and a trip to St. Louis before it became pretty obvious to both of us that our business model wasn’t profitable. We went our separate ways. I have not thought about DJ2 much over the years, but DJ brought it all back.
When DJ spoke about his horse racing days, my thoughts immediately went to my old friend DJ2 and that phone call in 1996. There I was, an academic, doing academic research and publishing in academic journals, while these guys were proving theorems in secret and using their secret theorems to beat the house. It was surreal. I tried to imagine proving a new and powerful theorem and not wanting to share the result with the world. Not wanting to publish it in a lofty journal. Not wanting to present it at a professional meeting. Why not? Mathematical truth cannot be patented. It can’t be kept out of journals by the CIA. A theorem cannot be "secret." In my academic world, mathematical truth was not a commodity that’s for sale.
And there was DJ, talking about exactly the same mathematics that my friend had described 17 years earlier. He was telling us, though with great understatement, that he had made a lot of money implementing the results of privately funded theorems that he had commissioned from brilliant Ph.D. mathematicians. I was fighting the same battle. Truth is truth: publish it. Then let those who take advantage of the information do so as they can, for whatever benefit the information serves.
Hearing DJ discuss horse racing was very bittersweet for me. There were moments of jealousy, nostalgia and outright sadness. In the midst of that journey back in time 30 years to when I first met DJ2, I was suddenly pulled back to the conference hall when DJ started to discuss how he went about the business of crushing blackjack in Atlantic City. And it suddenly became very clear: DJ was a brilliant AP operating at the very highest level. DJ was a very big deal.