The Professor, the Banker, and the Suicide King

by Michael Craig

  After turning twenty-one, Andy discovered Las Vegas and the world of gambling. Not content like some friends to go to Vegas to get drunk and crazy, he studied card-counting systems and learned he could profit from the activity. He also started a business as a very unorthodox travel agent. The Stardust Hotel and Casino had a junket deal in the early 1970s. If a gambler would deposit $2,000, he could receive a free room and free airfare. He would also receive $2,000 in special chips. The chips could not be redeemed; they could be played only until they were lost back to the casino. (Of course, winning bets were paid with regular, redeemable chips. The nonredeemable chips were also returned with winning bets, to be bet again.) The deal assured that gamblers would gamble enough to run through the $2,000.

  Beal would recruit friends (and friends of friends), who would pay him $200 and take the flight and room. He would give them the $2,000, and take the special chips. With six “customers,” he would clear $1,200 up front. Andy had, however, paid out $12,000 and had that amount in unredeemable chips. If he could just break even at blackjack, he would play enough to lose the special chips and have the proceeds from the $12,000 in wins, but these would now be regular chips that he could exchange for cash. As a card counter, he usually did much better than breaking even. He won as much as $50,000 on card-counting trips.

  Eventually, however, those nonredeemable chips stuck out like a sore thumb, especially when most gamblers signing up with the casino for the deal had $2,000 worth, and he had ten times that amount thanks to the virtual army of young gamblers he found around the Michigan State campus. Thus, the Stardust joined the growing list of establishments that barred the young card-counter/entrepreneur.

  In addition to Central Security’s work, he also started Mid Michigan Building Movers. When Andy was very young, he was fascinated by watching his Uncle Denny move a house—just lift it off the foundation, put it on a trailer, and drive it off to a new location. The expansion of Logan Street in Lansing forced many small homes on the market for under $1,000 apiece.

  Andy and his uncle bought several, moved them, and sold them for a profit. They also hired themselves out to move other people’s houses. On a few occasions, Andy built basements for people by jacking up their houses and digging out a basement underneath.

  Eventually, he owned about fifteen houses around Lansing. He did all his own maintenance and repair work. In addition to homes that he moved out of the path of Logan Street, he began buying homes at HUD auctions. That was how he learned in early 1976 that HUD was auctioning apartments as well as single-family dwellings. He checked out an apartment building in Seattle and put in a bid, but did not succeed. That was how he felt he understood the system well enough to bid on the Gulfport property . . . and end up with the Waco property.

  He sold or closed all his business interests in Lansing and moved to Waco. Still trying to appease his mother, he enrolled at Baylor University. He was too busy to thrive in the college environment. His education was taking place in the business world.

  In 1979, he sold the Waco apartment complex and collected a profit of over $1 million. By that time, he was planning to move to Dallas to capitalize on another business opportunity, which also started almost by accident.

  While attending a real estate seminar in Washington, D.C., in late 1978, Beal became bored and started contemplating the economics of the seminar business.

  Let’s see, there are 1,000 people in this room, and each paid $300 to be here: $300,000. They had to pay six speakers and one day’s rental for the auditorium. After subtracting for marketing expenses, it was all profit.

  He immediately ran ads in newspapers around the country, looking for former government officials who wanted to speak for pay at seminars about getting loans from the federal government. Out of several hundred responses, he found enough qualified speakers, and the National Institute for Continuing Professional Development, and its Government Loans and Loan Guarantee Program, was born. Though he had dropped out of Baylor, a friend in Waco recommended that he seek Baylor’s sponsorship. The university was expanding its professional education, and its nonprofit status could allow the NICPD to obtain a cheaper postage rate, the mass-mailing of the brochures being a significant expense.

  Between 1979 and 1981, Beal’s company conducted over 100 seminars, visiting just about every city in the United States with a population over 50,000. The travel burdens were so great that he needed to move to Dallas because of its better airports. He made millions in the seminar business, but shut it down after President Reagan announced the centerpiece of his plan for a smaller federal government was cutting the very programs that were the focus of the seminars.

  Andy Beal returned to real estate in 1981 and bought several more apartment complexes at HUD auctions. Other than the Waco property, which he sold when he moved to Dallas, he became an accumulator, with properties scattered acround the country. Although he was located in the heart of a booming real estate market, which turned sour when the flow of easy savings-and-loan money dried up, he steered clear of the boom-and-bust cycle in Texas real estate, as well as the S&L scandal.

  Beal was a bottom-feeder, a cheapskate. He had no desire to pay inflated prices for trophy properties or speculate on grand new building projects. He also avoided the quick-buck artists who operated the high-flying Texas S&Ls. They were a poor fit for his needs. They offered 100 percent financing and weren’t picky about what borrowers did with the money, but insisted on hefty fees and part ownership of the deal.

  In fact, he decided to get in on some of the action. After a friend chartered a savings and loan, Andy decided to do the same in 1984. His timing was excellent, though it looked the opposite at first.

  His charter was granted in 1985, but he could not start banking operations until 1988. The S&L crisis was in its early stage in 1984-85, and the federal government was just realizing that its plan of deregulation had gone disastrously wrong. As increasing numbers of S&Ls failed, the government slowed its approvals for federal insurance of deposits of newly granted charters. The government never announced a formal moratorium, but Beal’s institution was the first in Texas in years to receive federal deposit insurance when its application was finally approved in early 1988.

  The delay, however, worked to Andy Beal’s advantage. The avalanche of failing S&Ls created a demand for the kind of bargain hunting Beal and his thrift were prepared to undertake—the purchase of loan portfolios from closed banks and S&Ls. Like the HUD auctions Beal attended a decade earlier, Washington was selling assets at fire-sale prices. For a discerning buyer, there were some quality assets among the mess of the S&L scandal, and Beal could get them on the cheap.

  Beal started his institution—he converted it from a thrift to a savings bank in the 1990s—with $3 million of his own money, most of his personal fortune. Focusing on sifting through the government’s stockpile of seized assets, he found a large volume of loans where the borrower was still making payments, or was likely to resume making them. Nevertheless, the Resolution Trust Corporation, the government agency charged with disposing of S&L assets, offered packages of those loans at a discount. Until the RTC disbanded in 1996, this was how Beal Bank made most of its money.

  By 1996, when the distressed-loan business began petering out, Beal Bank had grown to $1.2 billion in assets. In 1995, it had generated $27.4 million in income; income for fiscal 1996 was $48.8 million. In a July 1996 interview with the Dallas Business Journal, Andy considered the prospect of replacing that business and predicted, “We probably just won’t grow as fast.” He told the same reporter in September of that year, “There’s a lot less product and more competition. The glory days of our business are over.”

  Beal Bank’s profits did level off—but only after doubling again. Net income for 1999 and 2000 was just over $100 million per year. According to the bank’s Web site, American Banker ranked it number one for return on equity among all banks for the five-year period ending December 31, 1999.

  Despite his great and
increasing wealth, Andy Beal never bought into the cultural equivalence of wealth and celebrity. If his money made him a public figure, it was not with his consent. To the contrary, he delighted in his relative anonymity. He rarely gave interviews (and usually regretted it afterward) and kept his business out of the public eye as much as possible. He had a strong social conscience, but there were no Beal medical centers or colleges, nor were there Beal foundations doing the good deeds he supported. He never indulged, like other members of the Texas super-rich, in a sports team, television station, or reality show. None of his companies had ever gone public, so he never had to court investors or disclose anything about his operations to them or the Securities and Exchange Commission. His financial service entities filed the reports required by government regulators and nothing more.

  In the flesh, Andy Beal seems like an ordinary guy. On casual observation, it appears there is less, rather than more, than meets the eye. Taking a visitor to dinner, he drives a several-years-old clunky SUV. No chauffeur, no limousine, no Mercedes. Not even an upscale SUV like an H2 or an Escalade or a Lexus. He was almost killed by a drunk driver in 2000 and wants a lot of Detroit Iron surrounding him.

  This is typical of his travel. He has never owned an airplane. The idea of spending $20,000 to fly from Dallas to Las Vegas—the approximate cost if he owned or chartered a private jet—is beyond ludicrous. American Airlines flies back and forth between the cities ten times a day and the round-trip ticket costs under $300. That is the cost of a coach ticket, which is what Beal purchases.

  Asked about flying first class, he is incredulous. “Are you kidding? Do you know how much the airlines want for first class tickets? For a two-hour flight?”

  At the restaurant, there is no special treatment by the valet or maître d’ or the staff. In fact, the parking attendant criticizes him for driving in the wrong entrance, clearly a move made out of absentmindedness, not privilege.

  No one treats Beal like a VIP, and he does not do anything to merit such treatment. He is not cheap but he leaves little impression when spending money, partly because he is well known among friends and business associates for carrying a ridiculously small amount of cash. It is a habit coincident of many very wealthy men, and it has caused him some embarrassment over the years.

  At least once, after a losing session at poker against the group, he had to ask Doyle Brunson and Chip Reese to loan him a few chips until he could wire more money to the Bellagio; he was almost penniless.

  He never played poker with or for cash, and used a credit card for everything more expensive than a newspaper. When he came to Las Vegas, he had the money wired in. At the end of his trips, it was wired back. He paid for his own room and incidentals (though the Bellagio in 2004 began comping his room) with an American Express card (Gold, not Platinum). With what cash he had in his pocket, he couldn’t play the dollar slot machines for fifteen minutes.

  By the mid-1990s, as Andy Beal passed his fortieth birthday, he suddenly had something that was missing from his life for the previous twenty years: time. He no longer had to be involved in every aspect of every deal. Even though the bank’s business was becoming larger, more complex, and more far-flung, his investments in people and computers had paid off.

  Beal finally had an opportunity to indulge in some of his passions away from business. His interests were unusual, as were his approaches to pursuing them. The only common thread was that once Andy’s mind became engaged, he didn’t do anything casually.

  In 1993, Andrew Wiles, a Princeton mathematician, developed a proof of Fermat’s Last Theorem, a problem dogging mathematicians for over 300 years. The proof received wide publicity, even though its complexity and certain flaws put Wiles and other scholars back to work.

  Andy Beal joined the effort. Although his math education formally ended in high school, the news stories engaged his mind and led him to educate himself on number theory. It started with him doodling and writing lists of numbers. Then he hired a programmer to help him program the bank’s fifteen computers to run numbers for thousands of computer-hours on nights and weekends. All the computer power at his disposal demonstrated that the theory Beal had been working on appeared correct. This led him in September 1994 to begin publicizing the problem he devised. Contacting mathematicians and periodicals, he heard from several respected sources that his discovery was unknown.

  R. Daniel Maudlin, a professor of mathematics at the University of North Texas, helped Andy develop what was now called the Beal Conjecture into an article for the American Mathematical Society and accompanying press release, both released in November 1997. In addition, Maudlin chaired a committee that would give a prize to anyone who proved or disproved the conjecture.

  Originally, Andy funded the prize with $5,000, to be increased by $5,000 a year until it reached $50,000. But the response to the announcement of the Beal Conjecture was so enthusiastic that he quickly increased the prize to $50,000. Subsequently, Andy increased the prize money again, to $75,000 and then to $100,000. The prize remains unclaimed.

  In 1995, Beal read an article about the coming boom in satellite technology. He thought about the relatively few companies capable of launching satellites, and wondered if the cost of sending payloads into space could be cut substantially through greater competition.

  He spent two years learning. He evaluated the debate between disposable and reusable launch vehicles. He consulted experts on different fuel mixes. In 1997, the company, now called Beal Aerospace, began scaling up. He hired an experienced core of leaders and managers. The size of the company eventually rivaled his bank.

  The scope of this project was almost beyond imagination. According to published reports, their engine would be the largest developed in the United States since the Apollo space program. It would burn three swimming pools of fuel per second. A horizontal test of one of the rockets shot a 300-foot flame. To launch an object out of the earth’s atmosphere would require that Beal build a city from scratch in a Central American jungle.

  For three years, Beal Aerospace persevered over enormous obstacles. The U.S. State Department and an outdated missile treaty threatened plans to ship his rockets to proposed launch sites. Environmentalists and treacherous weather forced the company to abandon its first spaceport. Border politics in Central America interfered with a second site. During the entire project, Beal had to compete with Boeing, Lockheed Martin, and NASA itself, entrenched giants with government resources or rich government contracts.

  In October 2000, Beal Aerospace announced that it was ceasing operations. Andy Beal, in a statement released with the announcement, mentioned the risks faced by the project but said, “In spite of these additional risks, which we have faced for some time, we would have remained in business if the government would have simply guaranteed that NASA’s subsidized launch systems would never be allowed to compete with the private sector.” Whether the government’s funding of NASA projects that could compete with the private sector was the main reason, or one of many reasons, the project was too ambitious to succeed. Articles describing the demise of Beal Aerospace reported that Beal spent $200 million of his own money on the project. He has refused to comment on the cost, but has maintained two things. First, he had no partners and bore all the costs, whatever they were, out of his own pocket. Second, “It was a wonderful experience, and I wouldn’t trade it for anything, not even the money I spent on it.”

  Just four months after shutting down Beal Aerospace, he wandered into the Bellagio poker room. Small wonder, given that he returned twice in less than two months, that he committed himself to improving. If Andy Beal’s history proved anything, it was that he did not attempt anything casually. He had succeeded at most, though not all, of his major projects. His successes had come against long odds. His accomplishments, even in failure, had been impressive.

  He knew that challenging the best poker players in the world could end in failure. But was he less likely to succeed than in any other area where he had applied himse
lf? Besides, he wanted to test himself, and he needed to find out how poker worked.

  As much respect as Beal had for the pros, he thought their biggest weakness was the fundamental soundness of their games. In the simple math of making plays based on the proper odds, he felt they were not experts. This was understandable. First, their instincts were honed from tens of thousands of hours at the tables. They did not need to work out the math. Second, their ability to read their opponents was so advanced that it provided a better basis for a decision than pot odds, which became increasingly subjective when it came to evaluating the probabilities based on the opponent’s cards.

  Andy would never be able to match them for experience and instinct. On the other hand, he felt he could match—and maybe exceed—their ability to work out the right play based on the odds with the brute force of his intellect and determination.

  He wrote his own poker program in BASIC. It was very simple, dealing out combinations of the fifty-two cards in the deck and running large numbers of trials to determine the likelihood of different hands prevailing. In addition, he could set up situations and run them a million times to see the likelihood of different results.

  If you dealt out a million hands of poker heads up, you found out some interesting things. The top pros knew many of these things and could intuit others, but they would probably not get perfect scores on a test like this:

  1. What is the lowest high card you could have in your hand and expect to win more than half the time regardless of second card?

  2. What is the unpaired, unsuited hand with the lowest high card that would win more than half the time?

  3. What is the lowest suited hand that would win more than half the time?

  4. What are the highest suited hands that would not win half the time?

  5. What are the worst hands that would win more than half the time?

  Andy Beal spent hour after hour at his desk, whenever he had some time (sometimes while he was primarily occupied on another matter), running his poker program and trying out different combinations and different developments on the board. He knew he would never have the pros’ faculty for reading opponents, but he would pit himself against any of them for knowing the percentages.