The Professor, the Banker, and the Suicide King

by Michael Craig

  After five and a half months of preparation, the terrorist attacks of September 11, 2001, reordered Andy Beal’s priorities. He worried for the safety of his family, his business and employees, and his country. It was clearly not a time to be preoccupied with poker.

  Although the aftermath of the attacks sent the financial markets into a tailspin, Beal Bank provided a stabilizing force, which also turned out to be profitable. For the past several years, since the drop in business of buying loan portfolios from the government, Beal Bank had been profiting increasingly from event arbitrage. When particular events dominate the news and alter values within the financial markets, there is always the question of whether the markets react appropriately to the new event, overreact, or underreact. Beal Bank, similar to its business after the S&L crisis, looked for situations where the market overreacted, discounting quality assets more than circumstances demanded. The bank had stepped in during the foreign debt crises and Long-Term Capital Management collapse in 1998 when government bond prices plummeted, buying at a discount and collecting full interest and/or reselling when the panic ended and prices climbed.

  Beal had already been busy throughout 2001 as a result of the California energy crisis. The threat of bankruptcy by California energy companies, and the actual bankruptcy of Pacific Gas & Electric on April 6, 2001, caused bond prices of California energy companies to drop precipitously. Other utilities and energy companies in other states reacted, often causing their bond prices to drop. Beal Bank was analyzing as many of these situations as possible, looking for (and sometimes finding) discounted prices on debt where the danger of bankruptcy or other disruption in the debtor’s ability to pay interest and principal was remote. Still other times, there was some likelihood of default, but certain bondholders were well protected because of the quality and priority of the collateral. Too often, the market was not efficient in making such distinctions. This created profitable opportunities for the bank.

  The terrorist attacks, and the markets’ reaction, provided numerous other opportunities. For example, after the attacks hardly anyone wanted to hold the debt of U.S. airline companies. Most were already in trouble due to price competition and heavy debt-servicing costs and every carrier was a candidate for bankruptcy.

  Beal had an opportunity to set his bank up to profit tremendously, and stabilize the market at the same time. Everyone who owned the debt of U.S. air carriers, it seemed, wanted to sell, but there were no buyers. Prices would have been in free fall without buyers like Beal Bank. Naturally, the bank’s analysts had determined the likelihood of carriers continuing to make payment on various forms of debt, as well as the quality of the collateral for that debt. For example, many carriers’ aircraft were mortgaged. Because of the quality of the collateral—the airplanes that the carriers needed to do their job—default and even bankruptcy should not diminish the value of the debt significantly. Furthermore, to keep from having their aircraft seized as part of a bankruptcy proceeding, the airlines were motivated to make payments on this debt even when in default on other debt.

  Andy Beal had a full plate through the fall of 2001, though he kept looking at those percentages. He was feeling like he had run every conceivable situation, and had done it so often that the odds were becoming second nature to him. When things settled down a bit, he would return to Las Vegas and test himself once again against the best poker players in the world. He had no reason to believe he was equal to the professionals in ability, but he was confident that he could make the mathematically proper move at all times, something he thought even the pros had not mastered.

  Answers to the quiz:

  1. King. King-deuce off-suit won 52.6 percent to 53.2 percent of the time. Queen-high would not always win half the time. Queen-deuce off-suit, for example, won only 48.8 percent to 49.4 percent of the time.

  2.Ten-eight off-suit won 51.5 percent of the time.

  3.Nine-six suited.

  4. Jack-deuce suited won exactly 50 percent of the time. Ten-four suited won 49 percent to 49.4 percent of the time.

  5. Several hands hover around 50 percent. In two separate million-hand trials, the following hands were the worst poker hands that still won over 50 percent of the time:

  Queen-trey off-suit: 50.2 percent to 50.4 percent.

  Jack-four suited: 50.2 percent to 50.5 percent.

  Deuce-deuce: 50.3 percent to 52.4 percent.

  Jack-trey suited: 50.6 percent to 52 percent.

  Queen-four off-suit: 50.8 percent to 51.5 percent.

  5

  PICTURE DAY

  DECEMBER 2001

  Andy Beal finally returned to the Bellagio on Tuesday, December 11, 2001, nearly nine months after his last visit to the poker room. He was a welcome sight.

  Following the terrorist attacks of September 11, Las Vegas struggled, along with the rest of the travel and tourism industry. In the first weeks after the attacks, the Strip looked like a ghost town. As people slowly began traveling again, the city, which obviously depended enormously on tourism, had to fight two fears: fear of flying and fear of appearing frivolous, gambling in Las Vegas while America was under attack. Traffic through McCarran Airport in November 2001 was nearly 18 percent less than the year before.

  The impact reverberated through the local economy. The mega-resort across the street from the Bellagio, the Aladdin, already in financial trouble, announced that it might have to close permanently. The Las Vegas hotels laid off more than 15,000 workers and cut back the hours of thousands more.

  Even in the poker rooms, where news of the outside world rarely intruded on the games, the mood was glum. The professionals considered the poker room their office. They may act unaware of what goes on in the low- and medium-stakes games, but the upbeat feel of the room—the hum of noise and flurry of movement—was gone. The high-stakes players didn’t rely on the mass-market tourist trade, but the live ones also kept a low profile after September 11. If they weren’t worried about their businesses and investments in the wake of the attacks, they were worried about the appearance of gambling huge sums of money in such an environment.

  As the town tried to put on a brave face and drum up the interest for a New Year’s Eve celebration, the poker room’s biggest customer dangled an early Christmas present before them. Beal wanted to play a heads-up $20,000-$40,000 game. He even accommodated Doyle Brunson’s need for time to get the players and the money together by sitting down to the ring game in progress at Table One.

  There were two changes in the game: It went from a mixed game to Texas Hold ’Em, and Andy started agitating to raise the stakes beyond $1,000-$2,000. They were soon playing $4,000-$8,000, which (as Beal had hoped) took the players out of their comfort zone. That left them with two choices: take more chips out of their boxes and keep playing, or line up a partner to take a piece of their action. (Quitting the game would never be considered an option.)

  For Jennifer Harman, it finally looked like her luck was going to change. Andy Beal’s presence meant the chips would be flying but most of those chips flew away from Jennifer during his trio of visits in early 2001. Poker was just not going her way in February and March, whether it was bad luck, the wrong state of mind, or some flaws that had crept into her play—possibly all three. She struggled in the ring games and beat Andy heads up, but it was a long, frustrating, draining experience.

  He had just popped into the poker room and she was already feeling the stress. She had to post her share of the group’s bankroll. Then she had to play in the game where he continually hectored to increase the stakes. Of course, no one was going to refuse. The pros had the edge and this just increased their expected profit, but the higher the stakes, the bigger the short-term swings. When the stakes rose to $4,000-$8,000, they took a break and Jennifer decided to sell some of her action. They would be playing Andy heads up by Wednesday and a few big hands could create a swing of several hundred thousand dollars; it was too much to bet on so little.

  Doyle, who was also trying to raise th
e group’s bankroll for when they played heads up against Beal, said, “Todd will probably want a piece.” Doyle declared him in for 25 percent of Jennifer’s action. The elder Brunson did not usually play any role in his son’s poker career but he couldn’t reach him by phone and he knew what Todd would do. Todd and Jennifer moved up the ranks of the Las Vegas poker hierarchy together through the 1990s. They had tremendous respect for each other’s abilities. They also had a serious romantic relationship and lived together, a situation that left surprisingly few hard feelings. They had each gotten married in the last year, remained friends (and poker competitors), and shared custody of their two dogs from the relationship.

  Barry Greenstein also took 25 percent. He was back in Los Angeles, and knew Jennifer only from occasionally playing in a game with her, but Ted Forrest arranged it. Ted was in the game, wasn’t selling any of his own action, and said, “Barry will probably want a piece,” and made the call.

  Jennifer then got those few good hands and was soon ahead $300,000. One of her partners didn’t even know he was in the game and the other probably couldn’t have cared less. They would get half the profits, but at least she was winning. As she took a quick cigarette break, she could be excused for thinking that, finally, she was the one catching Andy at the right time.

  Top poker players have formed an uneasy truce with the concept of luck. Luck was the enemy, but it was also a necessary, though unwitting, ally. Over the long haul, luck should have no impact on a poker player’s results—no net impact. Over a short period of time, however, a random distribution of the cards could give the worst player good enough cards to crush an expert. When Andy Beal won thousands of dollars from the Irishman and Todd Brunson in February, it was luck.

  In fact, good poker players are more likely to be the victims of luck than the beneficiaries. Back in 1981, when Bobby Baldwin was earning his living as one of the world’s best poker players, he made the logical case for why good players seemed to experience the worst luck. “If you are an excellent player, people are going to draw out on you a lot more than you’re going to draw out on them because they’re simply going to have the worst hand against you a lot more times than you have the worst hand against them.”

  It was hard remaining stoic when years of skill proved worthless against an inferior player, but the best pros have learned to soldier on. Howard Lederer said, “One of the things I focus on when someone shows me a ridiculous hand is, ‘Okay, that’s why I’m here.’”

  Without luck, the better player would always win, as in chess. No intelligent poker player wants that, however, because if each game clearly distinguished the pecking order of players, the less skilled players would always lose and quickly give up hope. The pros want the live ones to get lucky sometimes and win. They just want it to happen in someone else’s game.

  Very few professionals associate themselves with the twin trappings of luck: charms and superstitions. Johnny Chan may carry an orange around with him during the World Series of Poker, but that is merely to enhance the stereotype that Asian players carry some kind of mysterious Eastern luck. And that’s why Chau Giang was happy to let the rumors swirl that he had voodoo working for him, even though voodoo’s origins are African, not Asian.

  When Harman returned to the game, Andy Beal was gone. She followed the eyes of the now preoccupied players in her game to the adjacent table, where he was playing heads up against Howard Lederer.

  That fast? Damn. Maybe her luck with Andy hadn’t changed. It wasn’t a good omen for the week.

  Howard and Andy did not play long that evening. Beal, an early riser still on Central Standard Time, tired out early and went to bed. Howard immediately realized, however, that Andy had focused a lot of attention on poker since being blown away in their last heads-up encounter. Andy was ahead when he quit, and they made plans to begin again the next morning.

  Lederer won back what he lost, and a little more, but he did not have the easy time he had in March. The banker was not backing down from the pro’s attempt to counter his aggression. In fact, he may have been the only player to beat Andy over the next four days.

  From Wednesday through Saturday, Andy Beal systematically mowed down the best players in the world, racking up decisive wins over Todd Brunson, Jennifer Harman, John Hennigan, Ted Forrest, Chau Giang, and others. The whole room was feeling the pain. The Bellagio poker room was a pretty open place, and what the regulars didn’t actually see, they learned about through an active gossip network. Especially because of the slow times, it seemed every player wanted a piece, or a piece of a piece. Some $80-$160 players tried buying 1 percent shares from individual members of the group for $1,000.

  Doyle had not reached Todd on Tuesday night, so he was again excluded from the group. As Todd walked through the high-limit section a few days later, however, Beal saw him while dispatching another victim. Andy remembered Todd from the $400-$800 game on his first Bellagio trip as well as from some of the ring games.

  He stopped Todd and stuck out his hand. “Todd? Andy Beal.”

  Todd remembered.

  “How about you and me play heads up in a little while?”

  The group offered Todd a freeroll—a chance to participate in the outcome of his match without putting up a portion of the bankroll—but he wanted to join as a full member. He was annoyed that he wasn’t part of the group from the start. He not only played regularly in the $800-$1,600 and $1,000-$2,000 mixed games at Table One, but he practically discovered Andy Beal. He had a reputation as a hold ’em player and a heads-up player so, to him, it seemed obvious that he not only be on the team but a playing member.

  He then proceeded to lose a million dollars in the fastest, ugliest way imaginable. It started when they were both dealt mediocre cards. Todd, on the button in the small blind, was dealt six-four. Todd called and put in the rest of the opening bet, another $5,000. Andy, holding ten-five, raised to $20,000. Todd called. The flop came ten-three-deuce, all different suits. This gave Andy a pair of tens, and Todd an inside straight draw. Andy bet $10,000. Todd raised, and Andy called. There was $80,000 in the pot.

  Todd caught his dream card on the turn, a five. It not only filled his straight, but it made Andy two pair, tens and fives. Andy bet, and Todd raised. Andy reraised, and so did Todd. They went back and forth, each throwing eight chips into the pot, until all Todd’s chips were committed. (Neither man can recall the precise number of raises, but Todd estimates at least twenty.)

  The river card was another five, making Andy a miracle full house.

  Todd Brunson’s table demeanor is usually low-key, especially around the amateur players who give the pros action and who need luck to remain anywhere near competitive. But this was too much for him to handle. He tried to pull players in the group from the other high-limit tables to show them.

  “Come on, look at this hand. Can you believe this? On a runner-runner full house?” (Runner-runner means catching perfect cards on the turn and the river to make the winning hand.)

  But it didn’t matter. Andy Beal pulled in the million-dollar pot and scanned the room for his next opponent.

  Jennifer Harman’s experience was no more satisfying. She quickly lost a million dollars to Andy but felt sufficiently in rhythm with his play that she could win it back. Like Todd Brunson, she had lots of experience in limit hold ’em, and enjoyed playing heads up. To her, it was early in the match. But Beal quit on her, so he could play a $100,000 freeze-out with another player in the high-limit section who wasn’t even in the group. Her string of bad encounters around Andy continued to grow.

  The pros were completely unprepared for Andy to beat them, and for him to do it day after day. They knew an inexperienced opponent could, theoretically, get lucky and win, but they didn’t expect that he would do so repeatedly. Consequently, the group did not initially raise more than the $1 million it took into the first heads-up match. That amount had proved sufficient during the first games in March, when Beal never threatened to win their starting ban
kroll.

  Every time Andy Beal cleaned out one of the pros, the team had to reconstitute its bankroll. It was a time-consuming and demoralizing experience, especially because a few players needed to be reminded to get their money down.

  In addition to putting up $100,000 or more toward the team bankroll, they needed at least that much to play in their regular game. Poker players were also frequently loaning money and staking other players, plus they periodically removed money for taxes, investments, and living expenses. This did not even take into consideration the possibility of any recent losing sessions, which could have stripped the bankroll of hundreds of thousands of dollars or more. Everyone was a little light in the economic environment of December 2001, with business slow and the players watching nervously, along with the rest of the country, as their investments plummeted amid the post-September 11 uncertainty.

  Everybody’s week was hectic. In addition to receiving calls to post more money, the players held ad hoc meetings to discuss who was playing next, strategy, Beal’s continued requests to raise the stakes above $10,000-$20,000, and who had cash available for members who were short. At first, these meetings took place after Andy went to bed. As they became more frequent and more urgent, players would just peel off to the adjacent sports book to talk.

  Panic was in the air. Without exception, the players believed the tide would turn. They knew they held a huge advantage in skill and experience, but how much longer would it take to become evident? Because some of the players had sold or given away small pieces of their shares, players at lower-stakes tables had a financial interest. These players kept peering over, walking by to ask questions, even though it was clear that the answers were not encouraging.