Fortune's Formula (13 page)

T
HORP TOOK THE OPPORTUNITY
to inspect the roulette wheels in Reno. They looked much like the one in Shannon’s basement. Many were slightly tilted.

The roulette computer was finished by late spring 1961. In a dry run lasting a few hours, Shannon and Thorp multiplied a virtual bankroll of a few hundred into an impressive, though fictional, $24,000.

Thorp did a full-dress rehearsal in Shannon’s workshop. They used the finest wire practical, barely as thick as a hair, to connect the earphone to the pocket unit. The wire was glued to his skin with gum arabic, the all-purpose stickum vaudevillians used for fake beards and pasties. Then the wires were painted to match Thorp’s skin and hair.

In June, Ed and Vivian Thorp hit Las Vegas, later joined by Claude and Betty Shannon. “Everybody else was really, really nervous,” Thorp recalled. Using a device to predict roulette was, in 1961, perfectly legal. But the group was well aware that casino people would take a dim view of their experiment. Unlike the blackjack system, this scheme used a device. There was no deniability.

They stayed in a motel rather than a big hotel-casino. “We didn’t trust the casinos not to bug our rooms or go through our luggage,” Thorp said. “If you’re in their own establishment you feel a lot more vulnerable.” All four worked as a team. First they “cased the wheels” for tilt. When they found a promising wheel, Claude posed as a system player. He stood by the wheel and recorded the numbers that came up on a piece of paper. This was a smoke screen. Claude was timing the ball and rotor with the toe switches. The computer relayed its musical-tone prediction to the bettor (Ed or Betty), who pretended not to know Claude. Betty looked the most innocent, and her hair hid the wires better than Ed’s crew cut. Vivian took lookout duty. In deference to the group’s jitters, they bet ten-cent chips. When a number hit, they won $3.60.

The thin wires kept breaking. Every time that happened, they had to go back to their rooms for repairs. They brought soldering irons with them.

These problems prevented any serious gambling. While in Las Vegas, Thorp demonstrated his blackjack system to the Shannons. He played impeccably, yet could not get much ahead. It was as if the system no longer worked—or Lady Luck was against him.

They left Las Vegas with several half-baked plans. They would build a roulette computer with sturdier wires (or the men would grow their hair longer); they would build a computer to automate the counting of cards in blackjack (possibly Thorp had been making mistakes, but he didn’t think so and questioned the need for such a device); they would build a computer for the wheel of fortune. Thorp and Shannon saw a wheel of fortune and realized it is much easier to predict than roulette. There is no ball, just the rotation of the wheel to worry about, and there is nothing like the vanes to randomize things. For all this brave talk, Thorp said, “it was pretty clear to me that this group wasn’t going to want to come back.”

T
HE COLLABORATION
between Shannon and Thorp ended with the Las Vegas trip. The same month, Thorp got a job offer from the mathematics department of New Mexico State University. It was unclear whether MIT would renew Thorp’s appointment, and New Mexico State offered a salary about 50 percent more than Thorp was making. Living costs would be much less. The money weighed heavily on Thorp, as he and Vivian were now raising a family. Thorp accepted the offer, transplanting himself and Vivian to a ranch house in Las Cruces, New Mexico.

A mathematics professor must publish or perish. Thorp’s field was functional analysis. He was publishing learned articles with titles like “The Relation Between a Compact Linear Operator and Its Conjugate.” The publication for which he is best known came about by accident, though.

In spring 1961, a book salesman visited MIT. Thorp found himself describing his blackjack system as a possible book. The salesman urged Thorp to submit an outline. He did. A small New York publisher called Blaisdell took the book. Released as
Beat the Dealer
in fall 1962, it became an instant classic of gambling literature.

Blaisdell was gobbled up by Random House. Despite that apt name, the new corporate owner was reluctant to promote the book, judging it too mathematical. Even without much backing, the book made the best-seller lists.

Thorp became a minor celebrity promoting the book. One TV talk show reunited him with a defiant Harold Smith, Jr. “System players!” huffed Smith. “We send a taxi for them at the airport!”

Smith was trying to equate Thorp’s system to martingale and all the other time-honored and worthless systems. He couldn’t have believed that. The Smith family had been barring card-counters even before Thorp showed up. Like everyone else in the casino business, they had plenty of reason to be worried. The casinos were already taking actions to make it difficult for card-counters.

In his more rambunctious days, Harold Smith had begged a line of credit from every major casino in Nevada. That is an excellent way to get to know people. In the social network running Nevada, Smith was one degree of separation from everyone who mattered. Within hours of Thorp’s confrontation with Smith, word had gotten out that a man in horn-rimmed glasses and crew cut had paired with the unmistakable Eddie Hand in a card-counting operation.

On a winter 1962 gambling trip, Thorp took along an expert on card cheating, Michael MacDougall, a former investigator for the Nevada Gambling Control Board. Thorp learned far more about cheating from MacDougall than he had from Kimmel. The two men spent six days in Las Vegas and two in Reno. MacDougall concluded that Thorp was not paranoid—everyone really was out to get him. Many of the dealers were second-dealing, the trick Kimmel had spotted in Reno.

In the 1966 revision of
Beat the Dealer
, Thorp described a superior “point count” strategy. (Still popular today, this system is also known as “high-low.”) You count +1 for every low card you see played (2, 3, 4, 5, or 6) and -1 for every high card (10 or ace). This is easier than it sounds. High and low cards can be mentally paired off (and cancel out). This system is better than the ten-count at gauging deck conditions.

A surprising conclusion of later computer studies, also reported in Thorp’s book, was that the Baldwin group had miscalculated the house advantage. Instead of the claimed 0.62 percent in favor of the house, it was about 0.10 percent
in favor of the player
. This is without counting cards.

The Baldwin group’s basic strategy was not quite right, either. Thorp’s slightly improved strategy bumped up the advantage of the noncounting player to 0.13 percent. For years casinos had unknowingly offered a game that was favorable to the player.

In
Beat the Dealer
, Thorp mentions his two financial backers only as “Mr. X” and “Mr. Y.” (Shannon makes a brief appearance as an unnamed “famous scientist.”) After the book’s success, Kimmel presented himself to friends as the true mastermind behind the book’s card-counting system. When fellow gambler Jack Newton called Kimmel’s bluff and asked why he had let Thorp write about
his
system, Kimmel replied, “Jack, I didn’t think it would be worth two cents. I thought that what Thorp was going to do was produce a pamphlet, and it wouldn’t amount to much, and no one would believe it. So I let him go ahead and even helped him word some of it.”

Thorp disputes these claims. He recently told gambling journalist Peter Ruchman that he remembered Kimmel as “a promoter who manipulated people using whatever stories it took. You can understand this from his background; it was a way to survive and advance.” Had he known of Kimmel’s mob connections in 1961, “there would have been no trip to Nevada with X and Y.”

Thorp and his book were responsible for creating a subculture hero. Want to get rich without working? Like disguises, glamour, and neon lights? Thousands have answered that call. Yet the card-counter is an often lonely figure whose appeal rests on the masquerade as much as the all-too-hard-earned money.

“The typical counter, as the casinos see him, is young, male, serious and introverted,” reported one journalist. “To enter a casino with the ability to beat the house, knowing the casino will be doing everything it can to identify and eliminate such a threat, gives a James-Bond-Spy-vs.-Spy flavor to the experience,” wrote counter Arnold Snyder. “The feeling is not unlike that which I recall from my childhood when all the kids in my neighborhood would choose up sides for ‘cops and robbers.’ I’d forgotten how much fun it was to hide, sneak, run, hold your breath in anticipation.”

For a couple of years, Thorp was one of this group. A 1964
Life
magazine feature described Thorp as

One summer Thorp grew a beard. After two days of successful play in Las Vegas, word got out. All players with beards were suspect. Thorp went to Lake Tahoe and found that the casinos there already knew about the beard.

Thorp discovered he could use peripheral vision to count while his eyes remained on the dealer. On the theory that the walls have eyes, he took a vow of poverty each time he went to Nevada, eating bargain breakfasts and staying in cheap motels. He got good at spotting cheats and learned to leave promptly. Through these measures, Thorp began winning again. By 1966, after a dozen trips to Nevada, he was said to be ahead about $25,000.

By Las Vegas standards, that was a trifle, less than a high roller might win in a streak of dumb luck. It is possible to argue that card-counting is the greatest shill ever invented. Not everyone who read Thorp’s book was able to apply the system consistently enough to gain an advantage. For every successful counter, there were hundreds who merely
thought
they could count cards successfully.

Card-counting of course commanded much more attention than the more abstract Kelly formula. The 1966
Life
profile of Thorp contained probably the first mention of the Kelly system in a general publication:

Nevertheless, people who skimmed Thorp’s book probably did not understand the importance of scaling their bets to their bankroll. It is a natural impulse to make large wagers when the deck is hot. For many, this must have been a costly mistake.