Hedging Investments in Las Vegas

Usually gambling is a risky proposition, but occasionally it can be used to reduce risk.

I heard on the radio today that many months ago a Mattress Entrepreneur in Houston, Texas, said, “If the Astros win the World Series, I’ll refund all purchases over $3,000.” Tonight is a big night for Houston-area mattress buyers; if Justin Verlander pitches well a lot of refunds will be forthcoming, to the tune of $5 million.

Mattress Guy emphasizes that most of that liability is covered by insurance — his business is not at risk — but he finds himself in an interesting situation: if a sporting event comes out a certain way, he loses a lot of money. Tonight it looks like he could use a little more insurance.

Las Vegas to the rescue! By placing a substantial bet on the Astros, he can make back some of the money he loses if they win. If they lose both the next games he loses his bet, but he’s not out the five million. By placing a bet he ensures that either way he loses some money, but he won’t lose as much as he would have, should the Astros win the series.

Meanwhile in Los Angeles, one of the big winners in a World Series game 7 are the ticket brokers, and apparently the Dodgers are particularly broker-friendly, releasing tons of tickets into the market. Should there be a game seven, the brokers will make millions. So what can the brokers do to improve the chances of a payout? Head to Las Vegas! By placing a big bet on there NOT being a game seven, the brokers get a guaranteed payout either way.

What these two things have in common is that wagering on the outcome of the game is the exact opposite of gambling. In one case, it is turning a potential big loss into a guaranteed-but-manageable smaller loss. In the other case it’s turning a potential big gain into a guaranteed-but-smaller gain.

Not long ago some kid became famous because he had bet on Auburn to win the college football championship game. At the time he placed his bet, no one thought Auburn had a chance to even reach the game. But holy shit, after a few amazing upset victories there they were. If they won, the kid stood to make something like $65,000. That’s a lot of clams for anyone, let alone a college kid.

Before the game, some Web site took a less-than-scientific poll asking people: Should the kid place a hedge bet to get a guaranteed $30K (less than half of his big payoff), or should he let it all ride? The results of the survey were presented by state — respondents from every state but one said “Let it ride!”. You want to guess which lonely state had a majority of respondents vote “hedge”?

That state was Nevada, of course, where people who gamble for a living reside. Auburn was winning late in the game, but ultimately lost. The kid got nothing. He failed to accept the gambler’s axiom: If you stand to gain or lose significant money over an event that other people are betting on, use that action to eliminate risk. Gamblers hate uncertainty, and feast on greed.

Unlike hedge funds — mutual funds designed to go up when the market goes down but which actually completely fail at that objective — hedge bets are a pretty cold lock, if only for a very specific circumstance. Here’s hoping that matters to one of us, someday.

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Ah, Kentucky

She was probably as old then as I am now, but better-preserved. A friendly smile and a big hat, a twinkle in her blue eyes, her voice with that perfect Kentucky lilt. We were in line to place our bets for the Derby. It was crowded in that line, and I moved to block people from jostling her wide-brimmed hat. Then I saw the badge hanging from a lanyard around her neck, clashing with the classic pink rose of her dress.

But I’m getting ahead of myself. The adventure really starts long before that, when Mikie asked me if I wanted to join him and his father Mike and another man named Art at the Kentucky Derby. Mike and Art were old friends, and the Derby was a tradition for them. Usually, I think, they treated clients to the experience, but this year it was Mikie and me.

It started fairly early in the morning, at San Diego International, when my party got a warning that if we got too hammered off Bloody Mary’s we would not be allowed on the plane. (Or was that the Las Vegas Trip? I think that was the Las Vegas Trip. Never mind.)

The thing to understand about the Kentucky Derby is that, except for television, it is not a singular event. The races build up for four days or more, and the parties in town and in the infield of the track also pick up in intensity. Also important to note: certain parts of the stands cost more to sit in than others. Our section, apparently, was on the swankier side. We shared our little area with a very nice, very wealthy guy with a stunningly beautiful younger wife. There was no doubt on either side what had attracted each to the other, but it was an honest relationship, I think, and the fact they seemed to genuinely love each other was a bonus for both. They joked and laughed as he threw tickets to the concrete beneath our seats for bets he lost. My curious forensics discovered most bets in the hundreds of dollars.

His big bets he was making offshore, and he was annoyed that the cell signal at the track was getting overloaded. That’s how long ago it was.

We were staying at some Sheraton or another, which had a shuttle to the track. The place had an absolutely typical hotel bar, except this particular hotel bar had Heather. A pixie with a quick smile and an honest streak that only a great bartender can pull off. She hated mint juleps. They are labor intensive, and the asshats who drink them when they come for the Derby are the same asshats that don’t tip well.

I got on well with Heather, but Art was a charmer and Mikie has a certain something. She started spending extra time around us.

There wasn’t much in the way of actual good beer at that bar, but at one point I found myself sitting next to the only other person there who seemed to care about the taste of the beverage he was consuming. We talked for a bit; I didn’t get his name. But he was a good guy.

Perhaps it was the second night in Louisville that Mikie found the karaoke bar. It was a good bar that happened to be doing karaoke, and I perused the list and chose… Nirvana.

When I do Nirvana, it can go two ways: awesome or horrifying. There is no in-between. That night, Kurt Cobain borrowed my pipes and I was fuckin’ wailing. As far as I remember. Then suddenly POW I was on the floor trying to keep singing while not spilling too much of my beer and dudes were slam-dancing while I shouted (around laughter) “I AM STUPID, AND CONTAGIOUS! YEAH!”

Best karaoke night ever. Except maybe full-bar Bohemian Rhapsody. Or all-you-can-drink night in Las Vegas… But those are other stories. All with Mikie. So there you go.

Anyway, back in Kentucky, I was a little shaky the next morning. It was probably the day before the big day by then, and the stands were getting full and our high-roller pals were getting serious. I also learned to recognize the badges some people wore. They were the badges that would give the owners access to the winners circle if their horse won. Each badge had a number (the number of the race that day) and a name. So a badge with a big 8 and the name “No Hope” would mean that the bearer owned the horse “No Hope” that would be running in the 8th race that day.

I told you already, I was in the high-roller section.

At this point, gambling-wise, I’d been doing OK but not great. I have a system for betting on the ponies, if you can believe that. I study the racing form, do the numbers, balance risk and reward, and go place my $2 bets at the window. When I won my tiny jackpots I always left a tiny tip, so the window people were OK with me, even though I was pretty much an obstacle to the real flow of cash.

The night before the Derby tension was definitely ratcheting up at Heather’s bar. Then Mike Sr. went AWOL for a while and Mikie was losing his shit and Art was as calm and confident as ever, even as he told me stories I’m pretty sure I shouldn’t have heard. I sat at the end of the bar with The Only Other Good-Beer Drinker for a while, before retiring.

It occurs to me now — I don’t remember my hotel room at all. At all. I probably shared it with Mikie. Maybe all four of us? It’s a blank. Intellectually I have to recognize that I slept at points on that trip.

Race Day. We take the shuttle to the track early, and a steady stream of mint juleps ensues. There are a lot of races that day; the track squeezing all it can out of the big crowd. I place a few bets, drink some juleps (no doubt from a big julep-vat), and study the form. I find what I’m looking for.

Funnicide, I think the horses’s name was. We called him Fungicide. A long shot, but not silly. The favorite that day was Empire Maker, a fine steed, Triple-Crown whispers following in his wake. But Fungicide had the exact profile in the racing form that I looked for. Each workout better than the last. Peaking at the right time. “Fungicide’s gonna win,” I told my group. Turns out they listened.

Almost time for the big race. I was standing in line with the high rollers who don’t bet offshore over the phone. Maybe they want a souvenir ticket. Fungicide was going to win, but Empire Maker was a beast. The easiest exacta ever. I was poised to rake in dozens of dollars. Dozens!

Her hat brim brushed me and I turned around to find her smiling apologetically at me. “I’m so sorry,” she said. Then someone else brushed against her hat and I used my right hand to very gently grant her space. There was another man behind her, large, probably on her payroll, but I was in the right place to do the right thing.

She gave me a little smile and we chatted a little bit, before I saw her badge. The number was 10. The Derby. She had a horse in the Derby. When I made that discovery I was neither gushing nor coy; there’s even a chance I was pretty cool. “I’m going to put a bet on him right now,” she said. “Will you?”

“Absolutely!” I said, or maybe something more suave than that. (For the record, I did put a bet on her horse to win. He did not do well.)

It’s hard to tell, actually, with a genteel Southern woman, whether she likes you or if she’s just tolerating you. In every case she will be polite. But I think… I think she liked me. Sometimes I wonder what might have been, had I protected her hat a little longer. But when it was my turn at the window I turned my back on her and that is all that ever happened.

Fungicide won. Fungicide beat out Empire Maker and won the Kentucky Derby. A titanic upset.

On the shuttle from the track back to the hotel, the mood was ugly. “Who the fuck bet on Funnicide?” someone shouted. In that angry space I just shut up.

Back at the Sheraton, things were different, too. My good-beer buddy was a celebrity; people asking for pictures with him. Everyone else was pissed off. Heather confided in us, “I may be smilin’, but it’s fake.”

“Who the fuck bet on Funnicide?” the lament came again.

“I did,” I said. “I got the Exacta.” I was more than a little proud of that. There was a some quiet around us then.

“I got the trifecta,” Art said softly, with a knowing smile. He had called the race 1-2-3. Put me right in my place. And it’s safe to say his bet was somewhat larger than mine. It paid for his trip, he told me later. Hopefully my research justified what he spent to host me there, as well.

One wave of anger after another washed through the bar, almost starting fights, but finally the last wave passed and carried with it the anger, leaving exhaustion. Good Beer Guy was still at the bar, and I sat next to him. By then I had learned that he was part of the cartel that owned Empire Maker. We didn’t say much; we just sipped our beers. “You never know,” I said at last, and he nodded. But I had known.

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