The House Doesn’t Always Win, Sometimes It Cheats
“The house always wins” is a familiar saying to anyone who has visited a casino, and, although it’s a truism, sometimes the house doesn’t always win. Sometimes it tries to cheat or at least bend the rules and take advantage of questionable situations. Sometimes what you think is the house is something entirely different. Some VIP customers discovered this, much to their chagrin, when they learned they were playing in fake VIP rooms, or what were dubbed ‘clone gambling rooms’ by the Macau press as Vixio Gambling Compliance reports.
In 2012, police in Macau arrested 16 individuals “who were involved in a fake VIP room which targeted mainland high rollers. The alleged criminal syndicate members turned luxury hotel suites into fake casino VIP lounges, which included members posing as dealers, security guards, public relations managers, and players,” reports CalvinAyre. “A sophisticated scam set up to fool mainland VIPs that had been running for two years,” said the police.
Sometimes the house even cries foul after the last card is dealt, and they’ve technically lost the money, as Crockfords in London did when Phil Ivey took it for $10.2m in a game of baccarat. Using an ‘edge-sorting’ technique, which Jamie Grierson says, “involves identifying small differences in the pattern on the reverse of playing cards and exploiting that information to increase the chances of winning.” Ivey and his accomplice could “distinguish the high and low-value cards while they were still upside down and bet accordingly, giving themselves a huge advantage over the house,” says Grierson. Genting cried foul, refused to pay Ivey his winnings, and took him to court. After several years of litigation, they won and didn’t have to pay anything to Ivey. Some would argue that Ivey recognized a flaw in the cards and took fair advantage of the situation and ran with it (all the way to the bank), but the UK courts disagreed.
It’s not just casinos where these scams are taking place; it’s also in sportsbooks. According to CNN, authorities busted two sports betting rings that were taking bets on the 2014 World Cup in the same Macao hotel, on the same day, just a few floors apart. One betting syndicate took in the equivalent of US$645 million in bets on the Brazil World Cup matches.
Of course, not every casino is out to cheat, scam, or litigate away its losses. Most are legitimate businesses that honor the results of the bets they take no matter how financially painful they might be in the short term. No casino wants a fake VIP room on its property and will do everything to close it once discovered. The casino industry is so highly regulated that fraud rarely occurs. Licenses are hard to come by and quickly revoked for unethical practices. Plus, it’s a business where you can almost print money, so why risk losing that privilege on a few bad bets? Sportsbooks are similar and want to provide ethical business practices for their clients as much they want to keep the sports they take bets on clean.
Why Prediction Markets Beat the House
However, even if most casinos and sportsbooks are legitimate, prediction markets based on blockchain offer some exciting opportunities that might make them preferable to the old ways of placing a bet in a casino or laying a wager on a horse in a sportsbook. In November, blockchain-based predictive markets took center stage in the DeFi space as the United States’ presidential election finally reached its conclusion. According to OKex, “Decentralized prediction markets (DPMs) Augur and Polymarket posted record trading volumes of $8.5 million and $8.4 million, respectively.” Although those numbers pale compared to what an average sportsbook makes, it’s a healthy start and does bode well for the future of DPMs.
As Augur sees it, “Centralized prediction markets suffer from what could be called the three Cs of centralization: they are Closed, Constrained, and Costly. These factors limit the utility of prediction markets and their ability to absorb information and produce accurate forecasts.”
Gatekeepers limit who can participate in centralized prediction markets; only allow a small number of outcomes for bettors to speculate on, and prevent individuals from creating new markets. These markets also impose low betting caps, “which prevent high-confidence actors from sufficiently expressing their conviction and moving the markets by trading higher amounts,” argues Augur. “This limits the predictive powers of these markets. High trading fees and the fear that regulators will shut down the market at any time also depresses use.”
DPMs, however, are ownerless entities free of centralized operators. DPMs let anyone, anywhere, trade at any time and create a market of their own on any outcome they choose. “DPMs not only open up participation in prediction markets themselves but speculation in general. If you’re in the developing world, for instance, it’s hard to get access to American stocks. With a DPM, anyone, anywhere can get exposure to any asset by trading in a prediction market on its future value,” says Augur. Stock trading could even become a 24-hour trading opportunity for bettors, which could be after hours or before hours trading on critical days like quarterly earnings announcements when stock prices can go crazy because of the illiquidity of the non-market hours. The hiring of a new CEO, the news of a company buyout, FDA approval, or a product’s recall can all move stock prices after regular trading hours. DPMs could help traders hedge positions for both stock owners or market-makers.
One of the most important aspects of a DPM is its ability to let participants initiate their own markets. Augur provides the example of a Chilean farmer who wants to hedge the risk of drought. “In the world up till now, he’d be out of luck. At best, it would cost millions of dollars and herculean effort to get a large bank to create a custom-made derivatives instrument. With a DPM like Augur, it would require a couple of clicks and the cost of a Starbucks coffee,” says Augur.
DPMs are mostly free, reliable, resilient, and they eliminate counterparty risk and shady operators — like casinos who take you to court while questioning the methodology of your winnings. “DPMs are more resistant to censorship and corruption. They cannot be arbitrarily shut down, and since they are distributed, they have no single point of failure,” explains Augur.
Markets are networks, and networks have the potential to create exponential participation, making the market more useful and valuable to all participants involved, says Augur. Think of a market as a dating network connecting buyers and sellers; fewer sellers, the harder it is for a buyer is to find a match and vice versa, claims Augur. “The ability to find a buyer or seller, and do so quickly, is called liquidity. If you can easily find a seller to buy from or a buyer to sell to, a market is liquid. The more liquid a market, the more attractive it is to new buyers and sellers, driving yet more liquidity,” explains Augur. “Liquidity has powerful network effects. If a centralized prediction market is a swimming pool, a mature DPM is a raging river, where information flows freely and unstoppably. If prediction markets are ‘truth engines’ that power predictions by absorbing the world’s information as efficiently as possible, a centralized prediction market is a Ford Model T. A DPM is a rocket ship,” concludes Augur.
A Fool And His Money
Of course, nothing beats the excitement of a weekend in Vegas or a night in the high-roller rooms of Macau’s Cotai Strip, but gamblers must realize the odds are stacked against them. A joke many casino executives like to share is, “How do you walk out of a casino with a small fortune? You walk in with a big one.” The reality about gambling is the house always wins. If you play long enough, you will lose.
However, there are ways to minimize the odds — baccarat and blackjack are games with the lowest odds in a casino, and win, place, or show bets have the smallest house edge on the race board tote, while exotics have the highest — but what about hedging? Prediction market bets are singular or binary bets, i.e., will Trump win or lose? However, there is no reason why prediction market bets cannot be combined. Only one person can win the presidency, but the field of candidates can be as large as thirty people during the primaries. There are many fascinating betting opportunities as the two-year presidential election cycle winds its way, from the moment a politician announces his candidacy, through the Iowa caucuses, onto Super Tuesday, and, finally, at the moment a president is elected. The price swings offer lucrative opportunities for a cunning gambler, and these markets tend to gyrate wildly even from the smallest of events.
Before you find yourself in a high roller suite at some Cotai Strip casino and wonder if you’ve been led into a fake Macau VIP room or decide to gamble with an under-the-table bookie who might be giving you too-good-to-be-true odds, you might want to look into a DPM because at least you can trust any bet you make there will be backed by an immutable smart contract. There will be plenty of liquidity for payouts, no gatekeepers to limit participation, and no shady operators who might squelch on payments. Gambling has always been a roll of the dice proposition, but there’s no reason why you don’t stack the odds in your favor as much as you can with a DPM.