Author: Bluesman from BJ21.com
I frequently read about blackjack teams and the difficulties they get into. As someone who has been a player, an investor, and a manager for a blackjack team, I thought I would write some general notes and, I hope, help others avoid some of the pitfalls we had to negotiate.
I. There are several important questions that should be resolved unambiguously before the team ever plays a hand.
1. How are the winnings to be divided?
a. Each team has players and investors, and they all want to get paid. Are you going to split the profits down the middle between the two groups? This is the convention.
b. That’s easy enough to do for investors; an investor who buys in for 10% of the bank obviously gets 10% of the investor share.
c. But how are you going to compensate players? If you do not get this question resolved before the team gets going, you will see a remarkable phenomenon. Inevitably, each player will put in 20 or so hours. Some will have a net win, some will have a net loss. The winning players will argue that only winners should be rewarded at this point. Those players will demonstrate a remarkable facility with Reaganite entrepreneurial arguments, the importance of rewarding strong performance, the inherent fragility of a corporate structure without proper incentives, the fundamental fairness of rewarding especially (and, by the evidence, obviously) skilled players such as themselves, etc. etc. etc. The losing players, however, will demonstrate heretofore untapped abilities to analyze and explain why their losing results are to be expected. Expect BJRM figures to be flourished that illustrate the startlingly high yet previously unanticipated likelihood of bad results. Expect people who lose to reiterate that individual losses are the reason that people join teams, and that the collective results of the team are what is relevant, not anyone’s individual results. These players will argue that the wins should be divided equally among all players, or perhaps divvied up on the basis of hours. A third class of player will argue irrespective of anyone’s results that he or she has special skills superior to those of garden variety card counters that should be rewarded with special above-the-norm compensation. Anyone who has studied 20th century philosophy will at this point be reminded of John Rawls’ work, particularly his discussions in A Theory of Justice about how people’s conceptions of justice often seem determined by their economic situation. The team manager, after having been privately confronted by numerous players with their own ideas about fairness in distribution and having been put on the spot to make unpopular decisions, will probably be sympathetic to a fourth approach, the “Table Method”: put all the players in a room with the player share on a table. The players must decide how to divide up the money before they leave the room.
There are probably defensible reasons to adopt different rules for compensation depending on the preferences of the players. It is important, however, to adopt them before, not after, play has begun.
2. Just as importantly, when are the wins to be divided?
After the bank is doubled? After some fraction of the bank is made as profit? After some dollar figure is achieved? After some number of hours is put in at the tables? How do you handle things when a player or an investor wants to take the money and run — to leave before the stop point is achieved and demands compensation for what he has provided? Again, each of these choices has costs and benefits; making these choices in the middle of play when they appear to benefit some players and burden others runs the risk of appearing partial or biased.
3. But perhaps the most important question is subsidiary to how is the team manager to be chosen and what powers should he/she have?
The second half of this question is no small issue. When I ran a team, I thought it was obvious that there were all sorts of policies that needed to be determined and promulgated by a team manager, rather than by individual players or the team collectively on an ad hoc basis, such as:
a. bet spread (min and max)
b. number of hands to play in varying situations
c. which casinos to play
d. which games in those casinos
e. what kinds of cover are permissible, prohibited, or mandatory
f. who should hold the bankroll in between sessions
g. to what extent and frequency results should be reported to the rest of the team
h. instructions on how to deal with law enforcement personnel and private security personnel
i. whether team members are allowed to play blackjack ‘off duty’ or if all play is team play
j. to what extent expenses (e.g., travel) are reimbursable from team profits or bankrolls, and who is empowered to make those decisions
k. tipping policies
l. what comps, if any, are counted as team wins ‘ especially lottery/ tournament prizes deriving from comped entries
m. whether players should use special advantage play methods, e.g., hole-card play, for team play
n. to what extent team members should be seen together in casinos, including such ancillary facilities as parking lots and restaurants
o. grounds for penalizing and/or terminating team members, and discussion of what the penalties might be
p. (most importantly and controversially) how the team will comply with tax laws.
I know this seems like a lot, but it is better to face a lot of these issues up front and set policies rather than just leaving it to reasonable people to set their own policies ex post. If you choose this second policy, you will find that reasonable people will disagree, possibly to your detriment! There are presumably special circumstances where special information would give team members grounds to override special policies, but I would think that the general rule is that the team manager’s decision would be respected. I think it is best to have these decisions written down and promulgated before a hand is played. It is possible in theory to make these decisions collectively, but I am inclined to think that organizationally you’d want to defer to a manager. Otherwise, you run into what Oscar Wilde identified as the problem with socialism: too many meetings.
II. How do you tell whether your business is doing well or poorly? Any business will be endangered if it lacks auditing procedures. This is especially true of a blackjack team.
1. No team will survive unless it anticipates the essential blackjack team problem: alleged internal corruption. This problem occurs in many forms. Its most typical is that some team member will have results sharply below other team members or below expectation. Other team members get frustrated, and the low par results create severe internal stress. It is helpful to remember that there are only three factors that can create this result: bad variance, incompetence, or corruption. It is my view that players who join teams sharply underestimate the frequency of corrupt and/or incompetent players.
a. It is, of course, important to have a sophisticated understanding of what realistically can be expected from an individual’s session or set of sessions in terms of bad variance.
b. Incompetence is by far the #1 underestimated factor, in my view, with respect to player underperformance. Overestimation of one’s own abilities is as prevalent among advantage players as in any other field.
1) Some people have simply managed to convince legit players that they can passably count cards, although they cannot keep the count on a consistent basis or make some similar error of basic competence. This is more common than you might think. These players can be eliminated at a kitchen-table audition.
2) Some players have a rough grasp of the basics but have also managed to pick up some superstitious ideas. These dangerous and costly ideas will probably not be detected unless you have a reasonably long — say, one hour — kitchen-table audition designed to weed out half-competent players.
3) Some players are gamblers, and I mean that in a bad way. They focus heavily on session results, and bet big money without an advantage to turn negative short-term results around.
4) Some players just can’t cut it in the casino despite how well they can play at the kitchen table. Some are distracted by cocktail waitresses, noise, etc. Others have a neurotic response to the pressure created by the demands of successful play. Others are insufficiently aggressive in pursuing good bets (the technical term is ‘lazy’), doing such things as relentlessly playing through negative shoes for hours rather than getting up off the posterior and taking a restroom break at appropriate times. One of the responses to heat that to my knowledge is not sufficiently discussed in the literature is what I call ‘shrinking violet cover.’ This happens when players play quite competently, except that they fail to put out their big bet. In effect, they are playing with a sharply reduced spread. This style of play is not as ineffective as flat-betting, but it’s close enough to be very damaging to the bankroll. My own experience is that this problem is common enough that people with a history of green-chip play should be automatically suspect for this problem if they are graduating to big money. The counterintuitive result is that red chippers are on average far better recruits for big money teams, since they have not learned the exquisite sensitivity to heat that causes green chippers to experiment with camouflage — whose costs for the team they do not fully understand. By far the two best players I had on my team had extensive red-chip play background. They never graduated to green-chip play — as a consequence, they never had to unlearn bad green chip habits that would prove to be counterproductive when playing stacks of purple.
c. Obviously, there is always the possibility of theft. A thieving player can siphon a nice piece of change from each session without anyone else the wiser. I am inclined to think that most serious players deal with such large amounts of money on a routine basis that they underestimate the possibility of being corrupted by the option of stealing just a few big bets. Some corrupt players, I suspect, think of this kind of theft as a short-term loan which they intend to pay back but somehow never quite get around to doing.
2. But just laying out the possibilities doesn’t help solve the problem. What do you do if you suspect that something besides bad variance is involved? There are a number of methods of investigation.
a. Have someone unknown to the suspected teammate shadow him and watch how much he wins or loses. Compare this to reports.
b. After a bad session, ask him to ask the casino for his win/loss reports. They keep records. Although a small discrepancy is OK (casino records are inexact), a big discrepancy is a bad sign. Compliance with vs. resistance to requesting records from casinos is often a reliable indicator of how straight up a person you’re dealing with.
c. Polygraphs are inexplicably popular among teams. You can probably learn a few things from a lie detector test if you spring it on someone (e.g., “We’re going to have a special meeting right now across town.”) You probably won’t find out any guilty parties if you tell them you’re concerned about your play and therefore the team has decided to make a lie detector appointment for you Tuesday after next. Someone who is underhanded enough to cheat a blackjack team is probably clever enough to surf the Internet to find out how to beat the test by then.
3. After detection, there is retribution. Let us assume that you catch a thief. He admits that he stole the money and says he doesn’t have it anymore. He refuses to pay you. Restitution is out. What you can do is report the theft to the IRS, since you already know his social security number from when you did a credit check on him. (Obviously, you’d do a credit check on anybody that you’d entrust with a large amount of cash, right?) If he’s stolen $X in a partnership with you, just explain this to an accountant and have him file the appropriate forms so that at least the ex-partner will have to pay income taxes on the ill-gotten gains.
4. Suppose you detect someone who has made a serious mistake that has cost the team money but you still want to keep him on the team, perhaps with some kind of penalty? It is a difficult situation, and I would suggest that the risk of keeping the person on a team is probably higher than you’d expect, even if terminating the player means discarding hypothetical future expected value that the player could bring to the team. The only exception to this suggestion is if the person in question is willing to make the team whole immediately (that is, not on a time payment basis) from his personal resources. (On a related note, team managers will discover the classic counteroffer of this situation — team members will suggest that they pay the team on a time payment scheme. This is a paradigmatic example of the general rule that team members will attempt to structure all sorts of problematic transactions with the team that amount to unsecured loans. This practice is not acceptable.) The thing to keep in mind here is that rules and incentives, as such, are not going to solve this problem. The only thing that will keep a team running properly, since the team must be built on mutual trust, is good character and good judgment. The person who has made a serious mistake is without at least one of these attributes. Someone without good character who is not penalized for making mistakes will infer that he can continue to make mistakes without consequence. On the other hand, someone without good character who is penalized for his mistakes — who, in one way or another finds that his team payment is reduced — will probably either try to siphon money from the team in some other way or quit the team in disgust. This underscores that people without good character should not be let on your team in the first place.
5. Even after putting aside the problems of misfeasance and malfeasance, however, auditing remains important. I would recommend a procedure where all players are required to report at a minimum once per day (assuming they are on a playing trip). The report should contain, at a minimum, three pieces of information: their net win/loss since the start of the new bank, their net/win loss since the last report, and how much cash they’re carrying. The report should probably also contain a casino win-loss, rather than just a day win-loss, if players hit more than one casino per day. If players transfer funds between them, they should both make reports, so that the team manager has two reports for every transfer. Reports should be archived on email (or less desirably, voice mail). This information will prove useful to the team manager if players are willing to comply with this regimen. Additionally, every player should be required to report each loss of some magnitude (say, 50 or 100 units) as soon as it occurs, by phone. This is probably a good idea for wins of large magnitude as well, but a rule will not typically be required to spur reportage. Unless some rules similar to these are laid down, the team manager will find it an amazing lesson in human nature how quick players are to report wins and how slow and evasive they are in reporting losses. (On weekend trips, winners begin a steady flow of reports Saturday morning; oddly, losers may not check in until long after the end of the trip Sunday night!)
Especially with new entrants onto the team (and at the beginning of the team, every player is a new entrant), sessions should be audited on a regular basis. This means asking the player, after a session (not just after a trip) such questions as ‘What game did you choose? What was the penetration? Did you back count or play all? Was there heat; and if so, exactly what was it? What was your response to heat? What was your maximum bet? What was your minimum bet? How many max or near max bets did you get down? How long did you play?’ Probably the most important question is ‘To what extent did your bets correlate to your advantage?’ Unfortunately, this is such a complex question (involving issues of cover, bankroll, bet sizing, table limits, real and imagined heat, etc.) that it probably cannot be asked directly but has to be analyzed with the aid of subsidiary questions. Team managers will discover holes in play if a post-game interview is carried out regularly. It is in the post-game interview that players who do not handle well the issues of agency costs involved — for example, playing with too much attention to the dangers of individual backoffs and too little attention to the duty of maximizing the team’s income and welfare — will find that their choices and tradeoffs are laid bare. Players who object to this practice as an intrusion on their “right” to play blackjack without extensive team-manager monitoring and scrutiny should not be on your team.
Managing a team is a lot of work and deserves compensation if done appropriately. It involves a great amount of attention to detail that I have not described here. If team management is done casually, it will not be done successfully.
III. A personal opinion
Blackjack teams face difficult decisions every day, and a successful set of decisions involves a subtle understanding of the tradeoffs involved. What I tried to do above was to lay out some of the many tensions which teams must negotiate. I will now describe what in my view are the best choices given these tradeoffs.
The fundamental question of how best to compensate players has a pretty clear answer in my view. I believe that all player compensation should be split into two pots; a big one and a small one. The big pot should be awarded to the most productive players on a win pro rata basis. That is, if one player wins X% of the team win, that player should be given X% of the big pot. The little pot should be split up on an hourly pro rata basis. That is, if one player plays X% of the team hours, that player should be given X% of the little pot. The players who lose on net only get paid from the little pot.
Although this doesn’t seem fair to those who theorize that everyone is doing their best and should receive a proportionate share of the winnings, I can tell you from experience that this alternative has terrible incentive effects. People under this regimen use too much cover, do not actively seek good games, and have insufficient incentive to play an aggressive, value-seeking strategy. People who do not share my admittedly controversial opinion on this matter should explore the world of sales, in which salespeople typically do not evenly divide up their commissions but instead are paid on the basis of individual performance. There is a reason that such practices have arisen.
Furthermore, it is dangerous to make payouts too often. Players should be informed before they play that because of flux the team needs to reach two large win goals before any payment is made (for example, 25% and 50% of the bank could be the first two win goals). Once the second win goal is achieved, you can distribute the payments from the first win goal. Likewise for the third and second win goal, etc.
Finally, when you make the final payment to a player or investor, if at all possible you should do a full audit of the team’s resources at that point. The best possible way to do a full audit is to have all the team’s money sitting on a table before you pay any of it out to a departing team member. A related rule is that all team payouts must come from the manager after all the funds are in the manager’s possession — team players are not entitled to seize team funds for themselves at their pleasure in order to compensate themselves. If you do not follow this regimen, you are in danger of relying on team assets that do not exist. For instance, it can happen that one team member gets paid, while simultaneously another member has had a large recent loss. Since team assets were calculated without the recent loss information, this means that there has actually been overpayment. If you discover this problem some days later, and then explain to the departing team member that you want compensatory return of the overpayment, he may not share your analysis of the situation! Due to team members not following team rules or sound business practices, I have been forced into complex and cumbersome time payment schemes that would have been unnecessary had I followed the ‘money on the table’ rule.
IV. The Grown-up Rule
The fundamental rule of any business is that it will go under unless it is run and staffed by reasonably mature people with some degree of integrity and good judgment. A corollary of this will occur to you when you face the question of new recruits for your team. Players will often want to recruit people who have impressive technical skills. But someone’s ability to track slugs or aces, to master composition-dependent strategies, or to keep several multilevel counts in mind should be the least of your concerns when recruiting players. More relevant questions are maturity, good judgment, and good character. Can this potential recruit keep his mouth shut when appropriate and keep his cool when hassled by security guards? Can he work well with others? In short, is he a grown-up?
Many people try to find a shortcut around this problem by asking for references from a third party. Regrettably, many references will be worthless. I recruited an immature and untrustworthy player onto my team based on the recommendation of a famous blackjack author whose name we all would recognize. The only blackjack reference that really counts is from someone who played on a team with the referenced applicant who can vouch that the applicant played well, behaved honestly, and acted responsibly. I would place more value on a reference from a previous employer who could certify that his employee handled responsibility well than from some guy who played at the same table with the applicant for a couple of hours. The ideal background for a professional player is someone with red-chip experience as well as dealing blackjack in a casino. Once trained, the skills that such a player has acquired are lethal.
It is all too easy to assume that anybody who can demonstrate card-counting ability is a grown-up. I have regrettably run into many people who demonstrate that this is a mistaken assumption.
If you have never successfully run any business, an experiential vacuum is a poor foundation on which to run a very demanding business. Although the profits from a blackjack team can be high, the demands that it places on staff and management can be much higher. Beware!