Gambling with Michael Lewis

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Hello, hello, revisionist history listeners.

Malcolm here.

I'm stopping by near the end of my book tour because I have a special guest in the house, Michael Lewis.

You may know him as the author of Moneyball, The Big Short, Liars Poker, and most recently Going Infinite, which just came out in paperback, by the way.

Or you may know him by his alter identity as a Pushkin superhost.

Michael's show Against the Rules is now in the middle of a fantastic new season.

It's all about the insane rise and the consequences of sports betting in the U.S.

You're going to get a chance to hear one of the latest episodes in just a moment.

But first, I thought we would chat with the man himself.

Michael Lewis, welcome to Revisionist History.

It's been too long.

Yes.

I haven't seen you in ages.

I know.

I know.

We need to write that wrong.

So you've done...

this show about

sports betting and this comes after what your first one was about referees and then coaching, right?

Collections.

Experts.

We sort of set them all in the sports arena.

And this is, you know, we frame this as fans.

And it's sort of like the fracking of the fan, how the sports leagues have decided

to squeeze ever more juice out of the fan base.

And,

you know, six years ago, the Supreme Court

repealed a federal ban on sports gambling.

And at that time, the NFL, the NBA, Major League Baseball, the NCAA were all saying sports betting is evil, you know, that it's just like it will, it will destroy the integrity of sports, et cetera, et cetera.

And there's long been this taboo in the sports world about gambling.

I mean, not even gambling on your own sport.

If you caught sports gambling, people have been tossed out of sports.

And they flipped on a dime and essentially went into business with the sports games.

gambling industry, particularly FanDuel and DraftKings,

the two sort of big companies at the center of this world.

And there's this kind of sports gambling industrial complex that has arisen in the last few years.

And it's really interesting.

It's like, so the past

seasons, I've loved doing the podcast.

You are responsible for me doing the podcast.

So I mean, you kind of talked me into this.

And I love that.

I love the way it works, kind of different muscles.

And when you're writing these scripts, it's a different thing than writing the books.

And I like it for all kinds of reasons.

But up to up till now, we've taken themes.

The season is whatever, seven episodes, and it's variations on a theme.

But it isn't one story.

And in this case, this could be a book.

It's like almost plotted like a book.

And it's about this vast social experiment that's going on that's largely invisible because the consequences are sort of, you know, you don't see it the way you see, I don't know, opioid addiction

or alcohol addiction.

You're seeing.

this thing that historically regarded as a vice, understood to be kind of risky behavior, behavior, being foisted upon the American people, especially young American males, in a way that would have been unthinkable a decade ago.

And it's sort of like how this is happening, how the industry works, what the economics of the industry are, where this is going and the effects it's having on.

We're talking to everybody from athletes to high school students who are creating sports gambling rings in their high school.

And like,

ultimately, how to defend yourself because the industry is coming for you or your children.

It's sort of finally calibrated to exploit all of your mental weaknesses.

Finally calibrated to get you to do the stupidest things you could possibly do

in a casino.

I'm just curious about how you settled on this particular topic.

When was sports gambling start, when did it start buzzing around your head?

Well, to be completely honest, it was buzzing around my head because you can't avoid it, right?

Even in California, sports gambling is still illegal.

It's legal in 39 states.

California is not one of them.

Soon will be one of them, probably.

But even in spite of that, living in California, four years ago, I started getting bombarded with ads

from DraftKings and Fandor telling me to bet on sports.

And the commentary around sports had completely changed.

So it caught my attention then.

But it was our brilliant producers who came and said, you know, what do you think about this as a subject?

And it instantly went, yes, yes.

like yes that it just hasn't quite been done sometimes the best stories are things that you never no one ever thought about some of the best stories is just like what's under your nose that no one's really noticed and yeah and hiding in plain sight hiding in plain sight the more we dug into it the the more shocking it was just how predatory it is just how the bit as a business FanDuel and DraftKings, the two companies at the center of the industry,

they're framed in the public mind as It's always just fun.

It's gaming or whatever.

It may be like a casino.

It's not at all like a casino.

These are businesses that really haven't ever existed before.

It's casinos with unbelievable amounts of data about the gamblers and incredible ability to nudge the gamblers into ever and ever stupider things.

And it's in your pocket.

It was a combination of that.

that kind of dragged me into it.

And it was also just like the whole

sports gambling as an activity is more interesting to me than

casino gambling or even blackjack.

We spend some time with sports gamblers,

the very best sports gamblers who beat the house.

And they're doing stuff very like what the Oakland A's front office did back in the late 90s and early 2000s, where they're doing a fresh analysis of the sports to glean fresh insights that the market

is sort of oblivious to so that they get an edge.

and um

and that's interesting to me it's like at the same time

the corporate side of it is kind of dark and gross the gambling side of it is kind of fun and interesting for the people who know what they're doing i i've been struck by how much the sports gambling has in has infected our world podcasting i mean sports podcasts have turned into sports gambling podcasts.

You got it.

I mean, I listen, I spend many, many hours of my life listening to Bill Simmons, but it's like all he mentions FanDuel in every second paragraph.

They've rained so much money on media that there's just not much blowback.

There's a huge financial disincentive to doing the story.

Like the first question your business people asked me is, can we take FanDuel and DraftKings money?

And very much not in your spirit.

I said no.

Now I know you.

Very much not in my spirit.

Because you are so,

because you are so good at plowing right through the ordinary ethical objections and getting to that and getting to the cash.

It's so true.

It's so true.

Is it not true?

You know, we got mouths to feed here at Bushkin.

Yeah, you do.

You're a responsible parent and you're generating the income for the family.

But I'm kind of off to, I'm just wingnut off to the side of your operation.

And I just said, no, it's pretty clear that we've got to be completely free of of the taint of their money these two companies in the last five years have spent something like two billion dollars each on marketing and a lot ends up in the pockets of sports party yes they're

two billion yes that's like that's like general motors level they we had someone who i i think is a trusted source tell us that they're the biggest advertisers in america they're bigger than the beer companies they're bigger than the car companies and that is actually surprising to anybody who watches sports.

It's like every other ad is an ad for gambling.

And

beyond that,

like

the announcers, not just Bill Simmons, the announcers during the games are framing all their commentary around their bets.

And their bets.

that they make or are encouraging or sort of suggesting to the audience they might make too

are precisely the stupidest bets you can make and the bets that maximize the profits of the companies.

Like

it's long shot bets.

It's parlay bets.

Parlays.

Yes.

And what it's taking advantage of, and we haven't quite got to this.

The last, I don't want to burn the season on your podcast, but the human mind makes all kinds of mistakes when it's placed in conditions of uncertainty.

And one routine mistake it makes is that when it's given long odds, it starts to cease to make distinctions.

So if someone offers you 40 to one odds on some parlay bet or 20 to one odds, you think, wow, I get $20 for everyone

I put up, and you don't stop to realize that actually the true odds are something like 100 to one.

You mean because you're betting on a series of long shots and you have to multiply out

the odds.

Yes, people don't do exponentials very well.

And the mind gets sloppy.

when you're starting to present people with long shot bets.

It's why people play the lottery.

They've been kind of grooming the American gambler to move away from, oh, just betting on the taking the Chiefs and giving up the points to

these bets where the house take is multiples of what a casino takes for casino games.

As a result, the two companies, they're both listed companies.

DraftKings is listed as DraftKings and FanDuel is owned by its holding companies called Flutter.

All of Wall Street basically got them wrong the minute they ran up as companies, the stocks ran up in the wake of the legalization of sports gaming.

And then everybody came up and said, oh, they're inflated, short them.

And they crashed temporarily.

It's like the end of 2021, because everyone's sort of looking at them as standard casino businesses.

And they knew what the take was for standard casinos.

And they could kind of guess what

the handle was going to be, what the betting volume was going to be.

And they did the casino math and they said, this doesn't justify the stock price.

In fact, the take is multiples of what casinos and is growing that the margins.

And a way to think about it is

it's sort of like exploiting their ability to get people to do dumber and dumber things.

And I think, um, I think what's going to happen, our podcast is going to be a part of this.

The way to address this is to make it clear that

anybody who is

a VIP of FanDuel or DraftKings or one of these sports gaming apps, or anybody anybody who even kind of does it a lot is like someone who's almost certainly making dumb bets

because they, on the other side of this, the gaming apps are really good at figuring out who's a smart better and kicking them out.

If you know what you're doing, if you're the equivalent of the card counter, if you actually figured out something about football that nobody has realized before and you've got a systematic edge, very, very quickly they figure it out and they get rid of you.

So, in a way,

they could do that.

I've never understood this.

You're not allowed.

If I walk into a store, they can't kick me out.

You know, isn't there a whole kind of

level of

analogy that they want to draw is it's like the card counter coming into the casino.

We can throw out the, we don't, we don't have to service the card counter at the blackjack table.

I don't want to ruin the whole show, but our producer took an enormous pile of cash with smart betting ideas, and it took her moments to get checked out that poor lydia jean cott has been banned by every sports betting poor lydia

so so so yeah because and the way that it's a very simple way how they identify that you are smart if the line moves in your favor after you've made the bet systematically you knew something is this basically they were saying the odds the odds will drift to the true odds and if you were ahead of the market they don't want you and so but but the barter part is that and i said this to an audience of money managers not that long ago they're asking me like do you have any tips to how to identify a good money manager and i said well there's a new one now available before you let someone manage your money you ought to ask them if they if they have a counselor fan to win draft kings and they're sports bettors and like what's their relationship with those enterprises and if they say man i'm like a vip or i do it all the time or i'm you know don't give them their money to invest.

Like they are identifying people who should not be professional investors michael can you describe the the tell me a little bit about the episode we're about to hear so this is the episode where we're the main character is rufus peabody who is one of america's great sports bettors and uh by the way you did you make up that name no no i know that's like that is like if i had to imagine the name that michael lewis would make up for his lead character it would be rufus peabody i told rufus peabody when i met him that if my name was rufus peabody and michael lewis i'd be worth three times what i'm worth that it's just totally Are you kidding me?

Yes, it would be.

Totally.

It's wasted on a sports better.

It should be an author.

Rufus was in, he's still young,

Yale class of 2009 or whatever.

He is the leading kind of smart edge of gambling, but he was present before legalization.

He was present in the markets.

back when Vegas was the market.

We traveled with him to the point where his bets are no longer accepted.

What interested me about him and his mentor is also a big character in the

episode, Roxy Roxborough, a legend in old Vegas sport.

I know.

I know, I know.

And what you love about Roxy is he's Canadian.

He's Canadian.

Michael, we have two improbably, we now have a parlay of improbably perfect names.

You're going to love listening to them.

They're wonderful.

They have a lot to say.

They're very smart people.

I just thought, what is the most interesting point of view on this market?

And it was obviously the point of view of the sharp, the edge player, the person who's beaten the market.

It's like, who's the most interesting person to talk to about a casino?

It's either the person actually running the casino or it's the card counter or the person who's figured out how the slots are rigged or who's seen that the roulette wheel is slightly off.

It's someone who is looking at the market

from a superior kind of vantage point.

So it's walking us into

this new market through the eyes of an edge player.

You have the one thing that has distinguished you throughout your career is: I feel like you, no one has his finger closer to the pulse than you.

You've done it repeatedly, and it sounds like you've done it again.

It's a gas of a season.

Michael Lewis is host of Against the Rules right here at Pushkin.

Here's his latest episode, A Hard Way to Make an Easy Living.

Give it a listen and head over to Against the Rules and subscribe to hear more.

Thank you, Michael.

Thank you, Malcolm.

Oh, yay, oh, yay, oh, yay.

May 2018,

the United States Supreme Court strikes down the federal law that has effectively banned sports gambling in nearly every state.

What happens next happens faster than anyone imagined and happens in so many places at once that it's basically impossible to follow it all in real time.

I ended up picking Mississippi and Kansas as the two states that I really decided to focus on and merely was just there becoming a part of the furniture as the lobbyists were working their magic.

That's Eric Lipton, New York Times reporter, who with his colleague Ken Vogel just sat and watched as lobbyists created the conditions for a new industry to emerge overnight, sports gambling.

And,

you know, buttonholing various legislators, getting them to introduce language that they wanted into the gambling bills, changing the tax rates, getting provisions included that would allow them to entice bettors with free bets that they wouldn't have to pay taxes on.

Eric knows that state capitals are where the action is.

He started his career covering state governments for local papers.

When he returns to his old beat, he sees right away how much lonelier state capitals are, because his old job, state house reporter, now barely exists.

There were times when I was in the state capitol where I was pretty much the only reporter there while they were debating sports betting.

And I would stay until they wrapped up two in the morning as the session was closing and they were trying to get the bill passed.

And there were no other reporters present.

It's like if you do something at the federal level, there are going to be a lot of people watching still.

A lot of reporters who will cover national politics.

But if you push things down to the states, you're more likely to just operate in the shadows.

Yeah, and I think the lobbyists know that, and it's actually a lot easier to get things done in state capitals.

You can build a national strategy through a collection of states.

Eric and his colleague at the Times wrote about Kansas back in 2022, but he could have written the same piece almost anywhere in the United States.

38 states plus Washington, D.C., were rushing to legalize sports betting.

and rolling over for the new sports bookies who were pushing to minimize just how much of a cut the states took.

They cut the tax rate almost in half.

They gave them the ability to give out free bets as a promotion to sign people up and not have to pay taxes on that.

So essentially the state becomes a lost leader, a promoter of getting people

into gambling by giving them tax-free promotions.

And without a whole lot of pushback from anyone.

Oftentimes the legislators weren't even aware that they were passing these things or they were it was sent it was you know given to them at the last minute just before they were asked to vote on it and they weren't even fully informed as to what they were voting on.

Overnight the states have gone from the bookies cop to the bookies partner.

So have all the pro-sports leagues, the NFL, the NBA, and Major League Baseball.

The entire sports industrial complex now has a stake in the revenues that flow into sports gambling companies like DraftKings and FanDuel.

There's now a vast new machine with one clear purpose, to maximize those revenues by maximizing the number of bets that Americans make on sports.

A Sports Equinox is coming

for sports, one day,

one contest that's free to play.

FanDuel Sports Equinox free play contests.

It's as if when Prohibition ended, there were these two massive liquor companies sitting there with databases on individual Americans and their taste for alcohol.

And the government ordered them to go wave a glass of whiskey under the nose of every alcoholic to persuade as many as possible to start drinking again.

Of course, there are some restraints, some rules.

No state has allowed small children to gamble on sports.

Eight have declined to allow people to gamble on their phones.

And the taxes that the new industry pays varies a lot from state to state.

New York takes 51% of all sports book revenues.

Indiana takes only 9.5%.

In 2017, the year before the Supreme Court struck down a federal law against sports betting, legal sports bookies in the United States generated roughly $300 million in revenues.

In 2023, they took in $11 billion.

In 2017, Americans made roughly $5 billion in legal sports bets.

Last year, they laid down more than $120 billion.

The numbers are crazy.

The consequences are even more so, and we'll be exploring them for the rest of the season.

Take your shot at more than $270,000 in payouts.

That's a lot of money.

I'm Michael Lewis, and this is Against the Rules, a show where we look at specific roles in American life and how they're changing.

The fan's role's changing, because a powerful new machine has sprung up to encourage the fan to gamble on sports.

Sports gambling has never been just a simple and straightforward marketplace.

It's more like a jungle.

And Draft Kings and FanDuel are like this invasive species that's been dropped into it by accident.

They've disrupted the food chain and overrun the habitat because they feed so efficiently on fan emotion.

And fan emotion is the jungle's greatest food source.

But they're also vulnerable to a creature that feeds on them.

Let's recall for a minute what sports gambling once was in America by listening to just a snippet of a press conference held back in 1961 by then Attorney General Robert F.

Kennedy.

The report has been since the passage of the legislation that big-time gambling

by the big-time operators has been materially decreased since the passage of the legislation.

Kennedy's celebrating a new law called the Federal Wire Act.

The point of the law was to cut the legs from under the mafia by shutting down its sports gambling operations, by giving the federal government the power to arrest and prosecute anyone who booked a sports bet over any phone or telegraph wire that crossed state lines.

And in fact, the

head of the Royal Mounted Police in Canada said in a speech last week that Canada will now have to pass legislation and take new steps because

many of the big-time gangsters and hoodlums of the United States are now moving to Canada because of the drive that is being made against them here in this country.

When you think of Canada, this isn't the first thing that pops into your head.

Happy refuge for big-time gangsters and sports gamblers.

But I don't know.

It was a different era.

I always had an interest in sports.

My father had coached me in swimming, coached me in tennis.

But my world changed when I found out you could gamble on it.

I became no longer a fan.

I became interested in gambling.

That's Michael Roxborough.

Everyone just calls him Roxy now.

He grew up in the 1950s in Canada, in a nice upper-middle-class family.

He's now zooming with me from a home in rural Thailand with the AC blasting in the background and a straw fedora on his head.

and the emotional feel of a man in a witness protection program, a placeless man.

But he really did grow up in Canada.

When Roxy was a kid, there was a sports gambling market.

It was smaller and more constrained than it is now, but very real.

And its center was the pool halls of Vancouver, British Columbia.

If you envision in the movie The Hustler, if you take a look at the pool rooms of that day,

those were the pool rooms of my day.

It was just full of wannabes,

desperados, hustlers,

drug dealers, bookmakers, everybody that was operating outside the law.

Right.

When you got the bug, what'd your parents think about it?

Not too happy.

My father was a Harvard MBA, and my mother was a high school valedictorian.

And I think they had higher aspirations.

Roxy's dad wanted him to go to Dartmouth, and he got in.

But he went to American University in D.C.

because he sensed the action was better there.

I ran a blackjack game in the

American University dorm at night and that's what's the source of most of my profits.

But then I got kicked out.

For what?

For running that blackjack game.

Roxy never did finish college.

Instead, he went back to Canada, cycled in and out of boring jobs, but never stopped gambling.

And then he finally caught a big break by reading a book.

I was in a Reno airport flying back to Vancouver,

and I picked up a copy of Ed Thorpe's Beat the Dealer.

Beat the Dealer was the first book to show how a gambler inside a casino could have a systematic edge by counting cards in Blackjack.

The other casino games, like Slots and Roulette, were more or less perfectly rigged against the gambler.

Anyone who played them for long enough was sure to lose.

Blackjack was an exception.

Play Blackjack for long enough, at least the way Ed Thorpe taught people to play, and you were sure to win.

Ed Thorpe published his book in 1966.

A few years later, Roxy read it, and it gave him the idea that changed his life.

I decided that if I'm going to look at sports betting, I need to look at it statistically driven, data-driven,

not by not visual or instinct or just watching a lot of games.

Outcomes in sports were obviously far less regular and predictable than outcomes inside inside slot machines, or even at blackjack tables.

But that didn't mean you couldn't learn stuff about sports that would allow you to make better predictions.

Not perfect predictions, but better predictions than everyone else betting on games in the 1970s.

Roxy had baseball in mind.

The guys who booked baseball, legally in Nevada and illegally everywhere else, offered gamblers the chance to bet on not just who would win the game, but how many runs both teams would score.

Roxy had an insight that seems obvious now.

The number of runs scored in any baseball game depended on factors like the weather at game time and the size of the fields.

San Diego's was a good example.

You just could not hit the ball out of there.

And then the Padres went and spent like an outrageous contract to sign a guy like Oscar Gamble.

All he did is hit fly balls.

And that park was a place where fly balls went to die.

So you soon found out that general managers really didn't know anything about their own ballparks either.

The idea that the people who run sports teams don't know what they're doing has probably never been a new idea.

Fans have always thought that they know better.

What was new is that someone in the stands was actually figuring something out.

The effects of the wind and the humidity and the barometric pressure on a ball that was flying through the air.

We started to start getting weather reports from all the cities to parse out which ones helped scoring or hindered scoring.

And dimensions, right?

I mean, just the length of the left field fits.

Dimensions were important.

And we found out a couple of the ballpark dimensional drawings were wrong.

They had the North Pole wrong.

What pointed north?

Because we went out and did them ourselves.

Roxy moves to Vegas full time in 1975 to bet on sports.

And just by taking into account the weather and the size of ballparks, He's able to make a killing while trying to avoid the people who know a thing or two about actual killing.

Were the Nevada legal bookmakers effectively run by the mob?

They would have had a hand in until about

the late 70s, probably.

In that environment, was it dangerous to win too much?

No,

because actually what they would do is they could find somebody else who could take your bet and they could move it for more money someplace else in the country.

The old sports gambling market inside the United States was shady, but it had its unwritten rules.

And one was that they always took your bets.

If you bet a lot, they eventually move the lines.

These betting lines were all set in Vegas.

For a very long stretch, they were actually set in a single Vegas casino, the Stardust.

The bookie at the Stardust set the odds, and everyone else just followed his lead.

There was a bank of payphones outside the Stardust that were said to be the most profitable in the country for the phone company because sports gamblers used them to relay the odds to the illegal bookies and bettors across the country.

Communications back then was just with a phone call.

That was the only communications there were.

In the late 1970s, the Nevada Gaming Control Board tossed the mob out of Vegas and out of sports gambling.

And pretty soon, Roxy became old news.

By the early 1980s, everyone knew that the weather and the size of ballparks had big effects on baseball scores.

And Roxy never found another systematic edge.

His life became a bit of a mess.

He'd been arrested for violating RFK's Wire Act.

He'd taken crazy risks as an illegal bookmaker, and he'd run through two marriages.

Is a gambling business hard on relationships?

Terrible.

Why?

It just sort of takes over your mood and your personality.

I don't know anybody who's ever been in gambling and thought they were a better person for it.

It's interesting because when you think about why a person would drift into gambling in the first place, it would be because you think it might be an easy way to make money.

Yes.

It ends up being a harder way to make money.

It does.

What do they say?

It's a hard way to make an easy living.

People said that.

Roxy now knew it.

So in 1982, he quits gambling.

He creates a company called Las Vegas Sports Consultants.

This new company will effectively replace the Stardust Casino in setting the odds for all major sports contests.

Roxy's just better at it.

And pretty soon, he's selling his odds to all the sports bookies, including the Stardust.

This makes sense to everybody in Las Vegas.

Hiring Roxy to set the odds in sports is like hiring the first card counter to guard the blackjack tables.

So I said, you know, I'm going to try this for a couple of years, but I'm not sure if it's going to work because

it wasn't a given that every hotel was going to have a sports book.

It was a rather limited business.

But that was one of my better decisions because it turned out to be a massive business.

Sports gambling isn't exactly a financial market, but it rhymes with financial markets.

What happens on Wall Street somehow eventually also happens in sports gambling.

And Wall Street's about to undergo dramatic change.

First computers and then the internet will allow the markets to become a lot more complicated and the bets a lot more complex.

The world's about to speed up, and a new kind of person with a different kind of education is going to enter it.

Old school traders with high school degrees and lots of body hair and names like Vinnie and Donnie are about to be replaced by hairless PhDs from MIT with computer models, who, as kids, thought they'd grow up to be professors, not traders.

On Wall Street in the late 1980s, smart old school guys served as a kind of bridge between the two cultures.

In sports gambling, Roxy was that bridge.

But it took a while for anyone to cross it.

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We're here to see Rufus Peabody.

Okay, this is a good place.

We're in the right place.

We're still in Vegas, but far from the strip.

We're not going to be wrong, we're just going to make a bunch of sports bets.

He runs in the Lego Gameway Operation upstairs.

Oh, does he?

I never even knew that.

You want any action?

Jump off to the Lakers.

The real action is no longer on the strip.

The real action is basically invisible.

But here, on the 17th floor, with a sweeping view of the distant casinos, Rufus Peabody lives and works.

Rufus, we're here.

We're here.

Rufus Peabody is who crossed Roxy's Bridge.

I never was a better.

as a kid.

I didn't know anything about sports betting.

You didn't feel a little twinge of desire.

None.

None.

Most people that got their start, they started losing and then they learned how to win.

But I was never a better.

I never grew up betting besides NCAA tournament pools and I was always good at those.

But for me, it was a game.

And I'm not, I'm a risk taker, but I'm not a gambler by nature.

Rufus grew up outside of Washington, D.C.

Always loved sports.

Thought he might like to be a sports journalist.

He still reminds me a bit of a journalist.

He's a watcher, a person whose eyes move more than his mouth.

But even when he was a kid, his mind took him places that journalism usually doesn't.

So it was this team won 82 to 64, but why did they win?

Basically,

I kind of wanted to report on the why it happened rather than just this guy got 18 points and 12 rebounds and this team won, right?

I kind of wanted the story of why.

Right.

You want explanations.

I want explanations.

In 2004, Rufus graduated from high school and went to Yale.

He was still obsessed with figuring out why.

He studied statistics and built models that predicted the performance of athletes and the outcomes of sporting events.

Not because he wanted to gamble on them, just because it was cool to figure out stuff that even people who run sports teams don't know.

He wanders around Yale looking for someone to teach him more.

Rufus wants to do a thesis on,

if I remember correctly, behavioral biases and the baseball betting market.

He's who Rufus found.

His name is Cade Massey.

He's a professor of organizational behavior.

Was it interesting?

Oh, yeah, absolutely.

I mean, what's not interesting about trying to find psychological mistakes that people make with like, you know, hundreds of thousands of observations of real, real money being bet.

And he found mistakes.

I mean, he was finding profitable strategies right off the bat.

Rufus just kept asking questions about the behavior of sports gamblers.

He still wasn't placing bets himself.

He was just working with this professor to build a model to predict college football scores.

They pitched it to the Wall Street Journal, and the journal agreed to publish their college football picks of the week.

It was just how they would bet, were they to bet on college football?

And he would then post our picks of the week.

We were just posting them because we were working with the Wall Street Journal.

So post them on Tuesday or Wednesday, and then he would watch as the prices started moving on his screen.

Oh my God.

Which is to say, the sports gambling market would see their picks and move in response because the market figured out that their picks were that good.

Within a year or so, we quit posting college picks because it was getting too much in the way of what he was trying to do.

Because he wanted to bet it himself.

Because he wanted to bet it.

And if they're so good, you would bet them.

You wouldn't sell them.

Right.

I mean, it was bound to eventually occur to Rufus that if he could predict the scores of college football games, then he should just bet on them himself.

But it's funny how he got there in his head.

Roxy Roxborough had started as a gambler who then set out to find some kind of edge to bet.

Rufus Peabody started by finding these edges and kind of stumbled into gambling and then found Roxy.

During Rufus' junior year at Yale, he read an article in ESPN about Roxy's sports analytics company, Las Vegas Sports Consultants.

Roxy's company wasn't used to getting resumes from Yale juniors, but they gave him a summer internship anyway and showed him their world from their offices right next to the Las Vegas airport.

They would bet on what plane was most likely to land next, right?

And this is like sort of pre-internet days or pre-like being able to see flight plans and stuff like that.

And so it was like, okay, American Airlines is like six to one.

Like,

you know, Southwest is two to one, whatever.

What people didn't realize though was Roxy actually had a contact in the control tower.

And so Roxy won.

He made money off of these bets.

But he didn't make enough to draw suspicion.

That was the key.

But he would occasionally hit the Japan air at 300 to 1, right?

Or whatever.

Roxy's crew would bet on everything.

Rufus wasn't like that.

He didn't even think of what he wanted to do as gambling.

But he did want to understand this other world.

this world where people bet on anything that moved.

They shared the building with American Wagering, so with Leroy's, which was a sort of third-party sports book operator.

Leroy's didn't have a casino, but they were in casinos like Hooters or

Terrible Herpst, right?

Hooters has a casino?

Yeah, Hooters Casino.

It's on the strip.

It's right

by Canada, basically.

Yeah.

So I meet the head trader there.

Right.

Right.

And I have all these questions.

A bookmaker can make more money.

Let's say if they know the public's bias, they can make more money setting a line somewhere between the true price and the price the public thinks.

That's the way to maximize.

There's no reason you should understand what Rufus just said there.

But let me try to explain it because it tells you a bit about how this old school sports gambling world works.

The line is just the odds or the point spread.

The true price is is what the odds would be if you somehow knew every possible relevant bit of information about some upcoming game.

Of course, no one ever knows everything, so there is in reality never a perfect true price, just some number that the smartest and best informed bettors agree on.

Say they agree that the Packers should be eight-point favorites over the Cowboys.

But most of the gamblers are Cowboys fans, and the Cowboys fans think the Cowboys are only three-point underdogs.

Rufus was asking the bookie if he thought he can entice the public to make more stupid bets if he set the line not at the true price of eight points, but at, say, five points.

Because Cowboys fans will think the Cowboys are better than they actually are and bet even more.

I said, theoretically, you can make more money setting a line

somewhere between the true price and where the public thinks the price is.

And he says, theory, theory,

in theory, a dick don't fit in an asshole.

And this guy, yeah,

he was

probably 300 pounds, 5'8,

smoking a cigar in a dark room, looking at a bunch of numbers on a screen.

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Rufus Peabody, recently of Yale, is no one's idea of a hustler.

He's too sweet-natured and even-tempered, and way too open to telling other people about the stuff he's learned.

He finishes up at Yale and moves back to Vegas to work full-time at Las Vegas sports consultants.

But now Rufus thinks he might have an edge.

And people in and around Roxy's firm think that maybe he's right.

The Super Bowl was my first big break, Super Bowl 2009.

Okay.

I had made a friend with a professional sports better, a guy that bet baseball,

and

he loaned me $10,000 to bet.

I had my own $10,000 to $12,000.

My boss, Kenny, unbeknownst to everybody else, invested $40,000 in me and gave me a 20% free-roll on it.

Meaning that if it wins, you take 20% of the profits, but you suffered another losses.

Correct.

And so I ended up with close to $60,000 bet on the Super Bowl.

And so I basically was pretty leveraged.

Yeah.

And I remember being like, if this game doesn't work out, you know, I gave it a shot.

All right.

And And what is causing you to have such conviction about a game?

Oh, nothing.

It wasn't conviction about the game.

It was betting the props.

The props.

Short for proposition bets.

Not on the whole game, but pieces of the game.

The standard story, which is almost certainly not true, was that the prop bet was invented for the 1986 Super Bowl between the Chicago Bears and the New England Patriots.

The Bears were such heavy favorites that Vegas had trouble jinning up interest in the game.

So a Vegas bookie created a side bet.

The odds that a Bears defensive tackle, named William the Refrigerator Perry, would score a touchdown.

It was a long-shot bet, and the betting public loved it, and Vegas Bookies lost a fortune when the fridge did indeed score.

But back to Rufus, and forward to the Super Bowl of 2009.

The Pittsburgh Steelers played the Arizona Cardinals.

Rufus wasn't betting the whole game, but pieces of the game.

His pro football model spits spits out odds for all this weird stuff that Vegas bookies are now offering bets on.

The odds that Steelers running back Gary Russell will score the game's first touchdown, for example.

Rufus has vast troves of data to mine.

He can do stuff with it that Roxy would never imagine.

He could do stuff that even the people who run the Pittsburgh Steelers would never imagine doing.

I mean, even Gary Russell likely has no idea that you can calculate the odds that he will score the game's first touchdown.

But Rufus can.

His model puts those odds much higher than the bookies' odds.

So, in Rufus's mind, it's a great bet.

He makes dozens of similar bets, bets where his model tells him that the bookies are giving him better odds than they should.

I still remember going,

it was like Hera's, Caesars,

the Rio.

I ended up getting down like $200 at a time, like $5,000 positions on a few things like that were really good.

And so

I was diversified.

Within the game.

Within the game.

I wasn't betting on the outcome of the game, but I was still, I still, to this day, have never watched that game.

I was too nervous.

How did you experience the game if you didn't watch it?

I went to this little Par 3 course that's open at night right south of the airport.

And I played.

the Par 3 course twice

until I felt like the game would definitely be be over.

And then I went grocery shopping.

And I didn't have a smartphone.

This is pre-smartphone.

I went grocery shopping and then I went home and cooked myself dinner.

Huh.

And then and only then did I open my computer and check and see how the game went.

And were you just going through your prop bets, seeing what happened?

First, I looked at the box score and I saw the first score was Gary Russell, one-yard touchdown run.

I was like, ah, right.

And it turned out out of like $56,000 bet, like I profited profited like $23,000 on it.

Rufus figures out how much he's won.

Then he physically retraces his steps to the many casinos that had taken his many bets, still driving an old Honda Civic.

You had all these little tickets.

You have to, right, you go cash them.

Each one individually.

So you must have had 100 tickets.

Oh, yeah, probably.

He just drives around Las Vegas.

And the money piles up.

And I remember having like $30,000 on that front seat and being like, oh my God, so much money.

In cash.

In cash.

After that, lots of people in Vegas wanted to lend money to Rufus and take a cut of his bets.

Rufus, for his part, was still sitting in his office in Las Vegas Sports Consultants.

But pretty soon he was directing an army of people to lay bets in sports books across the city.

Sports books that got their odds from Las Vegas sports consultants.

Rufus was in effect betting against the lines created by Roxy's firm.

Roxy himself had moved on at this point, but he watched what Rufus was doing and he admired it.

He came to Bukat once and I met him.

Even after one lunch, I said, this guy's

thinking at a higher level than other people.

And I learned a lot from him, not because he was divulging.

his secrets, but he was just thinking at a higher level.

To get his edge, Roxy had used weather reports.

Rufus was using the spin rates on pitchers' curveballs.

I try to drill things down to their root cause.

It's kind of what you do when you write books.

You try to figure out the person, what makes them tick, what's the story.

I try to figure out why things happen in a baseball game or a golf tournament.

What makes a player good?

It's not just their score.

Like, what are the things that are driving their score?

Which of those are repeatable, which aren't?

And right now,

you have all this like computer vision and that type of data available now.

And with a lot of these sports, I mean, we're now talking about bat speed, measuring bat speed and looking at like aging curves for bat speed.

The whole point of Rufus is that he never lets emotion interfere with his process.

But that doesn't mean he doesn't feel emotion.

He does.

He feels it for his process.

We're using bat speed to then predict exit velocity.

And we're using exit velocity to then predict like weighted on base average and basically whether a ball will be hit or not and what kind of damage it'll be if it is.

And then, you know, use that to predict wins.

And how did it work?

How did it work?

It worked well.

We made

$125,000 in the first month.

I don't know what our volume was overall.

And I got 20% of it, which was

great because my yearly salary was 25,000.

Rufus had become the card counter at the blackjack table, only it was richer than that.

He was generating new insight about why things happened in sports.

A blackjack dealer knows where the card counter gets his edge.

The sports book, he couldn't really tell where Rufus was getting his,

which made Rufus and what he was doing even more unsettling.

And did the M at any point say, we're not taking your bets?

The M Casino was one of Rufus' favorite sports books.

No, they had, their whole thing was, we're going to take all comers.

We want to be,

we want a lot of volume.

We think we're better than people.

Then comes the Supreme Court decision of 2018.

23 states soon legalize sports gambling.

Rufus now has the M Casino and a lot of others right in his pocket.

FanDuel and the PGA Tour have teamed up.

Now you can get more action out of every stop on the tour.

And Rufus, of course, stands to make a killing.

The bigger the markets, the more he can bet.

Bet the PGA Tour and make every moment more with FanDuel Sportsbook.

But as it turns out, that's not how it's going to go down.

This ecosystem is going to change in ways Rufus didn't predict.

And he began to sense it in late 2020.

So I would drive up to New Hampshire to

bet at these kiosks initially.

And then once there was mobile betting, I had an account on DraftKings.

Rufus had a girlfriend in Massachusetts.

Massachusetts hadn't yet legalized sports betting, so he needed to cross state lines to use the betting app on his phone.

The drive took him like 45 minutes, but it was actually easier than running all over Vegas trying to get cash down.

He and his process were built for this new type of casino.

He could bet on golf basically all day long, until one day he couldn't.

One week I lost $30,000.

I got a phone call to tell me that they were cutting my limits on golf.

He'd lost $30,000, and DraftKings stopped taking his big bets.

By the way, we've reached out to DraftKings and so far they have declined to talk with us.

Anyway, it was clear to Rufus back in 2020 that this was definitely no longer his old sports gambling world.

Because I had bet enough, it spurred them to actually go in and look at the stuff I'd been betting and how I'd been doing.

Books are not limiting people just because they win.

They're limiting them because they think they're going to win in the future.

Rufus used data to predict what athletes were going to do.

DraftKings was using data to predict what Rufus would do.

When they looked at the data, they saw that after Rufus placed his bets, the odds nearly always moved in his favor.

These were the bets of someone who knew things before the market knew them.

And the new bookies were not like the old bookies.

They only wanted to take certain kind of bets.

Bets that were more like the bet you make when you press the buttons on a slot machine.

Bets that if you made them often enough, you were sure to lose.

The sort of bets a fan would make.

The sort of bets Rufus Peabody

never made.

Refusing a bet wasn't a thing.

It never was a thing here.

Huh.

Like you, if you got kicked out of a casino or if you couldn't bet there, it was because you did something wrong.

Like you violated the sacred bookmaker better covenant.

Being smarter than the market didn't used to get you kicked out of the market, but the market's changed.

Sports gambling is still a hard way to make an easy living.

But now it feels even less fair.

Now it feels like someone should step in and help Rufus.

Okay, cool.

So I downloaded FanDuel, DraftKings, Fliff, Fanatics, Caesars, BetMGM, and PayPal.

So now everyone has all of my information and my social security number.

Wait, your social security number?

They all asked for it, I guess.

These new sports gambling apps, they all asked for it.

and so we're going to give it to them in our next episode.

Against the Rules is written and hosted by me, Michael Lewis, and produced by Lydia Jean Cott, Catherine Girardeau, and Ariella Markowitz.

Our editor is Julia Barton.

Our engineer is Jake Gorski.

Our music was composed by Matthias Bossi and John Evans of Stell Wagon Symphonet.

Our fact-checker is Lauren Vespoli.

Against the Rules is a production of Pushkin Industries.

To find more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts, or wherever you listen to podcasts.

And if you'd like to listen to ad-free and learn about other exclusive offerings, don't forget to sign up for a Pushkin Plus subscription at pushkin.fm slash plus or on our Apple showpage.

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