Counting Cards

The house always wins.  If you play slots, the casino has an edge of up to 15%.  That means that, if you put a billion dollars into the slot machines on a given night, you should expect to get back $850,000,000.  That is a crappy bet.

In American roulette, the edge is 5.26%.  In European roulette, it is 2.70%.  In baccarat, depending on how you bet, it can be anything from 1.06% to 14.36%.  In Keno, the edge can be up to 40%.  In blackjack, if you play the standard strategy perfectly with liberal Vegas rules, it is 0.28%.  That is as good as it gets without counting.

In blackjack, the odds favor the dealer because the player is allowed to dig his own gave first.  Generally, a player loses if he goes bust and wins if the dealer goes bust.  However, if both go bust, the first to go bust – the player – loses.  The order of play favors the house.[1]

The basic strategy lessens the casino’s edge by allowing the player to use two aspects of the game, i.e. the rules of play for the dealer and the composition of the deck, to her advantage.  While the player can choose to hit, stand, double down or split pairs whenever she wants, the dealer must hit any hand with a value of sixteen or less and stand at seventeen, and the dealer cannot split pairs or double down.  A poker deck contains thirteen number-ranks.  Of these, seven constitute high-ranking values (8, 9,10, Jack, Queen, King, Ace).  Therefore, at any given time, assuming a new, well-shuffled deck, there is a greater-than-fifty-percent chance that the next card to be dealt in a randomly shuffled deck will be a high card.  There is also a more-than-even chance that the dealer’s hole card is a high card. 

A player who uses the basic strategy plays each hand assuming that the next card dealt to her will be a high card.  The player should always hit if she has eleven or less.  If she has a ten or an eleven, she should double down.  She should split aces, eights and nines and stay pat on pairs of tens regardless of the dealer’s up card.

It gets more difficult if the player is dealt a crappy hand – say, a twelve or a thirteen.[2]  In that case, the player has to look at the dealer’s up card to determine her move.  In doing this, the player assumes that the dealer’s hole card is a high card.  If the dealer has, say, a six showing, the player assumes that the dealer has a sixteen.  That is a very bad hand for the dealer, because he has to hit anything less than seventeen, and anything higher than a five will bust it.  In a case like that, the player will stand pat and wait for the dealer to go bust.  If the dealer has a high card showing, the likelihood is that the dealer has a strong hand.  In that case, the player should play more aggressively.

The basic strategy can be turbocharged by counting.  Card counters keep track of the number of high cards remaining in the deck by remembering the cards that have been dealt in previous hands.  A deck that is rich in high cards favors the player both because splitting and doubling down pay off when high cards are dealt and also because high cards make the dealer go bust.  When the count indicates that more low cards have been dealt than high, she plays aggressively.  When the deck is poor in high cards, she backs off. 

Casinos hate card counters.  In the good old days, if someone was suspected of counting cards, the pit bosses would take him into a back room and work him over.  Now, casinos employ former card counters to spot red-flag behaviors, such as when a player habitually bets the minimum amount when cards are dealt from a newly-shuffled deck, places insurance bets when the count is high, or leaves the table when the count is low.  Once a player is suspected of being a card counter, he is banned from the casino and placed on a database of card counters that is shared by casinos worldwide.  If he returns, he can be prosecuted for trespassing.  Facial recognition technology helps casinos enforce these practices.

In addition to spotting individual counters, many casinos have also adopted rules designed to make the practice of card counting generally less profitable.  To prevent team members from ‘wonging in’, some casinos do not allow players to join a table after the first hand has been dealt from a deck.[3]  Most dealers now deal from a six-deck shoe, which is re-shuffled when it is less than halfway depleted.  Some have even taken to shuffling after each hand.

The problem with these measures is that they cost the casinos more money than they save.  Casinos profit from churn.  The more hands they deal, the more suckers, over the long haul, lose.  When suckers lose, casinos profit.  Preventing players from joining a table mid-deck reduces the number of players at the table.  Frequent shuffling slows play.  And here’s the thing – most card counters don’t make that much money.  A competent counter working alone can expect to make .1% to .2% of their bankroll an hour.  That means that, if you have a bankroll of $10,000, you can expect to make $20 per hour on a good day.  A good card counter with a decent-sized bankroll might make a couple hundred thousand dollars a year, if she plays consistently and doesn’t screw up.  Compared to the profits lost by reduced churn, that is peanuts.

But – ‘card counter’ sounds bad.  It makes casino bosses feel like they have been taken for a ride.  Because it hits them in the ego, it makes them vulnerable to salience bias.  Salience bias is the cognitive bias that nudges actors to focus on shiny objects instead of the broader picture.  So, because the image of a card counter strapping wads of cash to his body to get through airport security is like a siren on a quiet street or a lion’s roar on the savannah, casino bosses take out a hacksaw and a metal clipper and re-enact the scene between Jack Nicolson and Roman Polanski in the film Chinatown.  They cut off their nose to spite their face.

Like everything else, casino rules are a lens through which to view the regulation of manufactured housing regulation in New York State.  Legislators in Albany are subject to salience bias.  By focusing on shiny objects, they cut off their nose to spite their face.  That is to say, they give themselves a dopamine boost, but they make park residents suffer.

In The Call of the Wild, Jack London describes the fighting tactics of a bulldog as told from the point of view of a husky.  A husky or a wolf, the narrator says, jumps in, bites and slashes.  A pitbull, by contrast, grabs on to its opponent’s neck and holds it.  The initial bite may not be as painful as that of a husky, but the pitbull never lets up.  Its grip is a one-way ratchet.  As the other dog tires and makes mistakes, the pitbull tightens its hold and grinds its opponent down.

Albany’s efforts to regulate the industry over the past twenty years have progressed like the grip of a pitbull. 

Back when, a thirty-day notice was a two-week notice and late fees could be greater than five percent.  That changed before I got into the business. Just recently, the legislature passed, and the governor signed, a law that gives park residents the right of first refusal in the case of a sale of a manufactured housing community.   But the biggest adjustment – the click of the rachet that brought the teeth closest to the jugular – was the Housing Stability and Tenant Protection Act of 2019, the legislative act that I refer to as the Nakba Law. 

The Nakba Law did a lot of crazy things.  It limited late fees to a non-compounding three percent.  It prohibited property owners from asking former landlords for prospective resident references.  It filled seller-financing interstices that 2015 federal Dodd-Frank regulation left empty. It screwed City property owners, friends tell me, worse than it screwed the manufactured housing industry.[4]  But the two biggest and worst provisions of the Nakba Law are rent control and the elimination of holdover evictions.  If the industry wants to lobby successfully on behalf of park owners, those are the two rules that they should focus on repealing or amending.

When I entered the business, a rent control bill had died in committee every year for two decades.  It was like the gold standard, the Laryngeal Hypothesis, or cold fusion – something normal people knew about, but did not bother with much.  Then, in 2017, a Florida-based investment group purchased a park in Akron, New York and immediately jacked lot rents by fifty percent.  Tenants organized a strike.  The issue gained salience when Time Magazine ran an article about it, in which the rent strike was treated as a microcosm of the trend of private equity funds moving into the space.  Progressive Democrats, who had won a super-majority in the state legislature in the 2018 mid-term elections, latched on to it like a bass latching onto a spinner lure.  The rest is reconstituted journalism.

Under the Nakba Law, lot rents can increase by three precent of right each year.  This cap can be increased to six percent if a park owner can demonstrate capital expenditures or increases in operating costs that offset the lot rent increase.  These caps are not indexed to inflation.

The Nakba Law also prohibited holdover evictions in manufactured housing communities.  A similar bill for apartments, named ‘Good Cause Eviction’, is currently in committee.  Under prior law, a park owner could evict a resident for one of five reasons, i.e. for failure to pay rent, for non-compliance with a lease provision, for breaking the law in a way that interfered with neighbors’ safety or quiet enjoyment of their property, for running a bawdy-house, or simply if the resident’s lease term was up, the resident was not in compliance with their lease, and the park owner chose to call back the lot.  Under post Nakba law, a park owner can no longer call back a resident’s lot at the end of their term, even if the resident is not in compliance with their lease.  A resident can only be evicted for one of the first four causes of action.

Both of these provisions – rent control and good cause eviction – tug at the salience nerve.  Most of us have places to live.  Those of us who have a home treasure it, and all wonder, with dread, what it would be like to lose it.    We have all had landlords, and we have all hated our landlords.  Sticking it to the man gives a bill sponsor the same dopamine boost their parents got when they outran saber-toothed tigers.

But here’s the thing.  When you run an organization, you need to look at the welfare of the whole organization, not just the elements that tug at your heart strings right now.  You need to perform a utilitarian calculus, to make sure that your actions produce the most good for the greatest number of people without regard to shiny objects.  And if you run a mobile home park, that means that you sometimes have to raise lot rents and evict people.  It is not fun, but in applicable circumstances it is the least-bad solution for the residents and the surrounding community.

Until recently, the manufactured housing industry was dominated by local ‘mom and pop’ owners.  Mom and pops tended to do two things.  First, they kept lot rents lower than comparable apartment prices.  Second, they deferred maintenance.  Orangeburg pipe was left to collapse.  Cracked septic tanks were left in place.  Electrical service was not upgraded.  Potholes metastasized.  What this means is that, when you buy a park from a mom-and-pop, you need to fix it.  Fixing things costs money.  Money has to come from somewhere.  In a mobile home park, it comes from lot rents.  So – when you buy a park, you need to raise lot rents.

The Nakba Law made it impossible to turn around a park in New York State.  When you buy a new park from a mom and pop, you need to raise lot rents to market rates and you need to crack the whip regarding lease compliance.  The only way to enforce compliance is to evict non-compliant residents.  It is not a fun process, but there is simply no other way to ensure that your residents can receive clean, safe and affordable housing.  You could do that before 2019.  You cannot do it anymore.

There is empirical evidence for my bloviation.  When I entered the business in 2013, the state with the largest number of listings of mobile home parks for sale on mobilehomeparkstore.com was Indiana.  Now, the state with the most listings is New York.  That’s right.  As of this writing, there are twenty-four parks listed for sale in New York State.  Contrast that with ten in Indiana, eight in Ohio, and seven in Texas.  People buy parks in low regulations states.  They avoid parks in high regulation states.[5]

(Since we are talking about the unintended consequences of market regulation here, I might as well get the issue of collectivization out of the way.  Yes, things would be different if we collectivized the mobile home parks, put them under government control, and liquidated the kulaks.  If we did away with private ownership of residential property, unforeseen consequences of marketplace action would no longer be an issue.  That said, we would probably be faced with a passel of other problems, including, inter alia, corruption, lack of incentives, lack of accountability and a whole lot of consequences that we can’t predict.  For better or worse, we have decided to allocate social resources using the market.  A well-regulated market appears to be the least-bad way that we have found yet of allocating these items.  If you live with a market, you have to navigate the minefield of unintended consequences.)

I have driven through many of the parks in New York State that are listed on Mobilehomeparkstore.com.  I would never buy them.  They are too rough, and their lot rents are too far below-market.  It would be impossible to pay for upgrades, and it would be very difficult to get rid of the residents with OSB roofs and pitbulls and chickens in their yards.  Judging from the length of time these listings have been on the market, I believe that most investors agree with me.  That means that the people who live in these parks will suffer.  They will live in shitty conditions until the health department shuts the parks down.  Then, they will have to abandon their homes and live in apartments, where they will pay more than twice what they would for lot rent in a well-run park and they will not own the structure they inhabit.  Their loss will be the result of ill-designed regulation.

I encourage readers to watch the nose-cutting scene in Chinatown.  In the scene, Roman Polanski does not cut his own nose.  He cuts Jack Nicolson’s.  In that respect, Albany’s behavior when it passed the Nakba law was not like that of casinos who shuffle the deck after every hand.  Casinos cut off their own nose to spite their face.  Their pursuit of shiny objects causes suffering, but it only affects their own bottom line.  Albany, by contrast, has cut off the nose of the people who they want to protect.  They have made our residents suffer.  We got into the business to provide clean, safe and affordable housing to people who need it. That’s why we should try to correct these legislative mistakes.

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[1] a description of the rules of blackjack, see here.

[2] In blackjack, a crappy hand is a hand with a value that is too low to win but high enough for a high card to bust.

[3] ‘Wonging in’ refers to a practice used by teams of counters.  A team will spread out among the different tables in a casino.  When the count gets hot at a certain table, the player at that table will signal to her teammates to join her.  The practice gets its name from a counter named John Ferguson, who wrote books about blackjack under the name Stanford Wong.

[4] Yes, I do have friends.

[5] The state with the second-most listings on mobilehomeparkstore.com is Illinois, with twenty-three listings.  I understand that Illinois is like New York, in that it is a high regulation state, with much of the impetus for regulation coming from representatives from the urban center.  The difference is that, in New York, the regulation comes from down-state, while in Illinois, down-state is rural.