(This article originally appeared in Entrepreneur)
The odds of winning at a casino are not very good at all. And for roulette, it’s even worse. As financial author J.B. Maverick reports in Investopedia, the house has a 5.26 % edge on an American roulette wheel, a percentage that’s much higher than other games like blackjack. What does this mean
“A roulette wheel is numbered from one to 36, so you might think this puts the odds for winning a single number bet at 36 to one,” Maverick writes. “However, roulette wheels also have a zero, and sometimes they have a double zero and even a triple zero. The actual odds of winning are thus 37 to one, 38 to one, or 39 to one, not 36 to one.”
Maverick reports that a casino wins about $50,000 for every $1 million played, and the house winnings get bigger the longer the player participates. If person is making $5 bets on every spin of the wheel and the wheel spins 50 times an hour, they’ll wind up losing 5% of their money over four hours. Only 13.5% of gamblers actually wind up winning at the roulette wheel, according to Maverick’s research.
Dr. Richard Jarecki, a medical professor at the University of Heidelberg, was one of the 13.5%. But the professor didn’t just win. He won big. In fact, over a five-year period between 1964 and 1969, Jarecki won $8 million from roulette at various casinos. How?
By noticing a flaw … and then painstakingly working at exploiting it. According to this great story in The Hustle, Jarecki found that roulette wheels, like all other mechanical devices, demonstrated wear and tear after a period of time. These tiny defects — “chips, dents, scratches, unlevel surfaces — might cause certain wheels to land on certain numbers more frequently than randomicity prescribed.”
So what did Jarecki do? He went to work. He spent countless hours in numerous casinos, in addition to the hours he spent at his job, manually tracking tens of thousands of spins and analyzing the data for abnormalities.
“I [experimented] until I had a rough outline of a system based on the previous winning numbers,” he told the Sydney Morning Herald in 1969. “If numbers 1, 2 and 3 won the last 3 rounds, [I could determine] what was most likely to win the next 3.”
Jarecki visited numerous casinos in Europe. He hired people to help him log the data. He spent days and nights analyzing that data. Then he did what any entrepreneur does when ready to take a risk: He borrowed £25,000 from a private investor, and over six months he quietly, slowly and cautiously placed his bets. The results were a net profit of £625,000 (roughly $6,700,000 today). By the end of 1969, Jarecki had made almost $8,000,000 in today’s dollars.
Nothing he did was illegal, but it was annoying and costly to the gambling industry. Ultimately, Jarecki’s highly publicized successes caused the industry to undertake a complete overhaul and digitization of their roulette tables. So — sorry — don’t get any ideas.
Nevertheless, Jarecki noticed a flaw and he took advantage of it. He also proved three other very important things that every entrepreneur should know. The first is that making money is not easy. This was no “get rich quick” scheme. Jarecki had his successes over a number of years and after spending thousands of hours doing the research and collecting the data. He also invested his own money by hiring people to help. This took time and a lot of work.
Second, it really is all about the data. Collecting and then deeply analyzing the trends revealed from information about any business, activity, demographic, industry or geographic region will oftentimes reveal things to exploit. Most of us aren’t data driven people. We have romantic ideas about making money. We’re usually not willing, or patient, enough to do the research.
Finally, if you’re going to make big money, you’re going to have to risk big money. Jarecki couldn’t do this on his own. He used his own money to hire people to help. Then when he was convinced of future success, he had to persuade an outside investor to make a significant investment, and you can only imagine how that pitch meeting went. But apparently he was convincing enough to sell his project. I’m sure there were many sleepless nights during that time.
There are few people in this world that are willing to do all of the above, and even fewer that ultimately succeed the way Jarecki did. Are you one of those few people? If you are, then I’m envious. If you’re not, then join the crowd.