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[OrigiTexas Hold’em Ushers in “Chinese-style Development”, The Age of Intellectual Games Is Coming?

Date: 2017-08-03
Views: 42

Introduction

     
    Texas hold’em is extremely popular outside China and now this craze floods in domestic China. Currently, three global poker leagues have settled in China, attracting numerous Texas hold’em fans with their unique characteristics, even celebrities from all walks of life like Kai-Fu Lee, Chuanzhi Liu, Jack Ma and Joseph Chen, who have become Texas hold’em lovers. Investor Peter Lynch once said “You can learn more from Texas hold’em than the Wall Street”. It is a game challenging your intelligence, emotion management and risk control capabilities, and has many similarities to thinking logic of entrepreneurship and venture investment. Unlike its development paths in other countries, Texas hold’em appears in domestic China generally in the form of recreational clubs and no commission or rake shall be taken by the house, effectively reducing its betting risks. As a relatively new intellectual game, Texas hold’em has to find a way suitable for its future development in China. That is to say an industrial chain including game platforms, poker competitions, audio-visual multimedia, training institutions and advertising shall be formed to increase economic benefits. As the game of Go is challenged by AlphaGo, artificial intelligence (AI) is stepping towards traditional Texas hold’em, an intellectual competitive game.

 [OrigiTexas Hold’em Ushers in “Chinese-style Development”, The Age of Intellectual Games Is Coming? ——————————————————————————————————

       Poker is no strange to all of us, and playing poker with friends and relatives in leisure time is a common form of entertainment. Now, a new kind of poker called Texas hold’em (or hold’em) is gradually gaining the interests of people. Texas hold’em is a kind of card game formed gradually by combining rules of different poker games during the past several hundred years. In 1970, the first World Series of Poker (WSOP) was held in Las Vegas and since then, the influence of hold’em was increased year by year. With the rapid development of digital media and Internet in the 21st century, Texas hold’em is widely spread and publicized, raising a Texas hold’em upsurge in the world. Audience rating of No Limit Texas Hold’em, the main event of WSOP, on ESPN is even higher than that of NBA in each year, fully revealing its popularity.

 [OrigiTexas Hold’em Ushers in “Chinese-style Development”, The Age of Intellectual Games Is Coming?        As a foreign intellectual competitive game, Texas hold’em is a newcomer in China. The first group of Texas hold’em lovers is investors and entrepreneurs returned from European and American countries. Later, it is gradually accepted and loved by more people like Kai-Fu Lee, Chuanzhi Liu, Jack Ma and Joseph Chen. In 2012, Social Sports Instruction Center of General Administration of Sport of China officially included Texas hold’em into social sports and promoted it vigorously nationwide. Moreover, Chess and Card Sports Management Center of General Administration of Sport of China proposed to carry out Texas hold’em pilots in Hubei and Hainan Provinces. For now, as Texas hold’em becomes more popular in China, an increasingly number of people throw themselves in Texas hold’em industry and a series of Texas hold’em clubs, competitions and online platforms has emerged in recent years. According to statistics, the number of formal and legal Texas hold’em clubs opened in China in recent years has surpassed 500, and the number of players has reached 60 million, including some professional players. At present, three global Texas hold’em leagues, namely WSOP, WPT (World Poker Tour) and GPL (Global Poker League), have settled in China, which will undoubtedly push forward the development of Texas hold’em industry and market in China.    
 [OrigiTexas Hold’em Ushers in “Chinese-style Development”, The Age of Intellectual Games Is Coming?     Main rules of Texas hold’em

 

    Texas hold’em is a card game “easy to learn but difficult to master”. It is “easy” because rules are simple. Two cards, known as the hole cards, are dealt face down to each player, and then five community cards are dealt face up to each player. Each player seeks the best five card poker hand from the seven cards of two hole cards and five community cards, and then sees who wins the showdown. Rank of poker hand: Straight Flush > Four of A Kind > Full House > Flush > Straight > Three of A Kind > Two Pair > One Pair > High Card. There are four rounds of betting in Texas hold’em. The first round of betting starts after 2 hole cards are dealt to each player; the second round of betting starts after 3 community cards are dealt to each player; the third round of betting starts after 4 community cards are dealt to each player and the last round of betting starts after 5 community cards are dealt to each player. After four rounds of betting, a showdown occurs and the player with the greatest poker hand will be awarded the pot.       
 [OrigiTexas Hold’em Ushers in “Chinese-style Development”, The Age of Intellectual Games Is Coming?

It is “difficult” because all-round skills are required, which can be summarized as “four readings”: reading card, reading position, reading situation and reading people.    

      Reading card: you must understand rank of your cards, and sometimes you cannot dominate even with one pair of A; giving up some seemingly “big” cards if necessary is the essence of reading card.    
[OrigiTexas Hold’em Ushers in “Chinese-style Development”, The Age of Intellectual Games Is Coming?      Reading position: the rule of “big and small blinds must bet” makes players on these two positions more cautious and prudent because they cannot judge the future situation.   

      Reading situation: if more players deal with a flop, then you can get more information on how to get best poker hand, which will be useful to formulate strategies; on the contrary, if only two or three players deal with a flop, then you have less information and cannot make judgment. In such case, giving up some seemingly “wining” cards is also a favorable strategy to control risks.     

      Reading people: this is the essence as well as the most difficult part of playing Texas hold’em. Different people have different understandings even on the same thing, and everyone differs in their behaviors and expressions. To figure out whether your rival is just bluffing with small cards or is trying to set you up with big cards, you have to analyze comprehensively. In real cases, there is someone who gives up a straight successively (the rival has a bigger straight), and also someone like master Tom Dwan, who defeated another mater Phil Ivey (one pair of 6) with high card of 9.     
 

Why financial practitioners like playing Texas hold’em? Because Texas hold’em reflects investment philosophies in financial industry.

 

Most people in the Wall Street like playing Texas hold’em and we attribute it to the much similarities between Texas hold’em and investment in many aspects. Investor Peter Lynch once said “You can learn more from Texas hold’em than the Wall Street”. There is even a mantra on the Wall Street that “every investor shall learn Texas hold’em”. This game challenges your intelligence, emotion management and risk control capabilities, which is exactly the same with the thinking logic of entrepreneurship and risk investment.

 

First, in terms of risk control, speculation (similar to all in) may make you succeed once or twice, but this kind of investment cannot make you succeed all the time on the long-term basis. Knowing to give up in what circumstance to secure assets or reduce losses is an important investment philosophy. This is what we always say “Where there is life, there is hope”.
 
    Second, financial investment is more like a psychological warfare at most times. For instance, M&A offer is a philosophical warfare between two parties, akin to Texas hold’em in which players shall bet based on own cards and other public information, the final player will be the winner.  
 
    Third, in the circle of venture capital investment, angel investment (product and mode are totally uncertainties) is like big blind and small blind in Texas hold’em, which means that players can only know their own cards and other limited information. In such case, investor’s insight is extremely vital. The dealt of 5 community cards is just like early investment. During the betting rounds from the flop (three cards), to turn (one card) and to river (final card), there are variables and the situation is clearer. To fold or call at this time is just like the time when investor sees the product and chooses to invest or withdraw. However, an entrepreneur needs a clear-cut business model.

 

Texas hold’em club – main development pattern of Texas hold’em in domestic China

 

It was about 2011 when Texas hold’em got popular in China. Introduced from outside, Texas hold’em attracted many high-end people with its fresh and fashion elements. In foreign countries, Texas hold’em is a kind of gambling game in casino. However, in domestic China, the house is prohibited to take commission or rake, so Texas hold’em develops differently here and appears in clubs generally. Taking commission / rake or not is the very difference between casino and club. As the bonus amount of international top events on Texas hold’em reaches as high as ten million US dollars, more and more domestic Chinese pay attention to Texas hold’em. In 2016, a series of Texas hold’em competitions emerged in domestic China. In Sanya city, Tencent Poker Tournament (TPT) of RMB 10 million Yuan and WPT National China of RMB 8.88 million Yuan were held at the same time.
 
    In domestic China, all legal clubs adopt score based system, and no one can trade his / her scores. If your score is traded for cash, you will be suspected of gambling and gambling is banned here according to laws. Texas hold’em clubs in Beijing survive by organizing MTT (Multiple Table Tournament), an elimination game requiring an entry fee of RMB 100-200 Yuan for each player. When a player loses all his / her chips, he / she will be eliminated, until the last several players are picked out. As a general rule, several players laughing last will win tickets valuing thousands of yuan for bigger competitions and club member scores, which can be used next time.
 
    Advertising is the main source of income for domestic Texas hold’em clubs.

 

Operating costs of running a Texas hold’em club include house rent, water & electricity fees, labor costs, consumable costs, etc. totally about RMB 20,000 Yuan per day. Although each player has to pay an entry fee of RMB 100-200 Yuan, these incomes is just a drop in the ocean considering the operating costs. In domestic China, the number of Texas hold’em players is about 60 million, and the number of legal Texas hold’em clubs exceeds 500, most of which are decorated in a high-end and luxury style. From the above, advertising is the main source of income for these clubs.
 
      Advertisers prefers this kind of clubs as most Texas hold’em layers and lovers are bosses, financial directors and venture investors like Kai-Fu Lee, Chuanzhi Liu, Jack Ma and Joseph Chen. There is something in common between these players: first, most of them once studied or worked in overseas and even played this kind of games; second, most of them are high net worth individuals; third, Texas hold’em is like financial investment in some aspects and many financial practitioners play Texas hold’em. In some occasions, only a limited number of people can play Texas hold’em at a high-end level, which is gradually becoming a new way to enter the circle of “insiders”. There was a rumor that Chuanzhi Liu once lost about RMB 80,000 Yuan to Jack Ma. With such high net value customers, advertising forms vary, such as put an advertisement on score board, or provide sponsor branded products to club members.

Industrial chain of Texas hold’em 

Texas hold’em is a card game requiring high intelligence. The benefits of playing Texas hold’em has been summarized as: making you more self-disciplined & patient, improving your ability of logical thinking and competitiveness, and teaching you how to overcome stress. The whole industrial chain of Texas hold’em involves game platforms, poker competition, audio-visual multimedia, training institutions, advertising and derivatives. Currently, main poker platforms are Pokerstars (owned by Amaya) and Zynga, both of which are listed on NASDAQ. The former enjoys an annual income of over US$ 1.1 billion, while the latter has total active user of over 19 million per day and over 64 million per month. The total income generated through WOSP exceeds US$ 40 million each year.
 

On domestic game platforms, Texas hold’em is the main source of income of operators. Take 2016 financial date of Boyaa Interactive (0434.HK) and Ourgame (6899.HK), two companies listed on SEHK, as an example. For Boyaa Interactive, its total income is RMB 745 million Yuan, among which RMB 551 million Yuan come from Texas hold’em, accounting for 73.97%; for Ourgame, a longstanding chess and card platform, its game income is RMB 763 million Yuan in 2016, among which RMB 286 million Yuan come from Texas hold’em, accounting for 37.48%. Such statistics truly revealed the popularity degree of Texas hold’em. At present, “Legend Poker”, invested by a sub-fund of Kai-Fu Lee’s Sinovation Ventures, is a leading Chinese operator of intellectual sports and has cooperation with Chess and Card Sports Management Center of General Administration of Sport of China in intellectual sports. “Legend Poker” targets at Texas hold’em lovers in venture investment and finance, thus 20% of its users are investors and 15% are financial practitioners. It gains income mainly from player’s application fee for offline and online competitions.
 
     The three international leagues settled in China now also attract Texas hold’em lovers with their unique features. WSOP is a global poker event with most participants and marks the first of live broadcast on TV. In 2016, a total of 6,737 players participated in the major event of WSOP. WPT entered China in 2012 and was spread to 150 countries and regions, a dozen of which are in Asia, by granting authority to host. Entering China in March this year, GPL (Global Poker League) combines ideas of e-sports and traditional competitive sports and brings numerous players a brand new experience by abandoning individual poker competition and adopting unique team competition system. Organizers of these events vary from game companies like Tencent to cultural companies. Through such competitions and events, game companies can link online game platform with offline activities and realize two-way flow of users, while cultural companies can make profits and improve brand influence at the same time, a win-win strategy.

     

Standardized development is yet to come.

 

In terms of entertainment, Texas hold’em is a favorable card game. However, due to its gambling nature in bet and chip, Texas hold’em faces a bumpy road in development in domestic China and is a key regulatory target. Though China Poker Games (CPG) has been hosted for 4 times and WPT National China 5 times since 2012, Texas hold’em is still wandering in grey area in China. So it is no surprise when a competition with award of millions of yuan is classified as gambling and then is cancelled before its opening. For example, about one or two years ago, a Texas hold’em club in Shanghai was halted and over 100 players from securities companies were involved. Up to now, Beijing Poker Club is the only club approved by Beijing Municipal Bureau of Sports and Beijing Sports Competitions Administration Center in Beijing. But even so, a competition held by Beijing Poker Club in Kunshan was suspended before opening some time ago.

As mentioned above, Texas hold’em will possibly show its gambling nature and result in irreversible damages to players. Several reports on the news of Texas hold’em gambling were revealed in the past. However, we have to see its healthy development, like Tencent Poker. In the opening ceremony attended by WSOP and Tencent in July 2017, Tencent Poker and WSOP declared to work together to build Chinese top poker event, and Tencent Poker was authorized to host WSOP ASIA and offline competitions exclusively. Meanwhile, Tencent Poker announced to host WSOP China (TPT 2017) in Sanya with a total award of RMB 16 million Yuan.

Policy and capital are two wings supporting development of sport industry, and intellectual competitive sports are no exception. Encouraged by China’s ambitious goal of building sport industry into a strategic industry of developing the country and improving China’s global influence, China’s intellectual competitive market develops quickly and plays a significant role in the “5 trillion yuan” sport industry, which functions as the major factor driving world famous sport events entering China. The greatest significance for Tencent to being WSOP’s strategic partner lies in its demonstration and leading role. We believe that there is still a big room for Texas hold’em, though with gambling nature, to develop in China provided that it complies with relevant laws and regulations in domestic China and is underpinned by a certain number of players as well as capital and policy.  
 
       AI is stepping into Texas hold’em

 

      Similar to traditional games like Go, Texas hold’em is also challenged by artificial intelligence (AI). At the beginning of 2017, DeepStack, a poker AI system developed by Italian and Czech researchers, defeated professional poker players in heads-up no-limit Texas hold’em poker, which demonstrates AI has made new breakthroughs. In another match between Libratus (Leng Pu Da Shi), a system developed by Carnegie Mellon University, and Team Dragons, a poker team from China, Libratus conquered Team Dragons with 792,327 scores, indicating that AI is involved in traditional intellectual competitive sports again. We don’t think such AI systems like Libratus shall be used as a “professional” player in the future. Instead, we shall apply AI in business transaction, negotiation, goods supply and demand and goods trading, or to specify further, in finding out the other party’s base line and logic during a negotiation, as the director of School of Computer Science at Carnegie Mellon University put it.

 

     Author:  Research Team of TTGG Financial Research Institute
     Author:  GUO Feng   President     guofeng@ttgg.com.cn
     Author:  ZHANG Cheng Researcher     zhangcheng@ttgg.com.cn
     Author:  JIN Chen Assistant Researcher  jinchen@ttgg.com.cn


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