It wasn’t just that the 42-year-old from Syosset, NY has a talent for the game, although $1.5 million in profit playing online poker since 2006 suggests he clearly does.
It wasn’t just that Cliff Josephy was shrewd enough to start an online poker training web site with a former client, although that too has padded Josephy’s bottom line.
No, perhaps Josephy’s best moves in the high-stakes tournament poker world have come from picking the right poker players.
And in order to understand why Josephy has made more money on high-stakes tournament poker than he ever did on Wall Street, you have to understand the economics of tournament poker. For starters, only 10% of a tournament field typically receives any prize money. The remaining 90% leave empty-handed. The best players in the world are able to attain a 15% “in-the-money” percentage – they will make that last 10% of a poker tournament roughly 1 time out of 7. Yet most tournaments heavily weight the prize distribution towards the “final table” of the tournament – the last 9 players.
For example, 6,494 players entered the 2009 World Series of Poker Main Event, creating a prize pool of roughly $61 million. A minimum-cash for making the lowest tier of the payout schedule was $21,365. $27.2 million of the prize pool was distributed to the final 9 players of the tournament, of which $8.5 million went to the winner.
There are two upshots to these poker economics. First, regularly making the final table of poker tournaments is required in order to make a living playing tournament poker. Second, playing as large a volume of tournaments as possible helps smooth out short-term stretches where a player routinely gets unlucky and is eliminated short of the money. After all, 15% in-the-money doesn’t mean cashing 1 time out of every 7. It could mean 0 out of 18 followed by 4 out of 10.
Figuring out how to overcome these two factors is where Cliff Josephy’s financial skills served him best.
“I had been bored in the stock market,” Josephy said in a 2005 interview. “I had worked hard for a long time and was getting burned out.”
Picking stocks on Wall Street is part art, part science, and part voodoo witchcraft. While certain financial metrics can provide useful benchmarks for comparing one stock to the next, it takes a keen intuition and a sharp mind to discern the big winners from the marginal movers, and the marginal movers from the big losers. Sometimes it also takes a comedian’s sense of timing and a gambler’s dosage of faith and luck. What better way to re-invigorate a career than by taking the talents Josephy had acquired in the financial world and applying them in the poker world?
Years of playing online poker, and providing poker training to other players through his training web site, refined Josephy’s natural talents and skills to the point that he could judge a young player’s potential by reviewing transcripts of the player’s online tournaments. Over time Josephy began to assemble a portfolio of players who he judged to be talented but who didn’t have the bankroll necessary to support the stakes they wanted to play. In exchange for providing those players with a bankroll suitable for higher stakes, Josephy might receive a promise to pay back 100% of any losses and to surrender 50% of any winnings.
In the parlance of the poker world, Josephy was “backing” other players. The brilliance of this scheme is that Josephy was also putting himself in action through other players. If there were a dozen players in the portfolio, each playing 150 tournaments a month, then Josephy was effectively adding 1,800 tournaments per month to the 150 per month he was already playing himself. As long as the players were as talented as Josephy believed them to be, over the long run they should be winners. 2,000 tournaments a month would be enough to smooth out the effects of the short-term variance of any one particular player, including Josephy himself.
Once the portfolio of players became large enough, it also took on another quality critical to any successful portfolio – diversification. While some players might be losing at any particular time, others would be winning. The larger the portfolio became, the less likely it was that the entire portfolio would be losing at the same time. As long as the quality of the players in the portfolio was sound, over time the entire portfolio’s true win-rate should emerge.
The biggest downside for Josephy was that maintaining a large portfolio of poker players could, at times, be a capital-intensive endeavor. In fact it required so much cash that Josephy couldn’t go it alone. He partnered with one of his former brokerage clients who also was an adept poker player.
There was a corresponding positive, however. Once in a while one of the players in the portfolio might catch lightning in a bottle and win a high-stakes tournament.
In 2007 Josephy made his first well-publicized major score at the World Series of Poker Europe in London. A 19-year-old internet poker phenom from Norway named Annette Obrestad was considering playing the $20,000 Main Event but was nervous about investing so much money in a single poker tournament. Josephy offered to pay Obrestad’s tournament fee in exchange for 50% of her winnings. Obrestad agreed and then went on to win the tournament and the top prize of $2,000,000. She gave half to Josephy as per their agreement.
Two years later, Josephy made another shrewd investment. Near the start of the 2009 World Series of Poker in Las Vegas, a 21-year old from Michigan approached Josephy to inquire about backing. Joe Cada had extensive online poker experience, but a stretch of bad luck leading up to the WSOP savaged his bankroll. Josephy agreed to pay Cada’s tournament fee for several events at the WSOP, including the $10,000 Main Event. As Obrestad had done before him, Cada promised to pay Josephy half of any of his winnings. Joe Cada won the 2009 World Series of Poker Main and $8.5 million. The first person to hug him moments after his win was Cliff Josephy.
To be certain, Josephy’s success story is the exception to the rule. More poker players are losers than are winners, and even most of the winners do not have the consistent success that Josephy has enjoyed over the last five years. Many players get lucky one time and delude themselves into thinking they can make a go at tournament-poker full time. They may not have the right skills and may not be prepared for the swings. Most are extremely young and lack the cash or the life experience to exploit their opportunities in the poker world. They don’t understand the security provided by a real-world job with a real-world salary and real-world benefits.
The 42-year-old Josephy, on the other hand, is a relatively geriatric in the poker world. He has fortified himself to the ups and down of poker with years of swings in the stock market.
He has applied the analytical skills he developed in finance to become one of the most successful players in the young history of online poker. He has coupled that success with a thriving poker-training business and poker-backing business. Perhaps most amazingly, in the last three years he and his backing partner have won at least $5 million without having played a single hand of poker. Most players go their entire career without seeing those kinds of wins.
An oft-repeated maxim of gambling is that it’s a tough way to make an easy living. For most people, especially highly intelligent people working in finance, the maxim is extremely accurate. But after a dozen years on Wall Street and six years in poker, Cliff Josephy might disagree.
