This is part of a series:
Part One – Mathematical Theories of Life
Part Four – The Language of Heartless Charity
There was at least one member of Sam Bankman-Fried’s circle who wasn’t sucked into the Effective Altruism vortex. Sam Trabucco, a prodigy from Boston, crossed paths with his future colleagues at math competitions and camps growing up. He went on to attend MIT, applied his skills as a trader at Jeff Yass’s Susquehanna Investment Group outside Philadelphia for a few years, got absorbed with crypto-currency, and then relocated to San Francisco where he reconnected with Bankman-Fried. Trabucco worked as a high-level executive with Alameda Research for a few years before being appointed Co-Chief Executive with Caroline Ellison. She’s been charged with fraud; he has not. Trabucco seems to have remained outside the innermost circle and stepped off the sinking ship a few months before everything unraveled, keeping his multi-million-dollar condo, luxury yacht, and new home for his parents in Maine. Evidently, Trabucco wasn’t one to lose sleep over whether it was more effective to donate his digital lucre to deworming or anti-malarial programs.
Trabucco loops us back to Susquehanna International Group (SIG) located in Montgomery County, Pennsylvania in Bala Cynwyd just across the Philadelphia border. Montgomery is the second wealthiest county in Pennsylvania after Chester. Jeff Yass started the firm with five college friends from SUNY Binghamton, located on the Susquehanna River a half hour northwest of Susquehanna, PA, which happens to be the childhood home of behaviorist B.F. Skinner and the town where Joseph Smith translated the Book of Mormon.
Yass and his college buddies were gamblers who played lots of poker. They used mathematics and probability to great advantage on horses, dog racing, even jai alai once they gathered sufficient funds to cover all the probable bets. After being excluded from a growing number of establishments and finding it problematic to cart around duffel bags of cash, the men went into options trading during the “greed-is-good” 1980s. Susquehanna Investment Group was launched in 1987, the same year Oliver Stone released “Wall Street.” Millennium hedge fund manager Israel Englander sponsored Yass to obtain a seat on the Philadelphia stock exchange.
While many firms lost money in 1987, Susquehanna came out ahead on Black Monday having insurance put options in place. In its early years, the firm was trading as much as 5-10% of the volume of the NYSE each day. Some criticized the upstarts and their models, but with the blessing of his libertarian hero, Milton Friedman, Yass continued to move Susquehanna forward. Today it is one of the world’s largest privately held financial services firms and an important provider of market liquidity. Befitting the low-profile nature of the firm, it occupies a nondescript mid-rise office building on City Line Avenue, the former site of Marriott’s 1961 luxury Motor Inn, a mid-century modernist landmark. The site’s most distinctive feature is a massive 300+ year old “Penn oak” that commands one corner of the rear parking lot.
A 2018 article from Bloomberg Markets states, “Susquehanna built its empire on poker.” The firm holds “a philosophy that poker provides the best training for the type of probability-based decisions in uncertain circumstances that are needed in markets” where the goal is not to win the most hands, but rather to maximize gains and to do it clinically, without being influenced by human emotion. In a Haaretz feature this is described as a “poker philosophy” where one places bets on a variety of possible winning outcomes with the expectation that at least one will net a big payout.
A 2021 in-depth Forbes article goes on to say there is a drive at the firm to turn almost anything into a gambling opportunity, to uncover hidden arbitrage. A Philadelphia Magazine article shared a story of traders in the New York office betting on whether Yass would know the last king in the Plantagenet Dynasty. He did. Yass recently secured approval to trade futures contracts on US tax rates and dreams of a day when markets can be used to determine public policy. The Wall Street Journal reinforces his position in a quote from “A Betting Man With A Plan for America” published last fall:
“On climate, the science remains iffy and frequently misrepresented in public debate. This is where betting markets could help. Think about insurers, fund managers, and speculators with real skin in the game. Think about liquid markets where they could match wits and distill a best guess about those future temperature and climate trends. If we were able to get those prices out there, we can stop the nonsense of the world and the climate change hysterical people, and have a rational conversation,” Mr. Yass says.”
“He’s hardly alone in recognizing the power of prediction markets to improve policy. The idea has garnered legions of academic fans. Then politicians would have to explain why their promises are at variance with investor expectations. Journalists would have a powerful new tool against which to test partisan arguments and hold leaders to account.”
“Nobody says they know who will win a football game,” Mr. Yass points out; all understand it’s a matter of probabilities. Bringing the power of prediction markets and disciplined odds-making into the political policy arena – “that, I think, would be the greatest gift to society.”
This program is Futarchy, though neither Forbes nor the Wall Street Journal makes the connection. Instead, the article closes with Yass’s contention that the marketplace will be a harbinger of truth, and that realizing this goal is nothing less than “a mission from god.” Robin Hanson, the theorist behind Futarchy and a professor of economics at the Koch-funded George Mason University, just happens to maintain an affiliation with the Future of Humanity Institute that shares office space with the Centre for Effective Altruism. Hanson’s blog is named “Overcoming Bias” and features a banner image of Ulysses tied to the mast of a ship with sirens singing around him.
Yass has shown considerable interest in sports gambling markets in Europe where Betfair’s in-game betting infrastructure has enabled the creation of markets not unlike options trading, though the transactions are much smaller. I’m not a gambler, but as I read the basic FAQ put out by Betfair, it seems like their platform essentially makes anyone a bookie. In 2016 SIG opened a Dublin affiliate, Nellie Analytics Limited, to develop business opportunities in sports and geopolitical analytics.
Dublin is home to Flutter Entertainment, one of the world’s largest gambling enterprises and parent company to Betfair. Last February Flutter opened a new technology-enabled headquarters complete with Ireland’s first “fully frictionless” shop. In researching Adam Neumann’s post-WeWork venture, Flow, I came across early experiments he had undertaken with Mastercard that used digital identity authentication and automated payment systems synced with sensor networks. This wasn’t about convenience, but rather the generation of data flows for forecasting and bets – predictions on inventory, profitability, consumer preference, and human mobility in built environments. Some are calling this the IoP “Internet of Places.” I don’t think we’ve thought enough about what it would mean to work at your gig job in a building made available via a subscription model, a building equipped with artificial vision to track you via your phone to make sure you’ve paid for all the amenities you’ve used. This outside-in robot starts to get Black Mirror pretty quickly. These days real estate developers are in the data business, the cybernetic steering business. Jason and I will be hosting a multipart series examining the Flow business model in the next few weeks. I just want to point out the relevance here to global betting, Flutter, and artificial vision trained on human activity.
In 2022, Susquehanna also became a lead investor in PointsBet, an Australian operation with a US office in Denver. In addition to SIG’s role as a major investor, its affiliate Nellie Analytics provides consulting services to PointsBet so that they can be in a position to expand future offerings. SIG also directed seed funding to Forerunner, a Web3 prediction market for sports betting that allows people to buy and sell shares of teams or players using cryptocurrency.
Susquehanna International Group was early to the Bitcoin party, having been introduced to the digital currency by the Winklevoss twins in 2014. A digital asset group was formed in 2017 and began to trade futures in Bitcoin and other cryptocurrencies at a time few large firms were interested or had the capacity to safely execute the trades. Bart Smith leads their cryptocurrency division. Last summer he opened Susquehanna’s office in the Bahamas, following on the heels of FTX. Their plan is to expand DeFi derivatives trading in a location with a comprehensive digital asset regulation though the bloom is a bit off the rose for the Bahamas as a crypto outpost since the FTX implosion. SIG also maintains a reinsurance division in Bermuda that underwrites Arbol and its decentralized weather forecasting marketplace, dClimate, in the development of parametric insurance products.
Where Susquehanna is concerned everything is a potential betting opportunity. The arrival of extended reality means there will be options to place wagers on virtual-world activities. In 2008, SIG sponsored an 800-square foot motion capture lab at the University of Pennsylvania, part of the engineering school’s Center for Computer Graphics located next door to the site of the first general purpose computer, ENIAC. The lab was led by Norman Badler, an expert in human simulation modeling who helped develop “Jack” software for human factors analysis that was later licensed by Siemens. In 1992, Badler and his colleagues in the computer science department wrote “Simulating Humans: Computer Graphics, Animation, and Control,” published by Oxford University Press. After five decades at UPenn, Badler landed as the lead Metaverse researcher at Cesium advising one of his former students, the firm’s CEO Patrick Cozzi (h/t to Stephers for this tie in).
UPenn’s Center for Human Modeling and Simulation has been operating since the mid-1990s with support provided by the Army, Air Force, Office of Naval Research, NASA, NSF, NIST, Lockheed Martin, and Northrop Grumman. In kind support has been provided by Electronic Arts, Gamebryo, Siemens, and Eon Reality. In a press release from Penn Today, Badler said graduates of the program were in high demand not only in the gaming and entertainment sectors, but also in finance. Pair the engineering school’s human simulation expertise with Wharton’s creative finance schemes and predictive economic models and toss in some compulsive gambling tendencies for good measure and you’ve got a rather toxic brew.
Esports and iGaming are emerging markets where wagers are made not always in cash but also in skins (in-game collectible items). I can’t help but wonder where we’re going with emerging-tech educational models that center gamification with behaviorist digital scrip rewards. Is there anything that won’t become a wager as AI assistants step in to train a generation of Metaverse gladiators?
SIG is a financial sponsor of esports outfit Dignitas, a division of New Meta Entertainment based in Newark, NJ. Dignitas is owned by the Philadelphia 76ers. From the company’s webpage:
“Teaming up with Dignitas was a natural fit for SIG. Gaming is at the core of our culture and the strategy used in esports goes hand in hand with our approach to trading. By joining forces with Dignitas, we are bringing together esports and trading to connect the brightest minds in gaming to take on the competition.”
Newark, where Dignitas is based, is home to the United Way of Northern New Jersey that hatched the ALICE program (Assets Limited, Income Constrained, Employed). Once brought to scale, (ALICE United is now operating in 23 states) the working poor can be developed as collective impact commodities (see this blog post). Jeff Bezos’s ex-wife MacKenzie Scott has been seeding United Way offices across the country with multi-million dollar donations in recent years. Newark has also been a test-bed for public-private partnership experiments. Mark Zuckerberg and his wife Priscilla led the charge into privatized education, partnering with Cory Booker back in 2010. Chan Zuckerberg poured $100 million into a school choice initiative that publicly flopped, but I believe privately yielded valuable data, data that will be leveraged in policy poker games still to come. Hedge fund billionaires find northern New Jersey an attractive landing spot, along with Connecticut.
Organizations like the YMCA and even school districts have started to promote esports as a wholesome activity for children in the aftermath of lockdown social distancing protocols. How convenient it will be to have social-impact funded non-profits in a position to run out-of-school time learning programs (after-school, summer enrichment) that maximize digital team data harvest. These robust data flows can be used to score (and bet on) the next generation of human capital. All the while, moms are working their second or third jobs to try and pay astronomical rents. My friend Lynn Davenport wrote an article about esports and the YMCA in Dallas, which she discussed with Jason and me last month. See video below.
Jeff Yass is a smart guy who hires smart people. He’s driven to win; and winning in the financial arena means making and retaining as much money as possible. He’s a lifelong libertarian who believes markets (which are never as “free” as libertarians like to imagine they are) will offer up supreme truths. Yass is currently vice chair of the Cato Institute, an organization on whose board he’s served since 2002. He’s also a generous supporter of Club of Growth, a limited government, limited taxes, entitlement reform, deregulation advocating conservative 501(c)4 that serves as a conduit for a free-market PAC and a Super PAC. Numerous articles have been written in recent years about Yass’s political donations.
In 2022, he was the fourth largest individual donor to political races nationally after George Soros, Richard Uihlien, and Ken Griffin. School choice and lowering tax rates are the two policy areas that have his attention. Yass was the largest individual donor to Rand Paul and stepped up his backing of Ron DeSantis to $100,000 over the summer following the lead of Blackstone’s Stephen Schwarzman, Citadel hedge fund manager Kenneth Griffin, and founder of Uline shipping supplies firm Richard Uihlein whose German-American ancestors made a brewing fortune with Schiltz in Milwaukee.