Cigar Aficionado

It's halftime at the big bowl game and the fans are still in their seats, forgoing a dash to the snack bar lines in favor of a million-dollar proposition unfolding on the field. If one fan picked at random can manage to kick a field goal from 35 yards out, he'll take home the big prize. The overflow crowd is rooting for him, the peanut vendors are rooting for him, even some players have wandered out to cheer him on. Everyone, it seems, is pulling for this guy, except Bob Hamman.

That's because Hamman is the guy who pays the winner. He has sold insurance indemnifying the contest sponsor in the case of a payoff. At least, that's one way of looking at it.

Another way would be to call him a bookie who's willing to take on some of the world's biggest action. One thing is for sure: Hamman is a math wiz whose facility with probability allows him to calculate the odds on the oddest of propositions.

Hamman, 59, is the man behind many of the million-dollar challenges you see at nationally televised sports events. And the hole-in-one contests. And scratch-and-win promotions on the back of your soda-pop bottle. Anywhere chance is involved, whether it's the likelihood of somebody finding a winning game ticket at a fast-food restaurant or redeeming a rebate coupon or shooting a hockey puck into a three-inch slot, Bob Hamman is

often "booking" the bet. He--and his insurance company investors--are the House.

Hamman's firm, SCA Promotions, has covered more than $10 billion worth of potential awards and paid more than $50 million in claims since 1986. The firm, however, takes in a lot more money than it pays out. It does this by utilizing Hamman's uncanny talent for figuring out probabilities. He can do it on almost anything. Not only pure mathematical propositions, like the odds of picking a winning key that starts a Cadillac from a bowl of 1,000 identical losers, but strange and delightful propositions that aren't necessarily subject to the laws of multiplication and division. Like the odds of a random sports fan being able to make a half-court basketball shot to win $1 million. Or the chances of radio listeners in Tucson, Arizona, finding one specific, predetermined dollar bill somewhere in the city. Or the likelihood that the world record in the long jump will be broken at the Olympic Games.

Bob Hamman is good with numbers. You get that way when, for 14 of the past 15 years, you've been the top-ranked contract bridge player on the planet and a nine-time World Champion. "You have to have some special gifts at bridge to be at the very top," says investment maven Warren Buffett, another guy who's pretty good with numbers. "If you play with someone like Bob Hamman, they can look like they're having a drink or eating a sandwich, but they'll know everything that's going on."

Now Hamman has exploited his powerful analytical skills, merged those talents with a profound understanding of odds and probabilities, and created a multimillion-dollar company unique in the world of "risk management," as the insurance business is euphemistically known. He is a gifted card player who has figured out a clever--and profitable--way to gamble with an edge.

"Bridge and our promotions business--they're a very good fit," Hamman says, sitting in the conference room of his Dallas office. "Very similar. But business is less harsh. In bridge, when you miscalculate you can cost yourself the match. It's over. On the other hand, when we look at some of the propositions we cover, they have enough analogous characteristics that we can make a good, educated guess and hope we're not too stupid. If we estimate something has a 10 percent chance of occurring and the real chance is 20 percent, it's not going to kill us," Hamman explains. "It's when we're just plain wrong that hurts."

Thanks to years of experience in the gambling and insurance worlds, Hamman isn't wrong very often. His company is constantly asked to evaluate peculiar risk propositions--a world-record "cow chip" toss; a PGA Tour rookie winning a major championship; an American League baseball team hitting back-to-back-to-back home runs--and come up with a number that makes sense both for the bettor and the bookie.

By "bookie," we mean the institution fading the bet, taking the risk. In almost every big-money sweepstakes or contest in the world, that means an insurance company. Multinational corporations are in the business of selling things, not gambling. When a marketing executive at a major corporation, Anhe-Busch, for example, wants to add sizzle and heat to a prize giveaway campaign without having to explain to the bean counters why his gimmick cost the company $2 million, he turns to SCA Promotions. For a fixed, fractional cost--usually less than 50 cents on the dollar, often a lot less--SCA and its network of insurers sweat the results.

"We sell anxiety pills," Hamman remarks. "Our customers buy time and ability by paying us to take the heat on a proposition. In the long term, we have a positive expectation. But most customers don't care about that. That doesn't make them feel better when they've got to pay off a million-dollar claim if somebody gets lucky. By using us, they take themselves off the hook. In gambling , they're reducing their variance."

If this all sounds eerily like casino talk, there's a reason. When you scrape away the pretty pictures about marketing and promoting and budgeting, Bob Hamman's business is an utterly ingenious, perfectly legal way to book bets. Indeed, when professional gamblers hear about what SCA Promotions has wrought, they usually shake their head, emit a pained groan and declare, "That's brilliant! Why didn't I think of that?"

Probably because an insurance company thought of it first. Insurance companies are society's most successful bookies. Every time you buy insurance, you are betting the insurer that something--a car accident, a fire in the basement, walking pneumonia--will happen. Insurance companies are betting you it won't happen. The they charge, based on actuarial tables ("the odds"), figures in enough profit ("the juice") to build office towers and prop up the stock market. Of course, a significant portion of most insurance companies' profits come from reinvesting the s while they are awaiting the outcome of the bet. So they may make money off of you even if you do eventually have an accident, etc.

The biggest difference between insurance companies and the guy who lets you lay 11 to win 10 on the Giants is that insurance companies are legal. And the difference between the guy who bets the Giants and the guy who bets he'll have an accident is that the insurance buyer doesn't mind losing. He's hedging against calamity, and therefore this kind of gambling is socially acceptable.

Insurance companies, in case you haven't noticed, tend to make money. So do casinos. The reason is simple: When you start a proposition with what gamblers call "the best of it," i.e., a mathematical advantage, you will end up a winner over the long run. Insurance companies get themselves into the long run by writing policies for millions of people. Casinos get into the long run by conducting millions of trials every day on their tables and machines. In both arenas the result is the same: The side with the best of it takes down the dough. Sure, they have short-term losses--a hurricane hits Florida; a slot machine spits out two $1 million jackpots in a week--but the advantageous odds tend to keep the light bill paid and the corporate jet filled with fuel and good Scotch.

Of his built-in advantage, Hamman comments, "Sure, one of our clients could say, 'Hamman, you horse thief, you want to charge me five thousand dollars for a two-thousand-dollar risk on a hundred-thousand-dollar promotion! I should do it myself!' But when it gets hit for a hundred grand, none of those numbers seem to matter," he says, chuckling. "Our clients avoid 'gambler's ruin' by amortizing their risk. They're more concerned about what our promotion does for them than its true worth. It's like a computer chip. The markup is enormous, but you're not necessarily paying for what it costs to make, you're paying for what it can do."

For his part, Hamman says the edge SCA plays with varies. On high-volume propositions, he'll work with as low as a 5- to 10-percent advantage. On pure math or screwball propositions (like the radio station that promised their listeners $1 million if they could find Elvis Presley alive) he'll work on a paper-thin margin. "I like to work on propositions where there's no payoff," he says, laughing. "Of course, there's sometimes hidden risks which we fail to see, as well as 'the dumb ass factor.' Which is when we just make a foolish mistake."

That happens, he says, maybe once in 100 propositions. For example, an organization called the World Pumpkin Federation bought a contract one August that would pay $50,000 if someone in its association could grow a world-record, 1,000-pound pumpkin. "They usually buy these policies in April, when the damn pumpkin is a seed," Hamman says. "Somehow it slipped past us that on this particular year they waited until near the end of the growing season."

As sure as a man's dog will start singing the "Ode to Joy" after you bet him it's impossible, the World Pumpkin Federation produced a jack-o'-lantern the size of a Volkswagen. "For all I know the pumpkin may have lost weight after we covered it. We made a fifty-thousand-dollar donation to that particular cause," Hamman says, chortling.

Even ing for the occasional blunder, the odds in this business tend to take care of themselves. When you pay out, say, 5000-1 on a hole-in-one when the true chances are something like 12,000-1, your s usually finish well in the black. Like the typical casino, what really hurts a company like SCA Promotions isn't a spot of bad luck but an attack of the cheats. Hamman recalls being stung once by a half-court basketball claim that was staged by the policyholder, complete with a desktop-published newspaper of the "winning" shot.

To filter out such shenanigans, SCA employs a director of claims and security, Norman Beck, a former policeman, insurance agent and accomplished card mechanic, who can sniff out security breaches like a pig on the trail of white truffles. "I'm a paid cynic," Beck says. "I'm here to make sure the contest is as honest as possible. They try to bring me in before the deal is made. And when that's not possible, I review every claim before a check is cut."

On the day I visit the SCA offices, Beck is watching a black-and-white surveillance videotape shot at a college gymnasium. Several dozen fans are trying to throw a paper airplane from one of the end lines into a garbage can at half-court. "First I assess the environment," Beck explains. "The venue looks good. There's a large audience in the arena. If it were empty, that would send up a red flag. Then I look at the conditions of the event. Do they meet the criteria we've agreed upon? The distance the airplane must be thrown, the type of paper, that sort of thing. It all checks out."

Beck watches a second tape, from another angle. In slow-motion, he follows the progress of one shooter--the eventual winner--from entrance to exit. It's like seeing spy footage, only what's at stake here is a $10,000 prize, not our nation's future. Beck watches the contest once more at full speed. "Everything's fine. It's a pay."

As much as Hamman jokes that he likes propositions that don't require a payoff, the fact that SCA does pay regularly, often and well is the company's best marketing strategy. To continue the casino metaphor: If a riverboat in your area were to set their slot machines to pay out at, say, 83 percent while every other casino had 93 percent machines, gamblers would soon start avoiding the riverboat. SCA's reputation for promptly making good on its obligations has earned it a lengthy client list that includes professional sports franchises (Chicago White Sox, Cleveland Indians), Fortune 500 companies (Miller Brewing, Sony Electronics) and even Las Vegas casinos (Tropicana, Boulder Station) that want to budget the unbudgetable--like a $10 million jackpot promotion.

In the past few years, SCA has developed several new lines in the insurance business. It has a telecard division that markets prepaid phone cards at a discounted price (two to three cents per minute), which consumer product manufacturers can offer as prizes or mail-in rebates. SCA's profit margin is contingent on accurately calculating the redemption rate of these little pieces of plastic. In other words, the company has to do what it does best: competently analyze the proposition's inherent risk.

Another of SCA's recent innovations is insuring performance bonuses for professional athletes. For instance, a major golf club manufacturer has agreed to pay one of its endorsers a $500,000 bonus if he wins the Masters using the manufacturer's equipment--but that half million would bust its marketing budget. So the company goes to SCA, which covers the prize for pennies on the dollar. Now the clubmaker can root wholeheartedly for its endorser to conquer Augusta, because Bob Hamman is sweating the bill.

Hamman's son, Chris, SCA's director of risk management, computes nearly every proposition that the company covers, including all of the performance bonuses. His tools are an enormous database, a keen understanding of math and that great handicapper's attribute, personal observation. "I don't play a lick of golf. But I like to watch," he says. Chris Hamman can tell you with near-mathematical certainty what the chances are that Phil Mickelson will win a major championship in a given year; what the odds are of Davis Love winning back-to-back majors; how likely it is for Jim Furyk to win any tournament. Of the fan-from-the-stands promotions, he can assure you that the half-court basketball shot is a little harder than you might think, the 10-foot putt is even harder and the field-goal kick is the least difficult of them all.

How does he know? "Nothing beats experience," he says, smiling. "After you've paid out a few six-figure checks, you get a pretty good feel for these things."

Golf, tennis, hockey, motor sports, even professional bass fishing--SCA covers them all. When your favorite race car driver wins a $1 million bonus, or your hometown right winger breaks the National Hockey League scoring record, the guy wincing in his office is Bob Hamman.

But don't worry about old Bob. He's got The Edge on his side--and we all know what that does for the typical bookie. Or world-champion bridge player. Or multibillion-dollar insurance company.

Contributing Editor Michael Konik writes Cigar Aficionado's gambling column.