Calculating “Pot Odds” in the Anna Nicole Smith Case
by Steven Lubet
After more than 10 years of litigation, and countless jokes by late night comics, the United States Supreme Court ruled unanimously in favor of Anna Nicole Smith in her litigation over the estate of her late husband, J. Howard Marshall. As everyone knows, Marshall, at the age of 89, married then 26 year old Smith in 1992, only to die a little more than a year later. Marshall’s son – E. Pierce Marshall – has been battling with his “step mother” ever since over the disposition of the estate. At first it looked as though Pierce was going to get everything, as he won in both the Texas Probate court and in the Ninth Circuit Federal Court of Appeals, but the Supreme Court just changed everything, sending the case back to the appellate court and possibly back to square one in a Federal District Court in California. The estranged survivors of J. Howard might have to litigate for another ten years before the whole case is resolved.
Litigation isn’t cheap, especially when it ends up in the U.S. Supreme Court, and it is likely that both sides have spent well over a million bucks on lawyers (or maybe even twice as much), only to be told that they have to start over. With as much as $1.4 billion in the pot, you have to wonder why they don’t just figure out a way to split up the money (at one point the California trial court awarded Anna Nicole $88 million, so they could start their negotiations at that point), rather than risk the possibility that one of them will come away empty handed.
Part of that answer lies in the concept of pot odds, which may be defined as the ratio between the size of your bet and the potential payoff, compared to the likelihood of winning. In a poker game, imagine that the pot is $60 and the bet to you is $10. So the pot odds are slightly better than five to one. Thus, you would typically call the bet so long as your chances of winning are at least 20%.
In this case, the pot odds are astronomical, making even another
$1 million in lawyers’s fees almost inconsequential. The payoff could be as much as 1000 to one, and the chances of winning are obviously better than that. So on that analogy, it pays to keep betting.
But wait; there’s more. The concept of pot odds only makes sense in relationship to the theory of expected value. In poker, you can bet $10 on a four to one shot, even though you are going to lose that bet four out of five times, because you will recapture your losses the one time you win. In the example above, you can lose four times (at a cost of $40) and win the fifth, for a total profit of $20. In other words, the bet has a positive expectation.
Note, though, that the theory of positive expectation really only works for repeat players. If you can only play one hand of poker in your life (and if, say, your life depended on it), you would be unlikely to risk much at four to one odds. That’s why rational people don’t bet on Russian Roulette.
So getting back to Anna Nicole and J. Pierce, the pot odds suggest that they might be willing to litigate almost forever – except that there won’t be any second chances for the loser. That makes the game too risky, and the smart move – for both of them – would be to settle the case before too much more money gets burned up.
Of course, there might be other considerations that could keep the case going, enriching only the lawyers. Like, maybe Anna Nicole and Pierce hate each other enough to throw prudence to the wind, trying to get even instead of trying to get rich. That’s called “going on tilt” and I will blog about it another day.
Steven Lubet is Professor of Law at Northwestern University and a nationally recognized expert on trials and trial strategy. His latest book, Lawyer’s Poker: 52 Lessons that Lawyers Can Learn from Card Players, is due out in May. Visit the Lawyer’s Poker website to learn more!