Examining How Casinos Operate and Make Money: House Edge

The seasoned gambler can count on true odds to dictate the chances of winning a particular game, right? Not exactly. Casinos aren’t in the charity business — they exist to make money. And like all successful enterprises, they follow reliable business models. With their intimate understanding of probability and odds, casino owners guarantee themselves a healthy bottom line.

So you can’t beat the odds when the house arranges them in its favor, but you can understand the odds of winning inside a casino by arming yourself with information about the house edge. The house edge (sometimes known as the casino advantage or house advantage) by definition is the small percentage of all wagers that the casino expects to win. Every game has a different house edge, and even certain bets within a single game have a better house edge than other bets.

To put it a different way, casinos expect to pay out slightly less money to winning bettors than they take in from losing bettors. The laws of probability tell casinos how often certain bets win relative to how often they lose. Casinos then calculate the payout odds based on the winning probabilities, or true odds. The payouts are typically smaller than the true odds, ensuring that, with enough betting action, the casino will take in a certain amount with every dollar wagered.

Table 2-1 shows the house edge for popular casino games and how much you can expect to lose for an average three-day weekend of betting for gamblers playing $10 a hand at table games. As you can see, the higher the house edge, the more you can expect to lose. For example, you cut your losses by 80 percent if you switch from roulette to baccarat!

This table assumes you only make the most optimal bets at games such as baccarat and craps. Also, the edge for many games, such as video poker or blackjack, varies depending on the particular type and version you find and on how skillfully you play. This next section looks at the three methods that casinos use to assist themselves in performing profitably.

Charging a fee

With some games, casinos charge a fee, or commission. Baccarat is a perfect example. If you bet on the banker’s hand and win, a 5 percent commission is deducted from your winning bet. This fee tilts the odds slightly in favor of the house and ensures that the casino makes a profit at this popular table game. Another example of fees is in sports betting. The house adds what is called vigorish or vig (a commission) to every wager.

Paying less than the true odds

Another way the casino makes money is to pay out less than the true odds (see the earlier section “Factoring in the odds”). Take roulette: With 38 numbers on the wheel, your odds of guessing the winning number are 37 to 1. So you bravely place a $100 bet on a single number and hit it. Congratulations! After you quit jumping up and down and kissing the cocktail server, dealer, and anyone else who couldn’t quickly escape, you collect $3,500.

But, wait a minute. $3,500 means a payoff of 35 to 1. What happened to the true odds of 37 to 1? The fact is, even though you win, your payoff is less than the true odds. The bottom line? Casinos take $200 out of every $3,800 wagered, which leaves the house with a hefty edge of 5.26 percent.

Muddying the odds

Casinos offer three types of games — games with fixed odds, games with variable odds, and games where skill can affect the odds. They all have different styles of play and appeal to different kinds of gamblers. Although you should naturally gravitate toward the games that are the most fun for you, you need to be clear on the three classes of games. This section looks at the three types more closely.

Games with fixed odds

When the odds are fixed (not subject to change), the bean counters in the back room can calculate exactly how much each of these games wins for every $100 gambled. That’s because, no matter how much gamblers vary their play, the casino has the same edge. The house seldom has a losing day on games with fixed odds, such as

Slots Craps Keno Roulette

Even though the profits fluctuate each day (due to short-term luck), casinos can easily forecast for the long run because they have hundreds of machines and tables all operating at once.

Games with variable odds

In this classification, the odds change, depending on how well gamblers play their cards or place their bets. Several of these games may yield better odds for smarter players. But the gain in these games can only go so far because over the long run, the odds still strongly favor the house. In other words — even if you play better than anyone else at the table, these games can’t be beaten.

Some examples of these games include

Pai Gow poker

Three Card poker

Let It Ride

Games where skills affect the odds

A few games reward skillful play and allow a tiny minority of gamblers to get an edge over the house. These games are variable-odds games, but they offer an advantage that the others don’t: Gamblers actually have a chance to win money in the long run. But don’t think you can walk in off the street and start pocketing Ben Franklins. Winning requires study, discipline, patience, and practice. Here are the games where skill can get you over the hump:

Blackjack Video poker Regular poker Sports betting Horse racing

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