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Do Casinos Really Make Their Money From The Winners?26 April 2005
Q. Sitting in the buffet, I caught a snippet of conversation that I was wondering if you could explain. (I wasn't listening in, they were so loud I couldn't help hearing.) One guy was saying that the casino really makes its money off the winners, and the other guy said something like, "Oh really? You mean we pay for all this when we win?" That doesn't really make sense to me.
A. Kind of leaves you wondering what kind of gambling palaces they could build if everybody won, doesn't it? If the casino makes money off the winners, then more winners must mean more profits, right?
But seriously, there is a way of looking at how the casino makes its money that looks at casino profits as a tax on the winners. Casino games make money because they pay the winners at less than true odds. If 38 people are sitting at a double-zero roulette table and each bet $1 on a different number on a single spin, the 37 losers each will lose their buck, and the one winner will be paid at 35-1 odds and walk away with $36. If the casino was paying true odds, the one winner should be paid at 37-1 odds and walk away with $38. The casino profit is the $2 not paid to the winner that he'd get if true odds were paid.
Same deal with sports betting. In most sports books, you have to put down 10 percent vigorish on top of your bet. Let's say you and I are betting on the same football game, with me betting on Team A and you on Team B. We each intend to bet $100, but we have to pay the vigorish, so we actually each bet $110. When my team wins --- hey, it's my example; I get to win --- you lose your $110 bet, but I'm paid only $100, along with the return of my $110 wager. The casino profit is the $10 it didn't pay me on my winning bet.
Sometimes the paying of winners at less than true odds is disguised a bit. In baccarat, for instance, bets on banker win more often than they lose, and bets seem to be paid at even money. However, bettors have to pay a 5 percent commission on winning bets, so winners aren't really paid at 1-1; they're paid at (1 minus .05)-1, and that's less than the true odds of winning the wager.
So it goes with every casino game. There are going to be winners, and there are going to be losers, but the house will make money because it pays winners less than the true odds of winning the bet.
Q. Please settle an argument. My dad says the house edge on sports betting with a point spread is 10 percent, because of the 10 percent vigorish. I say it's 5 percent, half the vigorish, because you get the vig back with your bet when you win, and they only keep the vig from losers.
A. You're closer. The house edge on such sports bets is 4.55 percent. Here's how we calculate it.
If we go back to the sports betting example in the first question, I bet $110 on Team A and you bet $110 on Team B. That's a total of $220 we hand over in exchange for our tickets. When I win, I turn in my winning ticket and get back $210 --- my original $110 plus $100 in winnings.
The house edge is the $10 it keeps out of the $220 in wagers. Divide 10 by 220, and you get .0455. Multiply by 100 to convert to percent, and the house edge is 4.55 percent. The house has kept 4.55 percent of the money we wagered.
Q. A question about video poker. I was playing Triple Bonus Poker for the first time. The idea of getting 1,200 coins on four Aces or 600 on four 2s, 3s or 4s, without worrying about a kicker on the fifth card as in Double Double Bonus seemed good to me. So did the 11-for-1 paybacks on full houses and 7-for-1 on flushes. But I don't think I've ever lost money so fast. Is this a really bad game?
A. Unless there was something odd elsewhere on the pay table, the paybacks you describe mean you were playing the full-pay version of Triple Bonus, which returns 99.6 percent with expert play. That's not a bad game at all. In fact, it's among the top tier of those you'll find outside Nevada.
There's a big "however" attached to that. The pay table starts at a pair of Kings or better, instead of the Jacks or better you'll find on most non-wild card video poker games. Pairs of Jacks or Queens, winners on other games, are losers here. We win on only 35 percent of our hands, compared with 45 percent or so on most Jacks or Better-based games. The big paybacks on less frequent hands lift our payback percentage into the upper reaches, but the low hit frequency means we have to weather some losing streaks to get there.
This article is provided by the Frank Scoblete Network. Melissa A. Kaplan is the network's managing editor. If you would like to use this article on your website, please contact Casino City Press, the exclusive web syndication outlet for the Frank Scoblete Network. To contact Frank, please e-mail him at email@example.com.
Best of John Grochowski