This sounds like a stupid question, but hear me out.
The other day on a road trip we stopped at a casino to eat. Posted right on the door it said “The Payout of this Facility is 97%”
I know there is variation, like they have to pay out 97% over the course of a year and maybe the average day the payout is only 80%, but to simplify things, lets just say everyday they pay out 97%.
Around this area, i would say an average consumer spends $100 in the casino. This person could cycle thousands of dollars in the machines before they lose the $100.
If this casino draws 1000 people per day at $100, that would bring in $100,000 revenue, 3% margin, that’s $3,000.
Some people will walk away breaking even, some might even win. Looking at all the lights, security, waitstaff, executives, etc. etc. It kind of blows my mind that this facility can turn a profit, but the chandeliers in the lobby say otherwise.
I think you’re wrong about the “average” gambler. I’d say $100 is probably near the low end of what someone would bring to a casino. I’ve seen people bet thousands per hand. And I’m sure there are some who bet 10s of thousands. There is a reason they pull out all the stops for the “whales.” Some small casinos are probably just getting buy (Hell, Trump’s went bankrupt, iirc), but the big ones are doing fine. Walk around the Cosmopolitan, the Wynn, or Caesars, any night of the week, and observe how much money is changing hands. If the house takes 3% of that, they’re making serious money.
But a person with $100 at a casino with a 97% payout can probably gamble thousands of dollars before running out of money. The expectation would be that the person might play $100/3% or $3,333 through the machines before running out of money completely if they just reinvest their winnings in more attempts. In the end, the casino gets the whole $100 unless the person stops playing while still holding some of the cash. The number of times it filtered through the machines before disappearing completely is pretty much irrelevant.
Very few people show up at a casino and say “I’m going to place one hundred $1 bets and then go home with whatever is left.”
Pretty sure that’s the average percentage paid per bet. Or, to look at it the other way, you’re losing an average of 3% on each wager. And that’s an average of everyone. You might double your money, and someone else might lose all of theirs. But taking an average of all the bets, the house is gaining 3% per wager.
Plus, they make a lot of money (risk free) by taking a percentage of each pot at the poker table.
It sounds like you’re multiplying by 3% TWICE. You agree, writing “This person could cycle thousands of dollars in the machines before they lose the $100.” He might have put $3300 total in the machines since 3% of $3300 is $100. Yet later you multiple by 3% again as though the casino’s gross profit on that player is only $3.
It doesn’t take long for total action to add up. I was generally a small-stakes player, and didn’t play much altogether, but calculated that in my youth I placed at least $1 million of bets at blackjack tables!
To add confusion, at table games casinos measure activity as “drop”, which is neither total action, nor gross profit.
What about all of the other revenue sources? People stay at the casino hotel, they see shows in the casino theater and eat at the restaurants. I imagine that those being comped are the minority. Most of us pay for all of this.
Casinos make money off of people who hold the mistaken belief that they can somehow beat regression to the mean, and the fact that the the “games of chance” are organized such that the mean assures a minimum gross profit from the mean. Only a terrible businessman could run multiple casinos into the ground.
The point is correct - the 3% edge is average per bet - when a guy comes in with a stake of $100 he loses it 3% of a bet at a time (on average) until it’s all gone (usually).
I used to like going to AC with $300 in my pocket until I got tired of losing most of it most of the time (I typically gave up before being down $300).
To evaluate the profit potential of a casino*, you really need to know 1) how many people go there, 2) how much they bring on average to gamble, and 3) how much of it they leave with on average. The 97% figure tells you nothing directly about 1) or 2), obviously to everyone. A little less obviously, it doesn’t tell you much about 3) either.
You can easily find all kind of references with widely varying payout %'s even in the same establishment for different games. For some games it’s set by tradition, like in roulette**. In others it’s freely adjustable like slots. There should be some optimum for the casino. A really low ratio wouldn’t be fun so players would spend less time and/or only harder core gambling addicts would come back***. The optimum presumably varies by game as well as a venue. That’s probably why it’s typically different by game and type of venue. Also a function of competition presumably.
*from customers betting with them, not counting what they get risklessly from eg. poker pots or selling food, drink and lodging.
** for a single zero wheel it’s traditionally 36/37~97.3% around the same as the whole casino in question. Physical slot payouts are usually lower, around 90% in NJ for example.
***successful casino’s still depend disproportionately on people with gambling problems, a basic problem with the industry and why it wasn’t entirely nonsensical to have much less legal gambling than now, though no going back now.
While this is true, I can’t remember ever seeing a single 0 roulette wheel in the US. That seems to be more common elsewhere, so the house advantage in the US is 5.26%. Slots in many jurisdictions have their payouts published by law, so it’s likely you can look it up for your location. In Illinois and Indiana, it’s just like you report in NJ, where they average around 90%. Casino Queen apparently often has the “loosest” slots, but that’s still only around a 92.5% payout, on average.
A small point that not many people realise is there is a huge advantage to the casino, just because it has a bigger bank.
For example, if you bring $100 to the casino and play a few games - doesn’t matter which ones, and you lose it all. the game stops. Sure, you might be up at some point, down at some point, but when you reach the WORST POSSIBLE level - ie lost it all - the game stops.
If you manage to turn that $100 into $200 via a lucky streak, the casino just says ‘I’m still here - let’s keep playing’. There is no incentive to stop - other than the players own willpower. What if you win that $100 in the first 2 minutes. Are you going to get up and walk out - probably not, you are here for a night out, have a bit of fun etc. Why stop now? And all the time, those odds on those games (all in the casino’s favour) are grinding away.
You MIGHT get a lucky streak - the casino always will. You are far more likely to reach the position ‘Lost my $100’ than ‘Doubled my $100’. But even if the odds were 50/50 - the game always stops when you lose it all, and the casino is left smiling.
I don’t know much about the economics of casinos, but I assume they make money from the (overpriced but often very good) restaurants, rents from the (often high-end) stores that populate them, and ticket revenue from the Celine, Britney, Elton, and the hundreds of Cirque Du Soleil shows. Granted some food and shows are comped, but I know that Vegas locals will pay full freight for a fancy meal or a show–what else is there to do?
The non-gambling attractions in Vegas used to be very cheap, cheap enough that they wouldn’t really be profitable without the gambling, but that’s changed in recent decades.
And a casino needs a bankroll of a certain size to avoid being wiped out by a streak of bad luck, but that’s not what gives them their edge over the player. If a casino has a bankroll of a million bucks and a maximum bet size of $100, they’ll still be fine even if Bill Gates comes in. What gives them their edge is, well, their edge. Bill Gates can afford to make a heck of a lot of $100 bets, but no matter how many he makes, the casino will make an average of $3 on each of them.
