Monday, April 29, 2013

Does the house make its money off winners?

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.

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