Sign up for news

How Do Casinos Make Money? What Is the Core of This Business?

Author: Igor Balanchuk
23 November 2020, 17:43
1278
Votes: 2

Opening a new casino is a rather complicated process that requires many investments, forces, and knowledge. Even though most countries' governments try to limit gambling inside their countries, this business is still one of the most profitable. The times when casinos could simply cheat to make a profit recedes into the past, while now the leading operators are suggesting clear, flexible, and attractive conditions for punters. Being the progressive casino news outlet, Login Casino describes in detail how gambling establishments make money nowadays, and explains the key terms in simple words.

How Do Casinos Make Money? What Is the Core of This Business?

How do casinos work to guarantee profits?

The tougher regulations across the countries force casino operators to adjust their approaches to gambling. Before giving the license, the regulatory body carefully checks every casino's hardware and software and whether the return to player (RTP) rates are acceptable for the local country. Moreover, the supervisory department can check all the withdrawals and payouts after a while in order to define the real RTP of a casino's particular game.

However, such strict rules don't mean that the casino cannot be profitable and make money for its owner. State regulators understand all the positive sides the gambling venue brings to the local Treasury, so they allow casinos to earn enough. That is why gambling stocks are constantly growing.

As a rule, the taxation system depends on the country and the type of gambling activity. Thus, the licensing body can require an RTP rate above 90% (sometimes higher than 95%) for the casino slots, which means about 5-10% of income. Even though a one-digit number may seem too small for the business, the overall turnover makes it much more attractive.

Is casino profit comparable to the ones of bookmakers and banks?

To understand the situation with 5-10% earnings by a casino, we'll compare those numbers to bookmakers and banks. Those two huge representatives have enough similarities to compare their approaches to casinos' ones.

The cornerstone aspect that makes betting firms profitable is the commission they take from the wagers. For example, there is an event with only two possible outcomes, let's say the presidential election in the US, where only two candidates are fighting for the ruling position. If they have equal chances to win the race, the bookmaker will suggest odds from 1.9 to 1.95 on both candidates. If two individuals bet on different candidates $100 each, one of them won't double the investment, and this $5-10 difference is the bookmaker's commission for services, which equals to 2.5-5% profits ($200 were betted, and $190-195 were paid to the winner).

how do casinos make money

Even though such numbers don't seem too massive, in the long run, and with millions of punters, those 2.5-5% allow bookmakers to hold numerous servers, pay wages for hundreds of workers, provide aggressive advertising campaigns across different countries, and so on. Betting firms just hold their commission for the service they offer, and small percentages turn into serious revenues and profits.

The power of banks is also based on small percentage numbers but a huge client base. The two primary operations financial structures suggest are credits and deposits. Usually, credits are given with higher interest rates than deposits, and the difference between those aspects is the commission of a bank. Of course, deposit and credit rates vary depending on the country (and its international stability mainly), but the difference between the regarded items is always positive for a bank. Millions of individual clients and thousands of businesses transform a few percentage difference into a massive amount of income.

In fact, casinos also make money on the overall turnover, and that is their primary target in business development. Aiming a few additional percent by increasing the casino's commission can cause clients' outflow nowadays, which is a much worse situation for the long-lasting strategy. Turnover, not a winning rate - that is a core for success in gambling.

Although turnover is the primary subject, the business person who wants to open a casino also has to know the following terms and principles related to gambling:

  • The handle;
  • House edge;
  • Casino comps.

What is the handle, and why is it important?

Turning the article into a more specific one, we'll have to start with the explanation of the basic terminology. Among the primary ones are handle and drop, which are related to the money spent by the casino's punter.

Handle vs. drop - what is the difference?

The handle is the total amount of money or chips that the punter bets in a casino game. For instance, someone decided to play a slot machine by depositing $200 in it. Happily, the punter wins a small jackpot of $100 and decides to spend that money on the same slot too. In total, the gambler brought a $300 handle for the casino.

how to make money at the casino

Drop is the initial deposited amount of assets into the casino game. We'll take the previous example and imagine that the punter has decided to spend $200 for the beloved slot. He also wins a $100 reward and spends it on the same slot. However, this time the casino counts a $200 drop, which is the initial sum only. Drop can also be regarded as the sum equal to chips that the punter has bought initially.

Of course, sometimes those two terms can be used interchangeably if the person spends some cash without winning anything. However, if someone can stop himself/herself after gaining a jackpot, the drop is still the same, while the handle is decreasing (drop minus winning sum). That is why the handle is the primary target for casino owners to focus on when developing advertising strategies, determining game entries, or sending comps to attract or retain customers.

How to increase handle for casinos?

In practice, the handle influences the game buy-ins or minimal bets on games. Thus, if the casino decided to set a $2 entry for the blackjack, the gambling venue can expect no more than $1000 in an hour from one table with six active players on it. At the same time, a single person who bets $25 for every blackjack turn can generate more than $4000 in 60 minutes. It's easy to count which approach is better for a bigger handle and why aiming one person instead of a few can be better for casinos.

Casinos' house edge

The issue of the house edge was partially described at the beginning of the article. In simple words, the house edge is the statistical advantage that casinos possess. In bookmaking, the advantage is achieved by decreasing the odds rate compared to the natural proportion. In other words, the betting firm cannot suggest a 1 to 1 ratio for the coin flip, while the 1.1 to 1 (or 1.9 coefficient) allows earning 5% from the overall wagered sum.

A similar situation occurs in casinos, as every slot or game-winning rate is carefully counted to bring 5-10% profit from the turnover. Logically, for different games, it's calculated in different ways, but the RTP is usually quite similar. Let's review some of the most common games and how the house edge is defined for each of them.

how do casinos work

House edge for craps

Rolling the dice is one of the most popular casino games, which is called craps. The punter usually guesses the total number that should fall out of two cubes. Statistically, the most frequent variant in this game is 7, which can be combined with six different combinations (1+6, 2+5, 3+4, and vice versa). The overall number of combinations is 36 (6 sides multiplied by 6). For this variant, the casino ideally should suggest odds 1 to 5 as, statistically, the punter can land seven only once from six tries.

However, casinos offer for this game outcome only 1 to 4 proportion, which means that on the distance, the gambler will lose as he will be returned only $400 for every $500 spent (with $100 per bet). Being the most probable variant, 7 has the best house edge for casinos, which is 16.67% (the difference between 5 to 1 and 4 to 1).

Interestingly, there is a massive variety of possible bets in craps (not only guessing the number) though it's quite challenging to give a house edge table for every possible bet. Moreover, diverse casinos suggest different odds for the same kind of game. Thus, instead of receiving 10%+ of the house edge, casinos can reduce it to 7 or even 5%. Sometimes, the gambling venue can suggest a zero house edge for the complicated combinations like 'The Odds.'

Nevertheless, craps is usually regarded as a simple game, and players prefer guessing numbers. Of course, a few lucky throws are possible, and one can multiply the winning significantly, but this works only on the small distance and is usually called luck. That is why the casinos are aimed at the long run and the handle, allowing counting revenues stably.

House edge for roulette

The traditional European casino roulette has 37 outcomes, where 1 to 36 numbers are divided into black and red, while there is also a green ZERO option. Betting on the single number means facing the payout 36 to 1 (36 chances to lose and only 1 to win), which is equivalent to 2.7% odd or chance to win. Wagering on two different numbers doubles chances to 5.4% and so on. Also, there are various combinations to bet like column, dozen, or top line, and many more with the appropriate winning probability.

casinos make money

However, the house edge for the European roulette is calculated in the following way:

-1 *36/37+35*1/37= - 0.027

In simple words, it means that casinos make 2.7 cents from every spent $1 on the roulette, on the distance, of course. More detailed information about the combinations, odds, and payout chances for the European roulette combinations is given in the table below:

Roulette Bet

Payout odds

Real odds

Casino's profit

Single Number

35 to 1

36 to 1

2.70%

2 Number Combination

17 to 1

17.5 to 1

2.70%

3 Number Combination

11 to 1

11.33 to 1

2.70%

4 Number Combination

8 to 1

8.25 to 1

2.70%

5 Number Combination

6 to 1

6.2 to 1

2.70%

6 Number Combination

5 to 1

5.17 to 1

2.70%

Column

2 to 1

2.08 to 1

2.70%

Dozen

2 to 1

2.08 to 1

2.70%

Even/Odd

1 to 1

1.05 to 1

2.70%

Red/Black

1 to 1

1.05 to 1

2.70%

Low/High

1 to 1

1.05 to 1

2.70%

Traditionally, those who like playing roulette usually try to guess the color of the spot where the ball will land. The probability of guessing the color is close to 50%, but it is still lower due to the presence of a green ZERO spot. It leads to an 18/37 proportion and 48.65% chance of winning, but casinos suggest this kind of bet like 1 to 1 as if the punter guesses 18 out of 36 but not 18 out of 37. The difference in the distance is still on the casino's side as the venue has 51.35% instead of the gambler's 48.65%, leading to the house edge of 2.7%.

House edge for blackjack

One of the best examples of how casinos make a profit via the house edge is blackjack. There is no need to adjust some numbers and probabilities to keep a positive balance in this game. The gambling venue suggests to the punter a lucky game where he or she can double the bet if being closer to 21 than a dealer.

Although the chances of getting the next card from the deck can be counted to some extent, while the dealer plays strictly until getting 17 out of 21, the punter is in the losing position by default. Thus, the gambler has the first hand of getting cards, and if he or she gets more than 21, the game is over, and the bet is lost. If to imagine that the game lasts three stages maximum and chances of winning every stage are similar, the casino has a significant advantage just after the first stage. Nothing to say about the dealer's chances in the later stages, making the casino's house edge at blackjack about 62.5%. A more detailed explanation can be found in the following table:

First phase variants

Probability of such an outcome

Second phase variants

Probability of such an outcome

Third phase variants

Total probability of such an outcome

The gamer busts

50%

(40%)

Player losses

 

Player losses

50% (40%)

The gamer gets <=21

50%

(60%)

Dealer busts

25%

(30%)

Player wins

25%

Dealer gets <=21

25%

(30%)

Player losses

50%*25%= 12.50%

(60%*30%=18%)

Player wins

50%*25%= 12.50%

(60%*30%=18%)

If to imagine that the gambler plays some perfect strategy and gets busts only in 40% of cases, while the probability of the following stages is equal (the punter cannot influence them), then the casino has the following house edge:

40% + 18% (60%*30%) = 58%

Thus, a casino has a significant advantage over the player in blackjack, as even the most pessimistic variant means 58% win compared to gambler's 42%.

The importance of the software for a casino

Opening even a mortar-and-brick casino requires thoughtful choosing of the software provider. The modern gambling venue cannot be held without digital devices' help as they define the RTP of the slots at least. The recent licensing requirements also involve detailed reports, including the revenues of the establishment and strict attendance control. Governments of all the developed countries are fighting to avoid underage gambling and limit addiction problems, creating lists of addicts that should not enter the casino or spend only a small fixed amount of money.

If the future casino owner wants to have the business only in the online sector, the importance of the software issue becomes even more vital. The security, control, and report aspects are also crucial for the digital platform, but the design, mobile compatibility, and smooth functioning of every casino game are even more vital. Login Casino has already reviewed the best and most reliable software for online casinos, where the market leaders were described in more detail.

How to make money at the casino by using comps?

In terms of casinos, comps are the encouraging bonuses that are offered for the punters to extend their stay in the gambling venue. Most of the comps are tightly related to the gambler's comfort and make his or her stay in the casino as long as possible, which directly correlates to the bigger handle. Among the most widely used tactics are free alcohol, beverages, food or restaurant, parking, hotel rooms, transfer to the casino (including air flight), cashback and no-deposit bonuses for lots of spendings, access to exclusive gaming and lounge-zones, discounts and coupons for future visits.

make money at the casino

Why are comps so effective in casinos?

The effect of comps' usage can be explained by simple but reliable psychological mechanisms:

  • People love bonuses and prizes by default, which are directly linked to the rewards system in the human brain - one of the strongest driving forces of our actions.
  • Alcohol makes people more relaxed and cheers up, which leads to less control over spendings, especially engaging ones.
  • All-inclusive services like free meals and hotel rooms also facilitate relaxing (similar to abroad vacations near the sea or ocean) and promote spendings on engagement.
  • The word 'free' makes magic things with the human brain, who are ready to spend a lot of money during the way before getting something costless.
  • Access to exclusive services increases self-esteem and status of the person, which forces an individual to spend more from the new position.
  • Coupons, discounts, and sales propositions usually turn-off rational thinking and force people to use those options as if they are taking something for free.

There is a huge variety of existing comps, but casino owners still continue inventing new ones to increase the handle and revenues as a result. As a rule, suchlike rewards are applied only for the punters that can spend enough money in the casino. Of course, there is no need to suggest free beverages, meals, and hotel room for the student that accidentally entered the venue with $50 in the pocket.

Off-line and online comps difference

In the mortar-and-brick halls, there can be special people called pit bosses who control the venue's situation and suggest comps to those who play a lot. In the digital world, this process can be automated as the system can automatically give free spins or cashback after a particular amount of money has been lost by the punter. However, a similar approach can be applied in land-based casinos, especially if the person registers online. Creating the account helps both sides to set and adjust the engaging entertainment (EE) level.

Even though the process of inventing new comps never stops, they can be classified in the following manner:

Particular Comps

Cost

Return rate

Applicable for (off-line/online)

Type of the psychological driver

Alcohol

Low

High

Off-line

Relax, less control over EE

Free meals

Low

Low

Off-line

Relax, focus on gambling only

Free parking

Low

Low

Off-line

Focus on gambling only, increase of self-esteem and status

Access to lounge zones

Medium

Low

Off-line

Relax, increase of self-esteem and status

Free apartments

High

Low

Off-line

Relax, focus on gambling only, increase of self-esteem and status

Transportation reimbursement

High

Medium

Off-line

Increase of self-esteem and status, free travel option

Access to additional entertainment

Medium

Medium

Off-line

Increase of self-esteem and status, additional relax

Access to exclusive games

Low

High

Both

Increase of self-esteem and status, ability to win more

Cash-back/loss rebates

Low

High

Both

Direct link to reward system, clear financial profit

Free entries for tournaments

High

Medium

Both

Direct link to reward system, clear financial profit

Free spins/bets

Medium

Medium

Both

Anxiety absence of losing (relax), clear financial profit

Prize drawings

Low

High

Both

Direct link to reward system, anxiety absence of losing

Welcome bonus

Medium

Low

Online

Direct link to reward system, clear financial profit

No deposit bonus/free trial

Low

Low

Online

Direct link to reward system, clear financial profit

One has to understand that cost and return rates are approximate and should always be regarded simultaneously with the Average Daily Theoretical (ADT) loss. The term ADT actually describes how much the punter spends on average, which helps to define the particular reward.

In some cases, the driving forces can be different, so the casinos have to advertise bonuses that can hit the target. If someone has a good mood (or is angry enough to spend some money), he or she will go to the casino with better bonuses. Although it seems to be the obvious information from the marketing sphere, it describes the additional role of comps for the gambling venue.

Comp hustlers and how to deal with them

When someone speaks about casino comps, the issue of hustlers appears immediately. Hustling is the process of turning comps into profit by smart punters.

For instance, an online casino offers free spins, a welcome bonus, or a double deposit option for the first financial operation on the platform. Even though this step is aimed to attract new clients, some experienced punters can use a high return to player rates of the particular slot, increase the initial investment, and withdraw assets. Their next step can be finding another reliable platform instead of returning to the digital casino and play more.

In this case, free spins or welcome bonuses are usually insured by specific terms and conditions. Thus, the gambler cannot withdraw real money until clicking the slot button 100 or 1000 times. The necessity to deposit real money and bet the equivalent sum before withdrawing the free bonus amount is also often applied, which makes beating slot machines a tough task in practice.

Even though hustling is usually considered as the negative side of the comp's existence, they are making additional and free advertising at the same time. Every successful case is retranslated to dozens and hundreds of others, which means many new clients. However, successful hustling requires enough mastery and luck, which means that far not everyone can earn from using some tactics while exploiting bonuses. In other words, well-though comps' conditions can bring even more attention to your casino and present the player's luck like mastery that can hardly be repeated. 

casino work

Conclusions

Opening a new casino requires adhering to numerous elements, where the financial and legislative ones can scare investors. However, understanding how casinos make money shows that this business can be easily profitable, while ingenious steps can hide additional revenues under the look of astonishing bonuses. Of course, casinos should be regarded as long-lasting investments, but understanding simple things helps to review gambling venues as reliable income sources.

Read moreWhat is Bitcoin casino, and how it helps to earn?

Read moreHow much do the top-7 richest people in the world have in their pockets?

Comments:

No comments

Now read
5 Mar
Up