23 January 2024
If one thing’s for certain, casinos don't gamble when it comes to money. There are operational costs involved and employees/executives who need to get paid.
In order for the house to win, regardless of the game, most players must lose. Casinos are businesses and rarely do businesses rely on luck to remain profitable. The gambling industry is no exception.
Gambling executives are some of the richest people on earth: for example, Dennis Coates earned a £421m ($534m) package in 2020, making her the highest-paid executive in the UK. For context, the highest-paid executive in the US, Elon Musk, made $595m in 2019.
In order to understand how casinos and betting companies make money, it is essential to understand house edge. According to experts, many gamblers do not understand this fundamental concept.
The confusion is understandable, and gambling involves knowledge of probabilities, which is a field many find intimidating. Analyzing odds in order to predict outcomes can be daunting, and It’s no secret that Americans are bad gamblers.
Of course, not all casino games are created equal. Most rely purely on luck, while others admit an element of skill, and sometimes it’s a combination of the two. However, regardless of the game, all gambling products are programmed to give casinos a statistical advantage regardless of whether you’re playing online or physically.
All casino games rely on chance/uncertainty, and the house edge ensures that the casino as a broad entity never loses. Think of the house as the agent who distributes dollars between gamblers, using controlled randomness that is designed to favor them in the long term.
Casinos have control over how much of the money goes back to players and how much they get to keep. Gamblers are playing games of chance, and casinos leverage statistics to ensure long-term certainty.
Of course, many amateur gamblers understand this and will only gamble for entertainment or novelty. However, according to the NHS, a rising number of young gamblers are falling into addiction and debt (due to the mass adoption of online betting). Additionally, the betting industry has been linked to increased suicidal ideation in Europe and the UK.
As mentioned earlier, in order to see how casinos make money, it is important to understand the basics of probability and how it relates to house edge.
While casinos are required to disclose the average profit margin for each type of game, they don’t always make this information prominent, and will typically communicate the message in a way roundabout manner.
The house edge is essentially the casino’s profit margin. You may have walked into a casino and noticed a sign that says, ‘ This game has an average percentage payout of 95%’. This is essentially how many casinos communicate their profit margin or house edge. However, according to experts, this framing is ineffective, and many gamblers are prone to misinterpreting the real meaning.
The same piece of information could be restructured differently: ‘ This game keeps 5% of all money bet on average’. Both ways of framing the message communicate the same underlying statistical advantage. However, the latter characterization helps make the house edge easier to understand.
All casino games are programmed to the house’s advantage. The odds always skew in favor of the house. If you really want to understand house edge, the best framing is this: On average, this game is programmed to cost you 5% of your stake on each bet.
As a general rule of thumb, the more time you spend playing, the more probability is leveraged against you. Casinos are designed to distract gamblers from reality and to keep them playing. Notice how most casinos have no windows or clocks; this is all intentional, causing an excited gambler to lose track of time.
We’ve all heard the term ‘the house always wins‘. This is because the house is playing the longest game. You may think that a 5% edge isn’t much, but it reflects on every single wager and reduces your chances of leaving the casino the more time you spend gambling.
You could beat the casino in the short-term, but keep in mind that the casino never really loses, because it isn’t relying on luck, rather, it relies on controlled randomness.
Imagine you’re playing a slot machine with a house edge of 10% or a payout of 90% (both statistically equivalent). From the casino’s perspective, out of the thousands of spins and dollars bet into the machine, the casino will always keep an average of 10% of the money, while 90% is distributed to a few lucky winners. The casino isn’t gambling; it is just redistributing the money to lucky players while maintaining a constant average share in the pool.
Of course, the casino doesn't keep $10 out of every $100 you bet into the slot machine; that’s just the average over the long term across all bets wagered. This is where variance comes into play:
You win some, you lose some, and every individual wager might divert from the average, but the casino’s edge ensures the passage of time channels 10% of all money gambled back to the house across the machine/table’s lifetime. Additionally, the casino could make more than average if their gamblers have poor strategy.
From a bird’s eye view, all money in gambling comes from the players. In this context, a casino’s role is to keep a certain percentage of that money no matter what and distribute the rest to random winners. From this perspective, the casino vs. the players (as a collective), the players never win.
You’re not gambling against the casino, and the ultimate outcome will always reward the casino. The entire activity is a negative-sum game. However, if you gamble strictly for fun, then gambling becomes a zero-sum game, and it’s normal to pay for entertainment. However, It is definitely not a positive sum game, especially with regard to money.
The industry continues to grow rapidly, and according to the American Gaming Association, 104 million Americans visited a casino in 2023. Essentially, nearly 41% of the population had visited the 1005 casinos that are spread out across the US. Of these casinos, 552 are tribal casinos, while 478 are commercial casinos.
Below are the top ten highest-grossing states based on disclosed revenue reports for the month of November 2023:
|Casino gaming revenue
|Number of casinos
|$1, 374, 400,000
|$482, 400, 000
|$282, 200, 000
|$253, 900, 000
|$217, 600, 000
|$214, 400, 000
|$199, 300, 000
The industry continues to see record-breaking revenues for the 3rd consecutive year and is one of America’s fastest-growing sectors. In total, casino slot machines and table games generated a combined revenue of $45.02 billion across all states.
The specific amount of money made per individual casino depends largely on its size and market penetration. Casinos have evolved since the gambling den era; nowadays, we live in the age of mega-casinos capable of housing thousands of people.
For gamblers, casinos competing against each other is good, as this forces them to lower their house edge to remain competitive.
The largest US casino based on the number of table games and machines is the WinStar World Casino in Oklahoma. This venue also has a staggering 1495 rooms and is owned by the Chickasaw Nation.
Physical casinos are also known as brick-and-mortar casinos; typically, these have high operational costs and offer a set selection of games with established rules. These classics include:
Typical house edge range
|0.25 to 2%
|2.75 to 5.26%
|1.5 to 5.22%
|1 to 10%
|-0.76 to 5%
|20 to 35%
|Pai Gow Poker
|1.42 to 2.84%
|2.78 to 18.96%
|1.36 to 11.11%
|1.06 to 1.24%
The house edge figures are averages, and it’s crucial to understand that the exact house edge varies based on the specific variant of the game played or specific wager.
For example, highlighted on the table is a negative house edge for video poker. This is because certain variants actually favor the player if a perfect strategy is employed. Instead of house edge, there’s actually a player edge!
The three common variants of video poker where this is possible include:
If the casino admits a small player edge to attract more gamblers, it becomes possible for a player to actually profit by playing long-term games. However, in most cases, the small number of skilled gamblers isn't enough to offset the profits made from bad betters.
If you notice a casino advertising a player edge, ensure you know the exact machine or variant of the game they’re referring to. Such options typically occupy smaller real estate on the floor compared to games that edge in favor of the house.
Online gambling is typically divided into two major categories:
According to the AGA, Americans placed $106 billion in sports bets in 2023 (excluding December), raking in $9.2 billion in combined revenue for the industry. iGaming is also rapidly rising, reporting a record-breaking $5.02 billion in the first 11 months of 2023.
In the US, physical casinos still generate the largest amount of revenue. They have a significant impact on the entire economy and employ millions of people. Casinos pay significant taxes to their respective states and are generally considered a great and welcome attraction.
Online sports betting is the second highest generating sector and iGaming is in third place, but expanding rapidly. Keep in mind that online betting has always existed but has been mostly underground due to being federally illegal since 1992. The Supreme Court only started allowing states to authorize sports betting in 2018, as mentioned earlier.
The truth is that people have been betting online using foreign casinos even before 2018. The laws were never truly enforced in the first place.
Revenues reported in this article are all based on legal online sports betting, but there is still a very large section of the population that still uses foreign online casinos. As such, an exact estimation of the scale of illegal betting is difficult to assess, but the United Nations estimates the total amount of money wagered illegally to be anywhere between $340 billion and $1.7 trillion annually.
This hints that legal online betting still hasn't really scratched the surface of the wider online sports betting market.
Casinos are highly profitable, and the bulk of their income comes from the games they offer. While casinos also offer non-gambling-related activities and entertainment options, gaming is their lifeblood. As mentioned consistently in this article, the house always wins. This is the most important thing to remember if you’re new to gambling.
Other services like lodging or dining/entertainment/merchandise also bring in revenue to the casinos, but the primary business model is centered around the games. According to some sources, 17% of total casino revenue in 2023 will be owed to non-gambling-related amenities.
The industry rises year after year, and casinos continue to be one of the most promising/impactful economic verticals in the US economy.
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