How Do Casinos Make Money?

How Do Casinos Make Money

The casino industry is way larger than we generally estimate. The industry including online gambling had worldwide revenue of about $262 B in 2019, which was reduced to $227 B in 2020, due to covid-19. Although it is larger than many mainstream industries. The US is considered the home of the Casino industry having more than 2100 registered Casinos. Especially “Las Vegas” in Nevada has become the most famous casino destination in the world.

A study shows that almost 75% of Americans went to casinos at least once in their lifetime. In addition, Macaw, London, Singapore, Monaco, Bahamas, South Africa, and Australia are considered to be some of the most popular destinations in the casino or gambling industry. Gambling has been popular since ancient times and the industry is still growing at a CAGR of 5.14 percent per year.

What Is Casino?

The casino is an Italian word that means ‘little house’. Basically, Casino is a public facility for accommodating specific types of gambling games. The place is usually equipped with gambling tables, machines, and other equipment. People gamble ‘cash’ and ‘casino chips’ to play games. 

The games basically represent the ‘game of chances’ where players win or lose depending on various possible random outcomes. In some cases, the win or loss depends on the individual’s expertise. Casino games are generally categorized into three types: Table games, Gaming machines, and Random number games.

Table games are generally conducted by casino employees called ‘Dealer’ or ‘Croupiers’. In Table games, one or more players compete with the casino house itself, rather than competing with each other. Some popular forms of table games are Blackjack, Baccarat, Craps, Poker, and Roulette.

In ‘Gaming machine’ games Pachinko, Slot machine, Video lottery terminal, or Video poker games are pretty popular and played by only one person, competing with the machine itself. On the other hand, a random number or lottery-type games like ‘Keno’ and ‘Bingo’ are mainly played by selecting random numbers through a computer or any gaming equipment. It is said that The house always wins.

How Casino Makes Money?

People have a common assumption that casinos make money from cheating or manipulating the gaming equipment’s outcome in their favor. However, casinos don’t need to manipulate or cheat to earn a profit. They simply do that by setting a ‘House EDGE’. It’s a statistical advantage they have on the game to secure their profit regardless of winning or losing.

Casinos offer a ‘chance of winning’ where the casino separates its share from the money that the player receives after winning. A simple example can easily explain the matter. There are 6 numbers in a Dice. While a dice rolls, the probability of coming up with a number is 1/6. Let’s assume that 6 players altogether are playing a dice-rolling game. Each takes a number from 1-6 of the dice and invests $1 for each round.

In every roll, one of the six players wins. But, instead of giving $6 to the winner, casinos provide $5 only. They keep the remaining $1 as a profit which is called ‘House Edge’ or House Advantages. Here, the House edge is 1/6 or 16.66%. Let’s assume, those 6 players played for 10 rounds and invested $10 each.

Among them, one player wins 2 times and earns $10. So, he did not lose any money. If any player wins more than 2 times, earns a profit from the game. But the one who wins less than 2 times, made a loss. Let’s see the scenario from the casino’s perspective.

For each round, the casino made a $1 profit, so, in 10 rounds, it made a $10 profit. So, the casino earned the amount left after all the bets are paid. Sometimes, the casino itself acts as an individual and can bet with players. In this case, the casino might get unlucky and could lose money initially.

Let’s get back to the dice-rolling game again. This time, the casino itself takes a number from the dice and plays with 5 other players. After 10 rounds, the casino has a zero winning score. So, in this case, Casino invested $10 for 10 rounds and from ‘House edge’, earned $10.

So, after having the ‘House Edge’, the casino did not make any profit. But, if we roll the dice 10,000 times, we will see that the outcome of each number will be nearly similar. This phenomenon is called the law of probability. That’s why, in the long run, casinos always win.

For almost any casino-based game, profits are made similarly. However, The ‘House Edge’ percentage varies for different games. Roulette has an avg. the house edge of 5.26%, Blackjack has 0.5% and video poker has 0.46% whereas Keno has a 20%-40% house edge.

So, it is very obvious that, if a game has a house edge of let’s say, 5%, Casino will surely gain $5 in every $100 bet in the long run. In some games such as ‘poker’, casinos don’t participate directly or charge any ‘House edge’ but rather earn via commission on each round of games which is known as ‘Rake’.

Considering all the facts of casinos and the law of probability, people will always lose in the long run if they get involved in casinos or gambling. Research shows that People’s daily average loss in a single casino table is about $3737 and a slot machine made an average daily loss of $185.

But people always hope to win and sometimes make a lot of money in the short run. This is called ‘luck’ in gambling. There are examples of people having extreme luck. ‘Amy Nishimura’ can be a good example who turned her $100 to $9 million in three hours. There are negative examples too. A local businessman in Singapore lost a staggering $75 M in a single casino.

It is not likely that everyone must lose money in casinos. Some people can win through their personal expertise. For example, there are 52 cards in a deck. The man who is good at math and can keep track of all the cards, the chances are high that he can win the game. Edward O.

Thorp, an American math professor is considered the most successful gambler in the world. He was so efficient in his mathematical techniques that casinos had to ban some of his techniques in the game. He even wrote a book called ‘Beat the Dealer’ where he described complex mathematical terms and probability theory in card games.

However, some people do cheat in games. Casinos use highly programmed movement tracking and AI-based cameras and other equipment to track the player’s activity. If one is winning constantly, Casino checks his present and past activity and if he is found guilty, they refrain him from playing. That’s how casinos deal with cheating.

Although ‘House edge’ and ‘high risk of losing’ exist, people still go to casinos for gambling. Casinos use some tricks to lure people into gambling. One of the tricks of casinos is to offer ‘Comps‘ to their customers. It’s a bonus that the casino provides for its premium customers or potential newcomers. Casinos sometimes provide gifts such as air tickets, movie tickets, and hotel rooms aimed to involve people in gambling for a long time and ultimately get them to lose money.

The casino tries to stimulate people to participate in gambling with bright colors, flashing lights, colorful carpets, and melodious music. Most casinos have no clock hanging on the wall. Casinos restrict the view from outside so that people can play games for a long time without worrying about time.

Sometimes casinos provide free drinks so that people cannot feel the pain of losing money. They always keep a cozy and neat environment for customers to relax and gamble for a long time. Casino pumps extra oxygen into the air, just to keep customers awake, refreshed, and alert for long-time gambling. A soothing fragrance or aroma is also sprayed on a casino room to make customers feel at home and relaxed.

Casinos are designed in a way that people who want to take an ‘exit’ have to go through a maze to find the exit door. Customers might find some slot machines kept intentionally before the exit door, just to make customers gamble a few more hours before exit. Some gaming machines encourage customers to load money in cards in the form of chips for playing.

This way, the customer wouldn’t track how much they are losing. Those gaming machines are made of AI-based complex computer programs. Which knows very well how to lure and tempt people with some brilliant phrases like ‘Near Misses’ or ‘almost win’. So that people become motivated even after they are losing repeatedly.

Casinos are the places where people go to scratch their gambling itch. The industry including online gambling had worldwide revenue of about $262 B in 2019 which has now decreased due to the pandemic. Games like Blackjack, Baccarat, Craps, Poker, and Roulette are played where gamblers can win or lose from hundreds to millions. 

Although the casino industry is constantly growing, people have become less enthusiastic about spending money on the game than before. They are more likely to spend on hotels, stores, and tourist destinations. Casinos are aware of that phenomenon and changing their business model.

They are offering Restaurants, bars, nightclubs, shows, and live music options besides gambling. According to revenue-hub, most of the famous casino destinations are turning into travel destinations. In Las Vegas, non-game revenue already surpasses the revenues earned from gambling.

According to research by David Schwartz, the average Las Vegas visitor spends $285.41 for a non-gaming attraction and $149.29 for gambling. We may see casino-based cities completely turned into tourist destinations in the future. What do you think?

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