Understanding the House Edge
The basics of casino gambling are really quite simple. Although the rules of each game are different, the fundamental principle is essentially the same for all of them.
Whether it’s a hand of blackjack, a spin of the roulette wheel, a roll of the dice at the craps table, or a spin on the slot machine, players put up a stake and are betting against the casino (also known as the house).
When the players lose, the house takes their stake. When the players win, the house pays out their stake.
In principle, that’s pretty much all you need to know to start playing casino games. Of course, you’ll also need to know the rules for any specific game you want to play, but they are usually reasonably straightforward to learn.
However, in our opinion, at least, it pays to have a basic understanding of how casino gambling works.
Specifically, you should understand how casinos make money and should be familiar with the concept of the house edge and payout percentages.
You should also understand why it’s possible for players to win money even though the odds are against them. We explain all of these things on this page.
How Casinos Make Money
Essentially, casino games are all games of chance, meaning that a player is ultimately reliant on luck. There are some games that also involve an element of skill, such as blackjack, but luck is generally the over-riding factor in determining whether or not a player wins.
However, this doesn’t mean that a casino needs to get lucky in order to make a profit from people playing their games.
The advantage that’s effectively built into every casino game is known as the house edge. This edge means that, over time, a casino will always win money.
The house edge exists because casinos do not pay winning wagers according to the true odds of that wager. As such, they are technically making money every time a player wagers money.
Although the house doesn’t win every single wager, mathematically speaking, the odds are always in their favor. Casino games are known as negative expectation games because the long-term expectation is a negative one.
The House Edge
First, we will look at the example of American roulette versus European roulette probabilities to help give us a better understanding of how the game works, so we may better understand how the house edge comes into effect:
|1 – 18||1:1||46.37%|
|19 – 36||1:1||46.37%|
|1 – 12||2:1||31.58%|
|13 – 24||2:1||31.58%|
|25 – 36||1:1||31.58%|
|Combination of Two Numbers||17:1||5.26%|
|Combination of Three Numbers||11:1||7.89%|
|Combination of Four Numbers||8:1||10.53%|
|Combination of Six Numbers||5:1||15.79%|
|Combination of 1,2,3,0,00||6:1||13.16%|
|1 – 18||1:1||48.6%|
|19 – 36||1:1||48.6%|
|1 – 12||2:1||32.4%|
|13 – 24||2:1||32.4%|
|25 – 36||2:1||32.4%|
|Combination of Two Numbers||17:1||5.4%|
|Combination of Three Numbers||11:1||8.1%|
|Combination of Four Numbers||8:1||8.1%|
|Combination of Six Numbers||5:1||5.1%|
We’ll now use an example to show how the house edge works in practice. Let’s say that we’re playing roulette and betting $1 on one single number for every spin. A roulette wheel has either 37 numbers or 38 numbers, depending on whether you play the American or European style.
So you have either a 1 in 37 or a 1 in 38 chance of winning your bet. We will use the European version for this example.
Theoretically, you would expect to win your bet once every 37 spins. In practice, it doesn’t work quite like that because of standard deviation and variance, which we explain a little later, but in the long run, each number should be spun roughly once every 37 spins.
For the sake of this example, we’ll work on the basis that each number does appear exactly once every 37 spins.
TRUE ODDS VS. ACTUAL ODDS
- $1 Wager – $37
- Expected Loss – $0
Over 37 spins, you would wager a total of $37, getting a zero return on 36 spins and a $37 return on 1 spin, therefore breaking even.
- $1 Wager – $36
- Expected Loss – $1
$1 as a percentage of $37 is 2.7%. That means that 2.7% is the house edge of this game. To figure out the payout percentage, subtract that edge from 100%. This means the payout percentage is 97.3%.
The house edge/payout percentage is the same regardless of what bet you make at the game. This means that for every $100 wagered at roulette, the theoretical house win is $2.70. While a casino would never make exactly $2.70 for every $100 wagered, over millions of spins, it would average out at about that figure.
It should be noted that the house edge isn’t the same in every casino game, and there’s an obvious advantage to playing games where the edge is low. In theory, the lower the house edge, the less you’ll lose over time.
The size of the house edge is, therefore, something you should take into account when deciding which games you’re going to play. It shouldn’t be the only consideration, though, as some of the games with higher house edges also offer certain advantages.
How Players Win at Casinos
We have shown above that the casino will always win in the long run. You might then think that it’s pointless to play casino games, because you’ll never win. It is, however, perfectly possible to win at casinos, despite the existence of the house edge.
This is because it takes millions of bets for the house edge to even itself out, and there’s absolutely no reason why a player cannot beat the edge in the short term.
Let’s go back to the example we just used, where you were betting $1 on a single number at roulette. With this method, even with the house edge, there are a number of potential outcomes for you to make money:
This is an entirely conceivable outcome and would immediately put you in profit of $35. If you stopped straight away, then you would be ahead. Even if you played for another twenty spins without winning, you could still walk away in profit.
If you played, say, one hundred spins and your number came up five times, then you would be comfortably in profit. You’d have lost ninety-five times, losing a total of $95, but the five times you won would have made you $175. Your overall profit would be $80 ($175 – $95).
Take blackjack, for example. It’s quite possible to win several hands in a row playing blackjack, and it’s far from uncommon for players to go on extended winning streaks.
Then there are slot games. You could spend just a few dollars playing slot games and win thousands, or even hundreds of thousands. You’d need a big slice of luck, of course, but it could happen.
The very essence of casino games is basically that the odds are ultimately against you, but there’s always the chance that you can upset those odds.
You never know exactly what’s going to happen, but it’s always enjoyable to find out, and that’s what makes casino games so exciting.