How the casino makes money in random games

29 January 2015

By John Grochowski

On a recent Tuesday morning, my wife Marcy and I had the day free, and we decided to head for a casino, play a little and have some lunch. Midweek mornings are my favorite time to play, but the days we’re both free with no work demands aren’t all that common.

In the couple of hours we were there, I heard five announcements of jackpot winners. “Our latest winner is …” along with a first name and a platitude about how that casino is your place to win.

A fellow playing a video poker a couple of seats away from me said, “I guess they’ve won their quota.” I asked what he meant, and he replied, “[The casino] must have won enough to meet their goals, and now they can let there be a few winners for show.”

I laughed, and went back to my game. I’m not on any mission to educate random strangers on the vagaries of the random number generator. However his comment did address a common belief of slot players that casinos can control when jackpots come.

That’s something I see in my e-mail just about every month, such as this recent question: “How can casinos make money if the games are really random? They have to be able to control the results to know how much money then can count on a game producing.”

Casinos don’t have to control individual results to know what to expect from a game. It’s enough to control the odds of the game, and the odds are set so that the payout is less than the true odds of winning your bet. That’s how the house makes money on table games, it’s how it makes money on video poker and it’s how it makes money on slot machines.

There are many more possibilities on slot machines than on table games, and the math behind it is a lot more complex on slots. So let’s make up a simple example. Pretend there’s a game where all the stops are either single bars or blank spaces, and the only paying combination is three single bars. Let’s further pretend the odds of the game are set so there’s a 25 percent chance of a winner, so the odds are 3-1 against you on every spin. If you’re betting $1 per spin, you risk $100 per 100 spins, and for it to be a break-even game, then each winner would have to pay $4. But if the machine pays only $3 on each winner, then an average 100 spins will bring back only $75 for your $100 in wagers.

That’s basically how the games make profits for casinos. There’s more than one winning combination on actual slots, and bonus events complicate the math, but the bottom line is that the casinos pay less than the true odds of winning the bet, and that drags long-term results toward an expected payback percentage.

Let’s look at it another way. Say you’re betting $1 per spin at a slot set up to return an average of 90 percent of money wagered back to players — it doesn’t matter if you’re playing a reel-spinner or if you’re betting 2 cents per line on a 50-line penny slot or any other combination. And let’s say you’re playing a modest pace of 500 spins per hour, risking $500 per hour. One more step: Let’s say you’ve just won a $5,000 jackpot.

Does the casino have to control the results to overcome that jackpot? Does it have to send the machine into some kind of makeup mode?

No, it does not. The normal odds of the game will drag the overall payback percentage back toward 90 percent. Let’s say that you and other players keep averaging $500 in wagers per hour, meaning a 90 percent game would average $450 in paybacks per hour. In one day, there would be $12,000 in wagers, with $10,800 in non-jackpot paybacks plus your $5,000. The machine has paid out $15,800 for the day, so its one-day payback percentage is 132 percent.

But after six more days of normal paybacks to bring the total to a week, wagers are $84,000 and paybacks are $80,600, and the return is 95.6 percent. After two weeks, wagers are $168,000 and paybacks are $156,200, or 93.0 percent. After three weeks, the return is down to 92.0 percent, and so on, drawing ever closer back toward the expected percentage.

The casino doesn’t have to control individual results to get something very close to its targeted percentage. Random results and the odds of the game will accomplish that.

Look for John Grochowski at www.casinoanswerman.com, on Facebook (http://tinyurl.com/7lzdt44) and Twitter (@GrochowskiJ).