Casino businesses are a unique one. A business model where you are responsible for handling and paying out millions of dollars at any given time doesn’t seem very stable, yet the industry has proven to generate a lot of money. But how exactly do casinos operate, no matter what casino you look at, their gambling activities will operate almost identical.
About Casinos and how they make profits
There are two ways they make money from gambling, Table games and slot machines. Each game has their own house advantage, the percent of money wager the casino will win in the long run. The most popular table games and their house advantages include roulette, craps blackjack and Baccarat.
The House Advantage for slot machines usually ranges from two to 15% Depending on the type of machine. If a game has a 3% house advantage for example, the casino will keep three cents for every dollar wagered on that game in the long run.
So if $1,000 a wager, the casino will win $30. The House Advantage basically guarantees the casino will make money over time. And it also ensures it maximizes its revenue, casinos can adjust these rates by changing the game designs or reprogram the slot machines. However, it’s important for them to stay low.
If house advantages were extremely high, the casino would make much more money in the short term, but people will quickly stop playing. Despite what may seem like low house advantages, the casinos actually make more than what it seems.
Let’s say a person has $1,000 they want to gamble at the blackjack table which has a house advantage of 2%. If they were to wager all that $1,000 The casino would come out with $20 profit in an infinite simulation.
In a real scenario, the person will win bets throughout the night and may end up wagering far more than that original $1,000. Over the course of a few hours, they may have waited up to $5,000, meaning they would have lost $100 in the long run instead of just $20.
This is why it’s so important for casinos to keep the person playing as long as possible, and is partially the reason for strategies such as a low house advantage table limits and complimentary offerings.
The type of player matters just as much to the success of the business and the customer base can be split into three parts. There’s the coveted VIP players become an everyday mass market player in the more casual slot player.
The VIP player is usually the most valuable for casinos because of their ability to wage a million and a trip to the casino. They often play online of credit using special chips and receive the highest complimentary offerings.
The mass market players are the everyday people who walk up to a table on any given day and play modest amounts.
It’s still an extremely important segment that even as higher margins in the VIP segment in some locations.
Lastly, the more casual players who don’t want to sit at a table or prefer the more relaxed nature of the machine would play slots, which can be the biggest revenue source for the casino.
Casino operators can even calculate the value of these players to see how they should cater to them by using the house advantage of bet size time played in the pace in the game, the expected amount one can be calculated.
For example, suppose a baccarat player bets $100 per hand for five hours at 60 hands per hour. Using a house advantage of 1.2% this players worth to the casino is $360. This allows them to not only calculate the performance of individual games, but also allows them to set complimentary policies, the casino can then determine what they can afford to offer a potential player for free while still coming out on top. This could include things such as show tickets, hotel stays and free restaurant meals, all with the goal of the player staying longer or coming back. Each type of player base is important.
However, there are vast differences between markets despite operating relatively the same. If we look at Las Vegas Sands, which has properties in three major markets, the US Macau and Singapore. We can see the differences between markets and strategies companies use 80% of lbs Macau revenue for example comes from mass market play, whereas SJM one of Macau’s original casino operators only generates 50% of their gaming revenue from the mass market.
This difference comes from the different strategies that companies use. If we take a deeper look into the Macau market we can see lbs are relatively new entrant in the market targeting the mass market customer through non gaming amenities, they cater to the modern Macau, filled with new customers corresponding with China’s economic growth and increased ease of travel to the territory. These customers aren’t necessarily looking to gamble, but rather enjoy a vacation at one of the massive resorts.