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- Casino Math
- Casino Manual
- Casino Operations Management. 2ND Edition
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- Casino Marketing Planning Process MI EAC
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**(How Casinos Make Money)
**

• Probabilities

• Law of Large Numbers

• Expected Value / House Advantage

• Standard Deviation

• Confidence Limits

• The Normal Curve

• Game Volatility / Volatility Index

• Table Win/Loss Probabilities

• SM Jackpot Probabilities

• Exit Strategies

• Gambler’s Ruin

• Rebates and Discounts (Marketing)

A casino is a mathematics palace

set up to separate players from

their money. Every bet made in a

casino has been calibrated within a

fraction of its life to maximize profit

while still giving the players the

illusion that they have a chance.

Nicholas Pillegi,

Casino (1995)

ADVANCES IN CASINO GAMING

Table Game Slot Machine

**Player Rating Systems Slot Tracking
**

Dynamic Reporting Systems Virtual Reels

Chipper Champs Tokenization

Winning Result Displays Multi-line

Games

CS, LIR and Super Bucks Jackpots Feature Games

E.S.S. Mystery Jackpots

“Madness 21” – Interactivity Jackpots

Automatic Shufflers Bonusing

Messaging

Auto-paging

Note Acceptors

Comparative Experiences and “Value” Derived

Table Game Player Slot Player

Product Gaming entertainment Gaming entertainment

Cost $90 over 2 hours (e.g.) $90 over 2 hours (e.g.)

Benefits $3 in points $9 in points

$4 - $8 bounce back

$5 snack voucher

May double or treble stake May experience significant win

(in credits)

Chance to win jackpots including

cars

Involvement in sporadic Involvement in regular EGM

promotions often not limited promotions limited to members

to members

Total Benefits $3 and limited $20 and extensive

Other benefits associated with Slot play include ease of play, low limits, low bankroll, automatic

recognition and experience that even when you lose you have grown your point balance.

Probability is the very guide of life.

Cicero (106-

48BC)

**Probability is like a wave. Because
**

of the house advantage, over time

the player dips lower and lower

until he stops crossing the mid-

point and ultimately loses all his

money, unless he quits first.

Jeff Marcum in Temples of

Chance, (1992)

Basic Probability Rules:

3. The probability of an event will always be between 0 and 1.

**5. The probability of an event occurring plus the probability of an event
**

not occurring equals I. (Complement Rule)

**8. For mutually exclusive events, the probability of at least one of these
**

events occurring equals the sum of their individual probabilities.

(Addition Rule)

**4.a. For independent events, the probability of all of them occurring
**

equals the product of their individual probabilities. (Multiplication

Rule – dependent events)

**4.b. For non-independent events, the probability of all of them occurring
**

equals the product of their conditional probabilities, where the

conditional probability of one event is affected by the event(s) that

came before it. (Multiplication Rule – dependent events)

How Do Casinos Make Money?

Retailer:

Revenue = Quantity x Price

Casino:

1. Theoretical Win = Handle x House

Advantage

where:

Handle = Ave. Bet x Hands per Hour x Hours Played

or

Handle = Ave. Bet x No. of Hands Played

**2. Actual Win = End. Capital + Cash Sales + Excess
**

Chips + Chip Yield – Table Refill – Beg. Capital

How Do Casinos Make Money?

**FLOW OF CHIPS EXPECTED WIN
**

DEAL PLAYER BANK CUSTOMERS HOUSE Handle X H.A.

1 1,000 1,000 2,000 25.4

2 1,000 1,000 1,950 50 25.4

3 1,000 1,000 2,000 25.4

4 1,000 1,000 1,950 50 25.4

5 1,000 1,000 2,000 25.4

6 1,000 1,000 1,950 50 25.4

7 1,000 1,000 2,000 25.4

8 1,000 1,000 1,950 50 25.4

9 1,000 1,000 2,000 25.4

10 1,000 1,000 1,950 50 25.4

250 250

**Assumption: Baccarat H.A. = 1.27% (excluding ties)
**

ADELAIDE CASINO

System Standards

Decision House

Game Location Rate

Advantage

BJ CGA 63 1.30 %

BJ IR 76 1.30

AR CGA 36 2.70

AR IR 33 2.70

MB CGA 58 1.26

MB IR 53 1.26

BA IR 41 1.26

TWO UP CGA 45 3.13

CRAPS CGA 50 1.50

BIG WHEEL CGA 42 7.69

B&S CGA 46 2.78

KENO CGA 1 23.00

Comp value = comp % x (theoretical win – tax – staff cost)

Comp % = 50% standard

Theoretical win = ave. bet x hands/hour x time played x edge

Tax % = 20%

Staff cost = $10 / hour of recorded play

Law of Large Numbers

FAIR COIN PROBABILITIES

HEAD = 50% TAIL = 50%

No. of No. of Percent Deviation - Deviation -

Tosses Heads Heads No. of Heads Percent Heads

100 55 0.550 5 0.050

1,000 525 0.525 25 0.025

10,000 5,100 0.510 100 0.010

100,000 50,500 0.505 500 0.005

**1,000,000 501,000 0.501 1,000 0.001
**

CF-Bacolod

Baccarat Win Rate (Theoretical vs. Actual)

January to December, 2005

**Theoretical Actual Total Cumulative Win Rates
**

Month Win Win Bets Theoretical Actual

Jan 988,131 3,886,299 85,924,400 0.011500 0.045229

Feb 609,621 1,325,950 53,010,483 0.011500 0.037516

Mar 672,802 1,601,550 58,504,515 0.011500 0.034511

Apr 1,317,763 1,810,200 114,588,067 0.011500 0.027639

May 1,116,195 2,452,000 97,060,412 0.011500 0.027075

Jun 1,758,309 2,677,100 152,896,417 0.011500 0.024472

Jul 3,261,150 4,678,600 283,578,245 0.011500 0.021798

Aug 1,166,140 2,067,000 101,403,467 0.011500 0.021647

Sep 1,270,092 876,500 110,442,778 0.011500 0.020215

Oct 1,389,633 (190,700) 120,837,683 0.011500 0.017980

Nov 1,571,716 5,173,900 136,670,943 0.011500 0.020046

Dec 1,264,212 2,119,250 109,931,492 0.011500 0.019986

Note: 9 tables

Law of Large Numbers

Win Percent

25.00%

20.00%

15.00%

Upper Limit (95%)

10.00%

5.00%

0.00%

Theoretical Win

-5.00%

-10.00%

-15.00% Lower Limit (95%)

-20.00%

100 1,000 2,000 10,000 100,000

NO. OF DEALS

**Assumption: P 1.00 bet per hand
**

Law of Large Numbers

Win Amount

60

5%)

50 it (9

r Lim

Uppe

40

IN MILLION PESOS

n

tica l Wi

30

Theore

20

10 it (95%)

Low er Lim

0

(.20)

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000

NO. OF DEALS

Assumption: P1.00 bet per hand

Expected Value or House Advantage

Formulas:

EV = Σ (Net Payi x P)

**where, Net Pay = net payoff
**

P = probability of net pay

EV

HA = X 100

wager

DOUBLE ZERO ROULETTE

Type of Bet Probability True Odds Payoff Odds

1 Number 1/38 37 to 1 35 to 1

2 Numbers 2/38 36 to 2 17 to 1

3 Numbers 3/38 35 to 3 11 to 1

4 Numbers 4/38 34 to 4 8 to 1

5 Numbers 5/38 33 to 5 6 to 1

6 Numbers 6/38 32 to 6 5 to 1

Dozens/Columns (12 Numbers) 12/38 26 to 12 2 to 1

Red/Black/Odd/Even/High/Low 18/38 20 to 18 1 to 1

(18 Numbers)

1 1

4

2

1

1

8

BACCARAT

. Probabilities .

Including Draw Excluding Draw

BANKER 0.4585974 0.5068248

PLAYER 0.4462466 0.4931752

DRAW 0.0951560 –

SUPER 6

. Probabilities .

Including Draw Excluding Draw

BANKER 0.404518 0.447222

PLAYER 0.446123 0.493220

DRAW 0.095488 –

SUPER 6 0.053871 0.059558

Table Occupancy

and Productivity

Definition of terms :

Table Occupancy – the ratio of the number

of playing customers to the total

number of table betting slots

**Table Utilization – the ratio of the utilized
**

time of the table to the total

time the table is open

Comparative Analysis

Casinos A & B

Assumptions:

2. Both casinos have 28

customers.

3. Casino

Table occupancy:

A - 28 tables at 1 customer per

table B - 4 tables at 7 customers per

Casino

table

3. Standard no. of deals per hour:

Casino A - 60

Casino B - 30

4. Table utilization for both casinos is 100%.

Casino A (28) Casino B (4)

Bet per hand P 300 P 300

Hands per hour per table x 60 x 210

18,000 63,000

House Advantage x 1.15% x 1.15%

Win per hour per table 207 724.5

Hours per shift x 8 x 8

Win per shift per table 1,656 5,796

No. of tables x 28 x 4

Gross profit/win 46,368 23,184

Operating Expenses:

Salaries - Casino Shift Mgr. - -

Pit Managers (2:1) 3,524 1,762

Pit Supervisors (7:1) 9,317 1,331

Dealers (42:6) 42,840 6,120

Other OPEX-Opns. (20% GP) 9,274 4,637

Total Operating Expenses 64,955 13,850

Net Profit before taxes (18,587) 9,334

**Contribution Margin 40.09% 40.26%
**

Casino A (28) Casino B (4)

Bet per hand P 500 P 500

Hands per hour per table x 60 x 210

30,000 105,000

House Advantage x 1.15% x 1.15%

Win per hour per table 345 1,207.50

Hours per shift x 8 x 8

Win per shift per table 2,760 9,660

No. of tables x 28 x 4

Gross profit/win 77,280 38,640

Operating Expenses:

Salaries - Casino Shift Mgr. - -

Pit Managers (2:1) 3,524 1,762

Pit Supervisors (7:1) 9,317 1,331

Dealers (42:6) 42,840 6,120

Other OPEX-Opns. (20% GP) 15,456 7,728

Total Operating Expenses 71,137 16,941

Net Profit before taxes 6,143 21,699

**Contribution Margin 7.95% 56.16%
**

Casino A (28) Casino B (4)

Bet per hand P 1,000 P 1,000

Hands per hour per table x 60 x 210

60,000 210,000

House Advantage x 1.15% x 1.15%

Win per hour per table 690 2,415

Hours per shift x 8 x 8

Win per shift per table 5,520 19,320

No. of tables x 28 x 4

Gross profit/win 154,560 77,280

Operating Expenses:

Salaries - Casino Shift Mgr. - -

Pit Managers (2:1) 3,524 1,762

Pit Supervisors (7:1) 9,317 1,331

Dealers (42:6) 42,840 6,120

Other OPEX-Opns. (20% GP) 30,912 15,456

Total Operating Expenses 86,593 24,669

Net Profit before taxes 67,967 52,611

**Contribution Margin 43.97% 68.08%
**

CONFIDENCE LIMITS

and

WIN/(LOSS) PROBABILITIES

VOLATILITY PRINCIPLE

**1. About two-thirds of the time, the actual win will be one
**

standard deviation of the theoretical win. (68.26%)

2. About 95% of the time, the actual win will be two

standard deviations of the theoretical win. (95.44%)

3. The actual win will never be more than three standard

deviations from the theoretical win. (99.74%)

.4999

**.4987 The Normal Curve
**

.4772

.3413

-3.7 -3 -2 -1 0 +1 +2 +3 +3.7

.0012 .0215 .1359 .3413 .3413 .1359 .0215 .0012

.6826

.9544

.9974

.9998

The Normal Curve

.0215 .1359 .3413 .3413 .1359 .0215

-3.7 -3 -2 -1 0 +1 +2 +3 +3.7

-3.88 M -2.40 M -910 T 575 T 2.06 M 3.55 M 5.03 M

**Assumption: 1,000 hands at P50,000 per hand
**

Confidence Limits

Win Percent

30%

25%

20%

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%

-30%

**100 1,000 1,500 3,000 7,500 50,000 100,000
**

NO. OF DEALS

Confidence Limits

Win Amount

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

-200,000

-400,000

**5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000
**

NO. OF DEALS

Standard Deviation

Formula:

Varwager= ∑ [(Net Payi – EV)2 x Pi]

SDwager= Varwager

**where, EV = expected value
**

Net Pay = net payoff

P = probability of net pay

3 Ways of Examining Fluctuations or Volatility

SDpu

Win Percent EVwin % = EVpu

SDwin % = ----------

√ n

Win Amount Evwin = unit wager x n x EVpu SDwin = unit wager x √ n x SDpu

Win Units EVunits = n x EVpu SDunits = √ n x SDpu

**To determine Confidence Limits:
**

EV ± ( Z x SDwin )

**where Z = standard normal value depending on the confidence level
**

Actual Play at 95% Confidence Limit

15,000,000

10,000,000

5,000,000

0

1 2 3 4 5 6 7 8 9 1 11

-5,000,000

-10,000,000

-15,000,000

63 124 186 235 297 361 429 491 554 614

No. OF DEALS

Average Bet = P250,000

Actual Play at 97% Confidence Limit

20,000,000

15,000,000

10,000,000

5,000,000

0

1 2 3 4 5 6 7 8 9 1 11

-5,000,000

-10,000,000

-15,000,000

63 124 186 235 297 361 429 491 554 614

No. OF DEALS

Average Bet = P250,000

Questions to ask if actual win falls outside normal

confidence levels:

2. Is the data correct?

3. Is there an extraordinary event that caused the

deviation?

3. Is there a mechanical or personnel error?

4. Are players cheating you?

5. Are your employees stealing from your casino?

Determining Win/(Loss) Probabilities

using as example a “Freeze-Out” Game

**In February 1990, a Japanese whale won $6 M from the Trump Plaza in
**

Atlantic City and $19 M at the Diamond Beach Casino in Darwin,

Australia. Upon returning to the Trump Plaza in May, the casino accepted

the whale’s challenge to play Baccarat at $200,000 per hand on the

condition that he do so until he was either ahead $12 M or behind $12 M.

The game lasted 70 hours with a total of 5,600 hands dealt. Compute:

**1. the probability that the casino will
**

a. lose > 12 M

b. win > 12 M

2. the probability that the casino will

a. lose > 24 M h. win 12 to 18 M

b. lose 24 to18 M i. win 18 to 24 M

c. lose 18 to12 M j. win 24 to 30 M

d. lose 12 to 6 M k. win 30 to 36 M

e. lose 6 to 0 M l. win 36 to 42 M

f. win 0 to 6 M m. win > 42 M

g. win 6 to 12 M

GAMBLER’S RUIN CONCEPT

This is the simple proposition that all

other things being equal, the gambler

with more money in a bust out game,

i.e., where play continues until you

win or lose all your money, is more

likely to prevail over the gambler with

less money. Of course, casinos not

only have more money than almost

all players, they also possess a house

advantage to assure that all things

are not equal…

Gambler’s Ruin Formula:

a

q

1 −

p

P (success) =

n

q

1 −

p

a n

q q

p −p

P (ruin) =

n

q

1 −

p

Double or Nothing Formula:

a

p

P (doubling before ruin) = a a

p +q

a

q

P (ruin before doubling) = a a

p +q

REBATES AND DISCOUNTS

**1. Rebate on (Player’s) Theoretical Loss
**

Comp Value = average bet x

decisions per hour x hours played

x HA x comp rate

**2. Dead Chip Program
**

R x Plose

Effective H.A. = H.A. −

(1 + R )

where:

H.A. = the normal house advantage

R = rebate percentage

Plose = probability of losing the wager

REBATES AND DISCOUNTS

3. Rebate on Actual Loss

N x HA x LE

Equivalent Rebate =

( N x HA) + [UNLLI ( z ) x N x SD]

where:

N = number of hands

HA = house advantage

LE = theoretical loss equivalency

SD = wager standard deviation

z = (N x HA) / ( N x SD)

UNLLI (z) = unit normal linear loss integral for z

PAYOUT DISTRIBUTIONS FOR 3 SLOT MACHINES

SLOT MACHINE 1 SLOT MACHINE 2 SLOT MACHINE 3

PAYOUT HITS PAYOUT HITS PAYOUT HITS

0 566966 0 879816 0 726817

2 296827 2 300 2 128924

5 20624 5 300 5 14256

10 50 10 300 10 9840

25 50 25 400 25 2400

40 50 40 400 40 800

50 40 50 500 50 500

100 30 100 800 100 320

150 25 150 600 150 240

180 20 200 400 200 180

200 15 300 400 250 240

300 12 500 300 300 100

400 10 1000 200 500 50

500 8 2000 10 750 32

1000 5 3000 6 1250 24

1200 3 5000 3 1500 12

100000 1 10000 1 2000 1

Cycle 884,736 Cycle 884,736 Cycle 884,736

Hits 317,770 Hits 4,920 Hits 157,919

Payback % 94.50% Payback % 94.84% Payback % 94.66%

Hit Freq. 35.92% Hit Freq. 0.56% Hit Freq. 17.85%

V.I. 175.57 V.I. 43.64 V.I. 21.04

PAR SHEET SUMMARY DATA

Reel Strip Number 1A HOLD % 5.053

**MODEL # : HYPO - A PAYTABLE XYZ - A
**

PERCENT

COIN # HIT FREQ TOTAL HITS TOTAL PAYS

PAYBACK

1 94.947% 36.80% 325,570 840,034

Reels: 3 Stops: 96 Reel Combos: 884,736

PAYOUT HITS

VOLATILITY INDEX = 10.990

0 559,166

2 295,827

**5 28,256 90% CONFIDENCE VALUES
**

10 400 Handle Pulls Lower % Upper %

**25 300 1,000 60.19 129.70
**

40 240 10,000 83.96 105.94

50 180 100,000 91.47 98.42

100 150 1,000,000 93.85 96.05

**150 100 10,000,000 94.60 95.29
**

200 50

250 20

300 15

500 12

750 10

1,250 6

1,500 3

2,000 1

TOTAL 884,736

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