Casino Players

By Wagercomms

Theoretical Win vs. Actual Win

From the general public gaming operators are assumed to hold a "guarantee" to a positive return on investment. After all, the game odds are in their favour, house advantage, and hence the expected theory of probability is working to their advantage... in the long run, and some games have an even higher expected return than others; this is proven numerically in gaming industry statistics. The dominate question however is whether it is possible for one or several selected players to hold enough funds and or playing skills to dramatically change the casinos expected return, in a positive or negative manner? If so, who are these players, and how do one identify them?

Player Classifications

To begin, one need to understand how one determine player groups. Although each casino is different, most, if not all, classify their players in "levels". The general rule is to classify players by numbers 1 to 5, with number 1 being highest or most influential "premium" player group in terms of amount of funds risked per gaming session or time period. How casinos determine a player from highest to lowest simply depends on the casino and their view of player marketing. Casinos with a high volume of action, will classify their player's level much differently than casinos with a lower level of action. Dependent on turnover for a player to be considered a level #1, the player may have put at "risk" (not lose) $1 million. While a casino with a medium level of action may require a player to risk $500,000. Whereas casinos with low levels of action, a level #1 player may be at $15,000 or even as low as $5,000.

As described in the Martingale System the main reason for the various levels and differences on player levels between casino operators is risk management, in short casinos with a low level of action cannot sustain a large short run losing streak created by a premium player win. Although, as the operators have the house advantage in all games, they are still subjected to losing sessions, as explained in more detail later in this article. For now however, let's look at players in terms of level ratings.

Player Level #5 (low)

These players are considered by all casinos to be the "small" player. The definition of a small player, as defined in this article, are those that buy-in for small amounts (less than $50) and bet in the range of $5 to $15 per hand, with the $5 bet being most often placed. The value of these players are commonly low to the operators, thereto in relation to frequency of play.

Player Level #4 (low)

These players are generally considered the most abundant in the land-based casinos, and these players will buy-in for $100 to $300 and have a bet range from $15 to $25. These players are considered "average". Although they are average, they are very valuable to the casinos.

Player Level #3 (medium)

Any Player on this level is considered a "strong" player. The break-in amounts range from $200 to 500. The bet range is $25 to 50. Depending on which casino, this group of players may be more abundant than the level 4 player. However, overall, there are less of these type players in all casinos.

Player Level #2 (high)

Known as "black players". Consider important and nice players by the casinos as these players represent the largest number of high-end players in the casinos. Average buy-in (in land-based casinos) is about $2,000.

Player Level #1 (premium)

The premium player, which is also referred to as high rollers, are players by which the casino estimates the greatest opportunity to make the largest amount of revenue from, bearing in mind that these players may also cause short run losses. As described in other articles and publications the premium players can be responsible for up to 80% of the casinos revenue, while premium players only make up about 20% of the casinos total player base, yet they contribute with about 80% of the total revenue. Either way, high rollers are extremely influential to casinos and revenue stream.

The definition of high roller is further different dependent on casino and turn over. Some consider a player with a $5,000-10,000 per month drop (not win/loss) to be a premium player, whilst other may view this type of player to be a medium player.

However the main question is as important as simple… What is the operators risk with these types of players? Should a smaller casino even be offering this type of action, land-based as well as online? What is the financial risk and exposure with this type of action?

Theoretical Win & Actual Win

One of the most perplexing challenges facing casino management today is quantifying a particular player's overall disadvantage per game and monetary value to the casino. Consequently, the profitability of an individual player is a function of the game played, bets placed, players skill level, total amount wagered and speed of the game, all directly affecting the outcome of a players win or loss, and or value to the casino. The industry, mainly uses two win figures; one being the "theoretical win" which is the amount the casino "expect" to win, and the second is the "actual win" (hold).

Casino operations is risk management, and although the games are set in favour to the house, there is an "operational risk". The theory of gaming is basic, set up the games with a "house advantage", as the casino need an advantage to cover operational expenses and turn profit, and all goes well profit can be expected. The higher the house advantage is on individual games, the higher the casinos average "hold" or win will be for that game. For example, the house advantage in the game of roulette (American, 00) is 5.26%. This means that casino should "theoretically" win $5.26 for every $100 played in the game. In other words, suppose a roulette player places a $100 bet on red and the outcome is black, the casino actually wins $100. However, in theory, the casino only won $5.26, the remaining $94.74 is essentially held in "escrow" and will be returned to players over time, by paying winning bets. In the end, the casinos will be ahead, and this is a fact. The concern however is that all table games are subject to risk in the short run. Although the casinos have the advantage over time, they can lose as well.

This is proven most notably in games such as Blackjack, a game that can be beaten by players. Although daily, monthly and yearly statistics may argue otherwise, nonetheless it is a fact that the casino can and will be beaten for large sums of money on occasion. This typically occurs in the short run. The game has an average house advantage of 2.5% to 4% over the player. This simply means that's casinos can expect to win $2.50 to $4 for every $100 wagered over the long run. Moreover, the gaming industry standard is to report how the game does by presenting "hold" percentages which is the "actual win". The hold is calculated by simply dividing the players win or loses by their starting balance. The general overall industry wide hold per month in blackjack ranges from 15% to 21%. Hence the interesting questions is how they get a win (hold) of 15% to 20% if the game is suppose to win 2.5% to 4%? In short, simply because there is a difference in the two terms. The house advantage and the hold are different, yet work in direct relation to one another. The higher the house advantage, the higher the casino will see the hold or win at a certain game, and analysing how the casinos calculates the house advantage to get the hold, let's take a look at some examples.

Wagered Amount

Suppose the casino would like to see a game hold or win around 20%, and if the game only has a 1% house advantage, how can it reach a 20% win? The answer is that if a game with house advantage of 1% is to hold 20%, the total amount wagered must equal 20 times the buy-in. If the buy-in is $100 and the house earns a win of 1% of the total wagered amount, a win of 20% would require the total wagered amount to $2000 X 1%= $20. Thus, the amount of time, number of decisions per hour and amount wagered directly affect the final result of this outcome. In other words, we need to have the players play and bet long enough to reach the certain hold percentage of a certain game. To prove this, let's look at two examples.

Example One

We'll assume a player breaks in for $100 and begins to play at $10 per hand. In theory, it will take 200 hands and a little over 3 hours of blackjack to theoretically hold a 20% win at a 1% advantage. That's because 200 hands X $10 = $2000 and in general about 60 hands per hour are dealt.

Example Two

Assume a player breaks in for $100 and begins play at $25 per hand. In theory, it will take only 80 hands and just over an hour.

The point made is that the amount of time (handle) played, the decisions per hour, and amount per bet are all key to understanding what the casino is expected to win. All of this represents the theoretical win. Below is the formula used by just about every casino to calculate what a player is worth to the casino.

Average Bet x Hours Played x Decisions/Hour x House Advantage

20 x 3 x 60 x 2.5% = $90 (level 5 to 3 players)

250 x 3 x 60 x 2.5% = $1.125 (level 2 to 1 players)

There is however a discrepancy in the formula, as it does not encounter for the players skill level, and furthermore, not only does the house advantage and time played, amount wagered and decisions all contribute to the final actual hold, but the players skill level is in great affecting the numbers.

To highlight the importance of skill and how a players skill level will have an impact onto the house edge, let's look at an everyday situation in where most of us have been, sitting at a blackjack table and seen "players" taking a card on 17 because he "feels" like he will get 21. This type of player is considered "soft" (stupid) and has great value to the casinos, as the player is most likely fighting a house advantage of close to 4%. However, the player who makes all the "correct" decisions and play flawlessly using basic strategy will in fact reduce their house advantage to as low as 0.5%. Point made, hence what does it mean in reality?

Well it's quite basic; the bad, stupid or soft players will allow themselves to be beaten more times than a stronger more educated player. These are facts and not fiction, and furthermore, differences between players within the casino is also showing a difference in terms of win expectation. It is clearly stated in several publications that a $100 player is generally more educated in the games, than a $5 player.

To prove this point lets add skill level to the theoretical win formula, and how players can lower the casinos advantage in Blackjack.

Skill: Soft Player 1.0 Average Player 0.6 Hard Player 0.2

Speed: Slow 60 hands/h Medium 80 hands/h Fast 120 hands/h

Average Bet x House Advantage x Skill Level x Decisions/Hour x Hours Played

250 x 2.5% x 0.6 x 80 x 3 = $900 (level 2 to 1 players, skill level 0.6)

250 x 2.5% x 0.2 x 80 x 3 = $300 (level 2 to 1 players, skill level 0.2)

By including the skill factor, the above shows that the player reduced the house advantage from 2.5% (Blackjack) to 1.5% (2.5 x 0.6). A hard player would accordingly reduce his house edge to 0.5% (2.5 x 0.2).

Hence due to the lower house advantage, the player will in fact have more playing time (in theory) to "catch a winning streak" and potentially increase the odds to win, as the premium player also has more funds to play with. Analysing the above chart, we'll see the difference between a player with a 1.5% disadvantage verses a player with more skill having a 0.5% disadvantage. Hence following 3 hours of play, the player with the higher house advantage is suppose to lose $900 whereas the player with the lesser disadvantage will be down only $300. Assuming that each player broke-in for $2000, the player down $900 only has $1,100 left, while the player left with $1,700 stands a better chance to withstand a short losing streak, waiting for the winning streak, and potentially showing a gain in play. All of this is theoretical, and may or may not actually occur as described, however what all of this highlights is that a player with a lot of funds and great playing skills, has the better chance to hit the casino for a personal gain.

However, although the player may win and win big, every statistic in the gaming industry shows that the casino will eventually win in the long run, but as in any gaming the casino need to take a few "hits" along the way.

High Rollers, Revenue or Ruin

Casinos, land-based or online, need to hold the odds in their favour, and even if the player reduces the advantage by skill, they still have the advantage! Premium players however may be somewhat dangerous to smaller operators, yet holding a high value of worth in the long run to the casinos that promotes and accept high roller play. Thereto, it is important to note a few guidelines and industry standards that applies in risk management regarding high rollers.

Table Limits

The premium players know how to bet, that is apparent by analysing land-based statistics, and the best defence against ruin from a high roller on a winning streak is the casinos table limits, risk management, and for detailed references please see the article on the Martingale System.

The advantage as well as disadvantage of a high limit tables is directly related to the casinos bankroll, and preferred player target. If the casino has $5,000 maximum betting limit, even though the majority of players bet under $100, on the high end, the casino has become a gambler. The probability that the casino will be profitable with the sporadic play that it will attract at the high end is almost the same as if it were to flip a coin. The reason being that it is possible for one player to come in and clean out the entire revenue for the month or maybe even a year, and this gamble is not good business. Unless the casino is prepared for the potential hit, as part of their marketing or long term target in attracting and maintaining high rollers, if not they are most likely better served avoiding them.

Larger gaming establishments naturally knows that players, bets, skill level, game played, time played all has a direct outcome to the hold percentage. Moreover they have a plan managing high rollers, one being that those that want to increase their playing limits tend to be declined, some experts even say a definite no, as the rule is that one "never let players bet out of their normal range".

The business of gaming is risk management, not betting on the business.