Must-know: Why casinos are profitable

It’s the “House Edge”

Casino games have a built-in advantage for the operator. It’s known as the “House Edge.” The House Edge is the difference between the true odds and the odds—or probability—that the casino pays you when you win. This is known as the casino odds. The likelihood of rolling a particular number is known as the true odds.

The more combinations possible, the higher the odds. For example, you’re more likely to roll a seven than a two or a 12. However, since casinos take a portion of the winnings as a result of the House Edge, the winner gets true odds less the difference between true odds and the casino odds.

Must-know: Why casinos are profitable

Depending on the game and player, the House Edge may be larger than what the above data suggests. As you can see from the chart above, there are different House Edges for blackjack. The stats are based on three types of games. The games are played with a particular basic strategy. In those games, the House Edge can be lessened by learning advanced strategy. Also, the House Edge can grow based on rule changes.

Most casino games have a House Edge between 0%–5%. Slot machines have a House Edge of 10%. Keno has a House Edge of 27%. Playing games with a smaller House Edge and learning correct strategy allows your dollars to last longer. This increases your chance of winning.

Estimating the loss

A player can estimate the loss before playing a particular game—if they know the House Edge. For example, a player knows the House Edge in blackjack is 0.6%. They can assume that for every $10 original wager they make, they would lose $0.06 on average. Most players aren’t going to know how much their average wager would be in games like blackjack—relative to the original wager. As a result, any statistic based on the average wager would be difficult to apply to real life scenarios.

Gambling addiction

With so many people gambling, the casino odds generate substantial profits for the casinos. Unfortunately, a need to keep playing the odds causes many people to develop a gambling addiction.

Major casino players like Las Vegas Sands (LVS), MGM Resorts (MGM), Caesar Entertainment (CZR), and Pinnacle Entertainment (PNK) attract millions of customers. This is one of the main reasons why casinos are such a profitable business. At times, there are big winners at the gaming tables. However, the only sure winner in a casino is the owner.

Exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the VanEck Vectors Gaming (or BJK) give investors exposure to the leisure industry.

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