Why gambling will cost you money
Most people understand that casinos and other gambling operators make money; however, not everyone understands exactly how this happens. There are actually two methods that gambling operators use to ensure they make money over time:
- Operator keeps a percentage of all sales or wagers
- Operator creates a house advantage within the game
Let's take a look at both these methods in a little more detail.
Method # 1: Operator keeps a percentage of all sales or wagers
This is the more straightforward method. A familiar example would be a 50/50 draw where half of all the money raised through ticket sales goes to the operator (often a charity or sponsoring sports team), and the other half is given to the person whose ticket is drawn. Major lotteries, such as Lotto 6/49 and Super 7, work in a similar way - the operator keeps roughly half of all ticket sales (the actual percentage varies from game to game) and the rest goes to prizes. In these large lotteries, the majority of the prize money is allocated to the major advertised prize and the remainder goes to winners of much smaller subsidiary prizes.
Scratch and break-open tickets also fall into this general category. The value of all the winning tickets is always smaller than the total cost of all the tickets. This ensures the operator will keep a percentage of overall sales. Bingos also make sure that the total amount of sales is always larger than the amount given out in prizes.
Other forms of gambling where the operator keeps a percentage of wagers or sales include:
- Casino-run poker games: Casinos don't compete against the players. Instead, they take a percentage (called a "rake") of the money wagered by players. In casino-run poker tournaments, there is no rake, so casinos charge players an up front administration fee.
- Horse racing and other forms of pari-mutuel gambling: In these forms of gambling, the operator keeps a percentage of all money wagered, and the rest goes to pay off winning wagers. The payoff odds in these forms of gambling continuously change depending on how much money is bet on each horse - horses that very few people have bet on become long shots that pay off very well if they win. On the other hand, the payoff for a favourite (a horse many people have bet on) will be much smaller.
In all these examples, the gambling operator is basically charging a fee for running the game, but it is not directly competing against the players. In the games covered in the next section, the gambling operator does compete against the players but, as you may guess, it's not on an even basis.
Method # 2: Operator creates a house advantage within the game
The way operators make money in these forms of gambling is not as straightforward as simply keeping a percentage of wagers or sales; however, the end result is the same - the operator will make money. To understand how these types of games work, you need to be familiar with a very important concept in gambling: house advantage.
About gambling - afm.mb.ca
- How gambling really works
- What's your cost of play
- Psychology of gambling
- Optimism in gambling: good or bad
- Systems in gambling: trying to make sense of randomness
- 20/20 hindsight in gambling: useful or misleading
- Near miss beliefs: close doesn't count
- Hot and cold machines: there's no such thing
- Selective attention and selective recall
- Unpredictable payoffs
- Don't get caught chasing
- Illusion of control
- Magical thinking
- Superstitions and rituals
- The appeal of gambling: what gambling means to different people
- Gambling and keeping It real
- Responsible gambling tips
- Problem gambling