Gamblers enjoy taking risks; casinos don't
By Mark Gruetze
Published: Saturday, Feb. 9, 2013, 12:01 a.m.
Standing in a casino, amid scores of table games and hundreds of slot machines, you might think the people who run the operation are gamblers through and through.
In most cases, you'd be wrong.
“Casinos are in the gambling business, but they're not gamblers,” international casino consultant and longtime gaming executive Steve Karoul tells Player's Advantage. “Most casino operators are not risk takers.”
Karoul, founder and CEO of EuroAsia Consulting, and Dean Macomber, president of Macomber International casino consulting in Las Vegas, examined the concept of risk from a casino perspective in an intriguing analysis published in the trade journal Casino Life. It's headlined, “When is a high roller actually a high risk?”
Casinos face little or no risk with the vast majority of gamblers. The sheer volume of player decisions — slot-machine spins, blackjack hands, craps rolls and action at all the other games — essentially guarantees the built-in house edge will take effect, and the casino will get its cut.
But when high rollers want to bet above the posted limits, casino executives must decide whether the possibility of a big win is worth the risk of a loss. Karoul and Macomber call it the casino's “volatility comfort level” or VCL.
“The casino has to make an executive decision, a business decision: Do we want to increase the limits?” Karoul says. While many casinos comfortably accept bets of $5,000 or $10,000 a hand, “there's a big difference if you start taking your limits up to $50,000, $60,000 or even $100,000 a hand.”
It comes down to math. Games such as baccarat, a high-roller favorite, and blackjack, the most popular table game in casinos, have a low house advantage, pretty close to a coin flip. While the house has a slight edge over the long run, anything can happen in the short run.
The player or the house could hit a streak and finish the session with healthy win. At $1,000 a hand, most casino managers wouldn't blink at losing six or eight hands in a row. But at $50,000 a hand, that could mean a $300,000 loss or a $300,000 win — enough to have a noticeable impact on a casino's monthly revenue figures.
One notable example of volatility is blackjack player Don Johnson's win of more than $5.8 million in 12 hours at Atlantic City's Tropicana casino in 2011. He was allowed to bet $100,000 a hand and negotiated several favorable playing rules, including a rebate on his losses.
The cards fell his way, and the casino paid.
When figuring out whether to let a high roller bet above the standard table limits, casinos consider how much he is willing to risk overall, how long he'll play and his maximum bet. The higher the bet and the shorter the time played, the higher the volatility — in other words, the greater the chance that one side or the other will have a big win.
“Volatility analyzers” can determine the casino's chances of making money from an arrangement. Then executives decide whether they like the odds.
“One size doesn't fit all,” Karoul says. “It's your tolerance for risk.”
A “grind” casino, one with a typical maximum bet of $500 or $1,000, would face extremely high volatility by allowing one player to bet $10,000 or $20,000 per hand, he says. Casinos accustomed to high-level bettors might not worry until wagers reach the “nosebleed” area of $100,000 or more a hand.
Gamblers might not realize it, but they have their own VCL, according to Karoul and Macomber. Those who stick to even-money bets and low-risk games prefer low volatility. Those who go for long shots and big payoffs have a higher VCL.
Some casino executives relish volatility, as an owner or sometimes as a player. The late Benny Binion, founder of the Horseshoe in Las Vegas, once accepted a $1 million bet from a craps player. Binion allowed high rollers to set their own maximum with their first bet. Don Barden, the late casino executive who got Pittsburgh's first casino license, reported personal gambling losses of more than $11 million over five years but said it wasn't a big deal because it was a small part of his bankroll.
Many of today's casino executives are number-crunchers comfortable with concepts such as VCL. But they're not necessarily gamblers.
“They're usually quite professional in their decision-making when it comes to taking risk,” Karoul says. “They're not opposed to it, but they do their homework.”
Mark Gruetze is administrative editor for Trib Total Media. He can be reached at 412-320-7838 or firstname.lastname@example.org.
internet gaming on hold in N.J.
New Jersey casinos won't be able to take bets over the Internet yet. Gov. Chris Christie this week conditionally vetoed a bill to allow online gaming but sent it back to lawmakers with recommended changes, including a 10-year trial period.
Democratic Sen. Raymond Lesniak, the bill's sponsor, expects the Legislature to approve the changes in time for online betting to start by September, Bloomberg News reported.
Only Nevada and Delaware allow Internet betting. California, Hawaii and Mississippi lawmakers are considering authorization, according to the Denver-based National Conference of State Legislatures.
Slot players lost $188.2 million at Pennsylvania's 11 casinos in January, the Gaming Control Board reports. That's down by 1.19 percent from the $190.5 million in January 2012, which was before Valley Forge Casino Resort opened.
Only three of the 10 casinos that were open last year posted increases. Rivers Casino on the North Shore had the largest, with revenue up by $751,000, or 3.44 percent.
The state gets 55 percent of the gross slot revenue, or what's left of players' wagers after jackpots are paid.
Statewide, the slot payout rate is 89.95 percent since the fiscal year started July 1. For every $100 bet, the machines return an average of $89.95. Highest payout rate: 90.62 percent at Parx in Philadelphia; lowest: 89.38 percent at Harrah's Philadelphia and Hollywood Penn National near Harrisburg.
Figures for Western Pennsylvania casinos:
Rivers; monthly slot revenue of $22.61 million, up from $21.86 million in January 2012
Meadows; monthly slot revenue of $18.21 million, down from $19.38 million in January 2012
Presque Isle in Erie; monthly slot revenue of $9.23 million, down from $11.67 million in January 2012
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