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What Is the House Edge

Published on: 15/08/2011

The entity that sets the rules and controls the play of any gambling game is known as the “House.” The House earns money by having a winning advantage known as the “House Edge” built into every game. This edge applies to Blackjack, Craps, Slots and Keno, as well as sports betting, where the advantage is sometimes referred to as “vigorish,” “vig” or “juice.” A high House Edge means players have less likelihood of winning. A low margin means the players have better odds.

For all practical purposes, the House Edge for any game or group of games can be defined as “the ratio of all money lost by players to the total money they wagered.” Some prefer to think of it statistically as “the ratio of the average loss to the initial bet.” In either case, the resulting percentages are about the same. They provide not only a useful way of comparing one game to another but also of evaluating one set of rules versus another in the analysis of a single game.

Because the House Edge is a function of the “House Rules” by which the games are played, it may differ from location to location. In Native American casinos, for example, the rules are usually set up for a relatively high edge on most games. Downtown Las Vegas casinos consistently offer a somewhat lower House Edge than their resort counterparts based on the Las Vegas Strip.

Interestingly enough, online casinos can actually afford to offer the lowest margins of all. That’s because their staffs are small and payrolls are low, as are the costs benefits. Virtual casinos also pay less for mortgages, utilities and other overheads, allowing them to retain more of their revenues.

For an easy understanding of how the House Edge works, along with how rules changes can impact the odds of a player winning, the game of Roulette provides an excellent example. The European Roulette Wheel contains 36 numbers and a zero, for 37 possible outcomes in total. On any given spin, the payout for correctly choosing the winning number is 35-to-1.

Consider for a moment a player who wagers one chip on every number on the Roulette table, including zer0. That player would have to put 37 chips in play. No matter what number comes up, only one of them can win. In other words, the player must lose 36 of the 37 chips, while retaining just one of them (the winner) and receiving 35 chips for the correct choice. That’s 36 chips lost and 35 won for a net loss of one chip—which is a direct result of the House Edge in effect.

To express this as a percentage, the average loss (total loss) of 1 chip is divided by the initial amount of the bet (total wager) or 37 chips. That makes the House Edge = 1/37 = 2.70%. It doesn’t matter how many times this betting pattern is repeated; the result will always be the same—an expected loss of 2.7% built in to the game. This is the House’s advantage for this form of Roulette. It is not, however, the only version played.

Although the payout is the same, 35-to-1, owing to the addition of a double zero the American Roulette Wheel has 38 numbered slots, not 37. If all 38 numbers are wagered upon with a chip apiece, all but one will be swept away with the losers. The win is still worth only 35 chips, meaning the net loss will now be two out of 38 chips, and the House Edge goes up to 2/38 = 5.26%.

Obviously, if this is the only difference between the two games, it is to the player’s advantage to choose European Roulette over the American version. A similar analysis of other casino games will show that rule changes typically favour the house. They include the use of multiple decks in dealing Blackjack and betting on ties in Baccarat, among others.

The casino game with the highest advantage for the house is Keno it features a margin of anywhere from 25% to 29%. The game with the lowest house edge is Craps; when played with such favourable rules as 100X odds on the pass line, the edge goes as low as 0.021%. Between these two are the majority of table games, including Blackjack at 0.28% when Vegas rules are used; Baccarat at 1.06% on the Banker hand or 1.24% on the Player hand; Pai Gow Poker at 1.48%; and Caribbean Stud at 5.22%.

One of the most popular of all casino games, slot machines, can feature a house edge ranging from 2% to 15%. By comparison, Video Poker is actually more favourable to players, featuring an average house margin of only 0.46% for Jacks or Better with a “full pay table.” As might be expected, more exotic games tend to have higher house advantages, from Let It Ride (3.51%) and Casino War (2.88%~18.65%) to Big Six (11%~24%) and Sic Bo (2.78%~33.3%), to name a few.

Published on: 15/08/2011 © Bet Bind