The house edge is one of the major components in creating a successful online casino game that players enjoy. While gameplay and design are often talked about, the house edge, also known as return-to-player (RTP), is arguably the most important individual attribute. We wrote this article to break what the house edge is.
What is the difference between house edge and return-to-player?
These terms are interchangeable, with the only difference between house edge and return-to-player being the way they are displayed. For instance, in a game where a bettor is expected to have a loss of 5% over an infinite number of plays, the house edge would be depicted as 5%, whereas the return-to-player would be shown as 95%. Interestingly, house edge is usually referred to when discussing table games such as Baccarat or Roulette, while return-to-player is used when mentioning slot games.
What is the house edge, or RTP?
“The house always wins” is a popular saying worldwide. The reason the “house always wins” (which it does not!) is because of the house edge. Whenever a bettor places a wager on a casino game, the game they are playing has an edge that slants the game in the casino’s favor. This edge varies depending on the game the player is betting on, along with the way they play the game (particularly in table games such as Baccarat or Craps).
As an example, someone betting $100 on a European Roulette game is playing against a ~2.7% edge. Given that edge, the player can expect a return (return-to-player) of $97.3 for every $100 wagered over an extended period of bets.
So how does the house not always win?
Most players do not wager hundreds or thousands of times in a single session, meaning that there is a significant amount of variance (or from a players perspective, luck) given that most popular casino games have an edge of around 1% to 3%. For the bettors who do wager many times in a given sitting, many deploy betting strategies such as the martingale system in an effort to swing variance in their favor. So while the house has a positive expected value and will likely win on the whole (factoring in all of the players wagering), many individual bettors can still come out ahead given how relatively small the house edge is.
What is the typical house edge of some popular games?
For some of the most popular games, bettors can expect the following:
- Blackjack – ~0.5%
- European Roulette – 2.7%
- American Roulette – 5.26%
- Baccarat (Punto Banco) – ~1.06%
- Online Slots – ~2-15%
- Craps – ~1%
- Video Poker (Jacks or Better) – 0.46%
What should an operator know about the house edge?
From an operator’s perspective, the house edge is the most crucial factor towards what their hold will be. As a refresher for what hold means in the gaming industry, hold is how much money a casino or sportsbook operator has left after paying out winning bets, meaning that hold is roughly equivalent to gross revenue. Some in the industry would counter that hold is not actually the most important aspect, but rather that handle is. Handle is equivalent to the total wagered volume, for instance if a casino accepts $2500 in wagers on a blackjack game and wins $200, the handle would be $2500 while their hold would be $200.
Handle is certainly important, as in order to make money off of wagers you need people to wager! However seeking to increase volume at the expense of healthy margins is not the most wise strategy for an iGaming operator. Decreasing the house edge in order to drum up more volume is risky for several reasons. For starters, there is no guarantee that decreasing the house edge will incentivize a noticeable uptick in volume. If an operator decreases the edge and does not receive a significant uptick, it can quickly hurt their profitability. As an example, say a casino has a game that has a 2% house edge, and $100,000 is wagered on that game. The house is expected to earn a profit of $100,000 * 0.02, or $2000. If the house edge is reduced to 1.5%, and wagered volume increases to $120,000, the house is now only expected to earn $120,000 * 0.015, or $1800, despite more people betting on the game.
Another reason an operator should be wary of decreasing the edge is because it increases the likelihood of having a a large variance swing. Players who utilize strategies such as martingale are more likely to go on winning runs when the house edge is lower, which increases the level of risk the operator is taking on.
At Lion Gaming we offer a full range of online casino games in our suite of online casino software solutions. If you are looking for online casino software, contact [email protected] to learn how Lion Gaming’s Fer0x Engine is revolutionizing what an iGaming platform provider can do.