The House Edge and Payback Percentage Explained

Definition of House Edge and payback percentage

The House Edge - These two terms are the converse of each other. House edge refers to the built-in advantage that a casino has in all the games hosted in the house. For a casino to have the advantage means players will always lose more money than they win (unless they get lucky). This is necessary to ensure a steady flow of profits which keeps the casino in business.

The Payback Percentage - However the house edge only allows the casino to keep a small portion of gamblers' money; most of it is returned to the players themselves as winning hands, rolls, spins or draws (depending on the game being played). The money paid back to winning players is referred to as payback; the set amount that each game pays back is known as payback percentage. This payback percentage applies in the long term only and cannot be felt in just a few rounds of play. It takes a while - a long while - for the mathematical probabilities to set in and give the payback percentage.

Parts of a Whole

The house edge and payback percentage are parts of the same whole. This whole is the 100% total wagers made in a specific game, say one slot machine. If a slot's house edge is set at 12%, it follows that the payback percentage is 88%. The former is kept by the casino; the latter goes to players as wins. Theoretically, the casino keeps $12 out of every $100 put in the slot machine; the players get back $88.

It may seem like players win most of the time, but this isn't the case. Most players lose; a few lucky ones make a profit, for instance a keno jackpot winner or a professional blackjack player. Their success stories inspire others to try gambling too.

How the House Edge and Payback Percentage are Determined

These rates are contingent upon two factors: the odds of bets winning and losing in a game, and the payoffs for these bets when they win. The house edge is first guaranteed by making the payoffs always less than the odds. Stated another way, you risk more money to win less.

To use a coin toss as a plain example: Suppose you wager $10 on tails to come out. A toss has a 50/50 chance of going either away. You should be paid even money or 1:1 if your bet wins. But instead of $10, the casino pays you only $9.50 or $9.75. The difference is the house edge; the amount you are paid is the payback percentage. You may get lucky at times, but in the long run you will lose with this kind of setup and the casino is assured a profit.

The house edge can also be adjusted by changing the odds in a game. A classic example is the roulette wheels. A single-zero wheel grants the house a 2.7% edge; a double-zero widens the edge to 5.26%. Whenever the house edge is increased, the payback percentage is decreased.

A change in the rules can sometimes favor the player instead of the house. For example, a single-deck blackjack game has a lower house edge than a six-deck shoe game. Casinos can protect themselves by paying naturals 6:5 instead of 3:2.

The house edge and payback percentage are vital concepts that every gambler should understand. Before you risk your money in the gambling houses, make sure you know what these terms mean. It can make the difference between a winner and a loser.