the heavy half: internet gambling and Native American casinos

The article in the Wall Street Journal that I mentioned in yesterday’s post contains information about the business of an online gambling company in the EU and about a Native American casino in the northwest US.  It contains one piece of disturbing information.

The article leads with a “shocking” conclusion:  almost no one wins when they gamble.


Didn’t anyone look at a table of the odds on different casino games?  Everything favors the house. )The one exception is poker, where, ex the video game variety, the house merely collects a fee for organizing the game.)   To me, the more surprising information is that over 10% of gamblers–both online and in the Naive American casino–who wer net winners over an extended period of time.

The much more concerning statistic is that in the Native American casino, 2.8% of the patrons were big enough losers that they made up 50% of that casino’s profits.  The next 8% provided another 30% of the house take.

From a purely pragmatic p&l standpoint, this is a potentially dangerous concentration.  From a social/ethical point of view, my guess is that a good chunk of that 2.8% are problem gamblers who should be getting medical care and not be allowed to wager.

The pragmatist would begin to calculate how likely it is that legislative action would bar the casino doors to at least some of these golden-egg-laying geese.  The deeper question, however, is whether gambling is like cigarette smoking.  In the latter case, I think no self-respecting person can be a shareholder–and thereby lower the cost of capital of an ethically unsound business and share in the profits of promoting a fatal addiction.

I have several observations:

1.  Other than online poker, it;’s not clear that online gamblers and frequenters of physical casinos have anything in common.  It’s also not clear that although the games have the same names, that the odds for various online games are the same as those in physical casinos.

2.  A career of living and working with professional stock market gamblers makes me think that some people go to casinos expecting to lose and find that has a cathartic effect. (I’ve always felt casino gambling is too much like work to be fun.)

3.  I’m willing to think that the experience of the single Native American casino studied is similar to what happens in other local casinos around the US.  But I don’t think any of these has much in common with the resort casinos in Las Vegas–and certainly nothing to do with the US-run casinos in Macau or Singapore.

4.  The high roller  business (people who gamble $1 million+ in, say, a weekend casino jaunt) is very different from the low roller business examined in the WSJ article.  We have the clearest view of this in Macau, where companies disclose separately their profits from high rollers and from everyone else.  The everyone elses lose on average around 20¢ of every dollar they bet on baccarat.  High rollers lose 3¢–and have about half of that rebated back to they by the casinos as a condition of getting their patronage.

How is this possible?  High rollers know the rules, have lots of experience and want to win.  Low rollers don’t know the rules, like the atmosphere and want to be entertained.

5.  In the resort casino model practiced in Las Vegas and being implemented by WYNN and LVS in Macau, gambling produces half the firm’s profits.  Rooms, food, shopping and entertainment make up the rest.  So, in a purely pragmatic sense, even if all the large losers are  self-destructively in need of medical help and are barred from patronizing casinos, resort casinos would lose at most a quarter of their income.





One response

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