What is “The House Edge”?
Last update: October 2018
It should be no surprise that the casino has a built-in advantage on its games. The casinos don't beat the players because they get lucky, they beat the players because the odds are stacked in their favor. This built-in advantage is called the house edge. In numbers, it's the the casino's average profit from a player's bet. For example, in roulette house edge is about 5%. That means for every dollar bet, the casino keeps 5¢ as profit, and returns the other 95¢ to the players as winnings, on average.
Of course if you bet a single dollar just once then you're not going to get exactly 95¢ back—you're either going to lose the whole dollar or win more whole dollars. But that's beside the point. The point of the house edge is to see what the average loss is. If all the roulette players in a casino collectively gamble $1 million on a Friday, night, the casino expects to pay back around $950,000 as winnings and keep around $50,000 as profit.
The longer you play, the closer your losses will get to the house edge. B ecause as we all know, the casino always wins in the long run. The twist is that the house edge tells us how much the casino will win on average. Here's a program that plays roulette to show what happens the longer you play. Note that the actual house edge in American roulette is 5.26%. Go on, give it a try.
|House Edge Simulator|
|Bet $5 on red...||
What you probably saw from the test above is that between 1 and 100 times, anything could happen. You might even be ahead after 100 rounds. But the more rounds you play, the more likely you are to lose. And after 100,000 rounds your loss will be pretty close to the 5.26% house edge.
The casino doesn't have to beat every player every time. They just know that they'll win around 5.26% of the total of all roulette bets placed over the year.
So that's how the house edge works. The casino doesn't have to destroy you with terrible odds—they give you an almost even game and make just a few percent on each bet on average. And that's why they don't have to cheat: they have a built-in mathematical advantage on every game, so cheating is pointless. All the have to do is get you to play, and they'll win in the long run.
So if the casino takes only a 5.26% profit on roulette, why do most players lose 100%? It's because the house edge applies to the amount you bet, not the amount you take to the casino. Let's say you sit down at a roulette table with $100, and bet $5 a spin. You're betting about $150/hr., even though you brought only $100 with you. That's because you win some rounds as you play, and you're betting from your winnings. After 13 hours of play (if you last that long), you've bet $1950. And 5% of $1950 is $97.50, almost your full $100.
The effect of the house edge whittling away at your stash as you constantly rebet it is called the grind. To lessen the effect of the grind, play games with a lower house edge, and play for shorter periods of time.
House edge of popular casino games
The house edge is different from game to game. Here's the house edge for the most popular casino games.
|Craps, 1x Odds||
|Slot Machines, flat top||
|Slot Machines, progressive||
The catch here is that if you don't play the proper strategy, the house edge is even higher. A typical blackjack player probably plays at about a 2-3% disadvantage, not the 0.5% listed in the table which is for a player using basic strategy. A craps player who makes sucker bets is facing a house edge higher than 0.8%. A video poker player who is just guessing rather than using a strategy card is likewise getting worse odds. This doesn't apply to games that have no strategy, like roulette and slot machines, where you generally get the same odds no matter how you play. For more on strategy, see our Crash Course in Table Games.
Notice that the harder a game is to master, the better the odds. It takes some time to learn how to play blackjack, craps, or video poker properly, but they have the lowest house edge. The simplest games, like slot machines and keno, have the highest house edge. But notice the simplest games have the biggest jackpots. That's why people flock to them.
Why is the house edge important?
In general, playing games with the lowest house edge means you'll lose less money than games with a higher house edge. And the flip side is that, generally, low-edge games make you more likely to win. That's why favoring low-edge games and avoiding high-edge games is one of the 8 ways to be a smart gambler. But it's just one of the ways. A common mistake is to view the house edge as the be-all, end-all. It's not. Your average loss depends on several factors:
- Average bet size
- Speed of play (rounds per hour)
- Total hours played
- House edge
The formula for average loss is:
Amount bet per round x house edge x number of rounds per hour x number of hours played
Or you could use my calculator which does the heavy
lifting for you:
|Average Loss Calculator|
|Game||Rounds / Rolls
|Bet per round||House Edge||
|Play online casino games with fake money! It's better than losing real money.|
Focusing exclusively on the house edge leads to silly mistakes like thinking that the lottery is a horrible deal, when the reality is that the most you can lose on a single lotto ticket is a mere $1 or $2.
Why play when there's a house edge?
You might wonder, "Why play at all if the house has the advantage?" That's a good question. You're likely to lose when you gamble, which is indeed an excellent argument for not gambling.
People play because even with the odds against them, it's still possible to win. That would have to be the case, otherwise nobody would play. Anything can happen in the short term. The odds are against your getting heads twice in a row from two coin flips, but it could happen. If you played baccarat for a year, you'd expect to be seriously in the red at the end of that year. But what about for just a weekend trip to Vegas? You could certainly come out ahead. The odds are against it, but it's definitely possible.
Another reason is that if you know what you're doing, it's cheap entertainment. A blackjack player using proper strategy at a $5 table expects to lose only $2.50/hr. If she tips $5/hr. that's a total loss of $7.50/hr. That's cheaper than most forms of entertainment, like movies, and it's certainly cheaper than Vegas shows.
Jackpots vs. the House Edge
My main gambling advice is to avoid slot machines, because they have a high house edge that bleeds you dry rapidly. Play any table game at small stakes and your money will last a lot longer.
Slot players counter that slots offer the chance of a big jackpot, while table games don't. With slots you can win thousands (or millions) for a measly quarter or two. But a $10 at blackjack will win you only $10 or $15. And a loss will wipe out your $10—a much bigger loss than the 25¢ or $1 you lost on the slot.
Okay, I hear you. But there are two things to consider:
- You pay a hefty price for the chance of hitting the jackpot. The high house edge on slots depletes your bankroll much more quickly, which means either less playing time (and less fun) if you bust out, or bigger losses (and less fun) even if you don't lose everything. Take a look at the table again (above), and notice that there's an almost direct correlation between the house edge and the amount you can win from one bet. The more you can win at once, the higher the house edge.
- You can win the same jackpot on a table game, simply by doubling your bet several times in a row when you're on a winning streak. See my article on how to win a $1 million at a table game for more on this.
House edge is of limited value for the lottery
As they say, a little knowledge is a dangerous thing. Some people learn about the house edge and expected value, and then try to apply those concepts to non-casino games like the lottery, and come to the bad conclusion that the lotto is a horrible bet, or the the ridiculous conclusion that it's better to play when the jackpot reaches a certain level because then there will be no house edge. Here's an article on why these premises are fatally flawed.