Casino Gambling - How to Calculate the House Edge/RTP

Know how the casino makes money in games of chance by watching this short informative video. :-)

Transcript Below:

Imagine that this is the first time you walk into a casino or visit an online gambling website. You want to know which games give you the best chance of winning. As I always say for the vast majority of people, gambling is a form of entertainment. The good news is that it can be one of the cheapest forms of entertainment.

Each game has a built-in advantage for the casino, which can be displayed as a house edge, or as a payback percentage to the player, known as the Return to the Player - or RTP. I am going to explain to you how the RTP is calculated for games of chance, starting with a simple coin flipping game.

In this game, you make a wager and then select which side the coin will be displayed after I flip it - heads or tails. If you are correct, you win even money - or $1 for each $1 wagered. This is a statistically fair game, with a RTP of 100%, or a 0% house edge. You will neither win nor lose in the long run.

However, what if I only pay you $0.90 for each $1 wagered for a correct guess? To calculate the RTP, we must find the probability of a win. In this case, the odds of a winning bet on heads is 1/2 or 0.5. Multiply this by your total payoff: $1.90, which includes your original $1 bet plus the $0.90 winnings. The result is 0.95, which translates to a 95% return, or a house edge of 5%. Every dollar wagered in the long run will lose 5 cents to the house. This is how the casino makes its money.

Let's use a single zero roulette wheel as another example. You feel lucky and make a $1 bet on number 17. There are 37 total possible outcomes (0-36). One of them is a winner! The probability of winning your wager on 17 is 1/37. The total payoff is $36; your $1 bet plus $35 in winnings. Multiply the two together and the result is 36/37; a return of about 97.3%, or a house edge of 2.7%.

The RTP is the same for every possible bet on a roulette layout. For example, let's assume you want to bet $1 on black. There are 18 black numbers and 19 non-black numbers. The probability of the ball landing on black is 18/37. The total payoff is $2; $1 original bet and $1 winnings. Multiply 18/37 x 2/1 and the result is once again, 36/37 for a RTP of 97.3%.

One final example I will give you involves the roll of two dice. Let's say I offer you a chance to bet $1 that you will roll a total of 11 on the next roll of the dice. If the roll is indeed 11, I will pay you an additional $15 for a total payoff of $16. Sounds good, no? Actually, it's a horrible bet! Let me explain.

There are 36 possible combinations for two dice. Of those 36 combinations, only 2 of them make a total of 11. The probability that you will roll an 11 is therefore 2/36 or 1/18. Multiply the probability by the $16 payoff and you get a return of 16/18, which translates to a return of 88.89%, or a house edge of 11.11%!

Now you must be thinking - this is a terrible percentage for the player! What casino would offer such a bet!? Unfortunately, this bet on an 11 is offered at every craps table in America. It also is a very popular bet.

If you made it to the end of the video, give yourself a pat on the back. The information you just learned will help you understand how the RTP or house edge is calculated for games of chance. Subscribe to my YouTube channel for more casino gambling videos, including skill-based games that can help increase your chance of winning on your next gambling session!

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