House Edge Explained

In every casino game, from Blackjack and Craps to Slots and Keno, there is a built-in advantage for the “house,” the entity that sets the rules and controls play. This advantage is commonly referred to as the “house edge” or “margin,” and sometimes as “vigorish,” “vig,” or “juice.” When the house edge is high, the player has less chance of winning. When the margin is low, players have better odds.

Because the house edge is a function of the “House Rules” by which the games are played, it varies from location to location. Native American casinos generally set up the rules so that they enjoy a relatively high edge on most games. Downtown Las Vegas casinos are noted for having a somewhat lower house edge than their counterparts located on the Strip. And online casinos can afford to offer the lowest margin of all, owing to the relative lack of staff salaries, benefits, mortgages, utilities, and other overheads that need to be covered out of revenues.

Statistically, the house edge for any game or group of games can be defined as “the ratio of the average loss to the initial bet.” Some prefer to think of it somewhat differently, as “the ratio of all money lost to total money wagered.” Either way, the resulting numbers are quite similar and can be used to compare not only one game to another but also one set of rules with another when analysing a single game.

Roulette provides the simplest example of how the house edge works as well as how changes in rules impact the likelihood of a player winning. The European Roulette Wheel contains 36 numbers and a zero. On any spin, the payout for correctly choosing the winning number is 35-to-1.

Now, if a player were to wager one chip on every number on the Roulette table, including zero, he/she would put 37 chips in play. No matter what number comes up, only one of them can win. That means the player must lose 36 of the chips, retain one of them (the winning one), and receive 35 chips for choosing correctly, which amounts to a net loss of one chip. The average loss (total loss) is 1, the initial bet (total wager) was 37, so the house edge is 1/37 = 2.70%. No matter how many times this betting pattern is repeated the result will always be the same—an expected loss of 2.7% built in to the game. It is the house’s advantage.

However, if a second zero is introduced to the Roulette wheel, as is the case with American Roulette, everything changes. There are 38 numbers, of which only one will not be swept away with the losers. The win is still worth only 35 chips, so the net loss will now be 2 out of 38 chips, and the house advantage has gone up to 2/38 = 5.26%.

Clearly, if this is the only difference between the two games, playing European Roulette is preferable to playing the American version because the house edge is so much lower. Close study of other casino games will show that certain rule changes greatly favour the house, such as multiple decks used in Blackjack, while others are beneficial to the player, including single-deck Blackjack, the ability to double down after a split, and so on.

The game with the lowest house edge is Craps. When played with such favourable rules as 100X odds on the pass line, the edge goes as low as 0.021%. The game with the highest advantage for the house is Keno, with a margin of anywhere from 25% to 29%. In between, are all the popular table games, such as Blackjack at 0.28% (Vegas rules), Baccarat at 1.06% (Banker) to 1.24% (Player), Pai Gow Poker at 1.48%, and Caribbean Stud at 5.22%.

By comparison, slot machines can feature a house edge of anywhere from 2% to 15%, while Video Poker, much maligned by skeptics, has an average house edge of just 0.46% when playing Jacks or Better with a “full pay table.” More exotic games, as might be expected, tend to have even higher advantages for the house, including Let It Ride (3.51%), Casino War (2.88%~18.65%), Big Six (11%~24%), and Sic Bo (2.78%~33.3%), among others.

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