The house edge, which is the commission that a gambling agent
such as a casino, a sportsbook (bookmaker), or a lottery
administrator charges, is a yardstick that measures how a
specific gambling game is fair and reasonable. It is one of the
most important factors that every player should consider
whenever he/she is engaged in any type of gambling, inasmuch as
it indicates how much of the money wagered goes to the gambling
agent’s pocket and how much is redistributed to the winners.
Indeed, a house edge cannot be zero since casinos, sportsbooks,
and lottery administrators have to make some money in order to
cover their expenses, and to make some profit as well. Yet, a
high house edge simply means that the players are unecessarily
being ripped-off, and as a result, any gambling game with a high
house edge should certainly be avoided by a knowledgeable
gambler.
In this article, we shall compare, in the simplest way possible,
the house edges of a roulette, an evens-odd betting, and a Cash
3 lottery game as representatives of the three major gambling
categories.
The Equation
The easiest way to compute a house edge is to compare the actual
winnings that are paid by the respective agents to the winnings
that would be paid in a fair game or bet. A fair game or a fair
bet is one in which no commission is involved; an obvious model
is a game between friends. Therefore, in percentage form, the
house edge is obtained by subtracting an actual game winning
from a fair game winning and dividing the result by the fair
game winning, finally multiplying by 100. Thus,
House Edge = [ (fair game winning - real game winning) / fair
game winning ] * 100
Roulette
Because of its simplicity and popularity, we shall consider the
roulette as a representative casino game. A European roulette
wheel has grooves marked by the numbers 0 to 36; the American
wheel (also called Las Vegas wheel) has an additional groove
marked as ‘00′. So, the European wheel has a total of 37
numbers, while the American wheel has 38. Internet casinos
usually make available the option to select the type of wheel
the customer prefers, but the brick and mortar casinos normally
offer only one type. The winning number in a roulette game is
the number corresponding to the groove where a spinning ball
lands.
Now, consider a fair game in which 38 friends are playing the
roulette at home, and each one selects a number and places a $1
bet on the number (no two or more players wagering on the same
number). When the ball is spun and lands in a groove, the number
marking that groove will be the winning number. The person who
has selected this winning number collects all the money on the
table thus making him win $37. On the other hand, if the game
were conducted in a casino, the winner would be paid only $35.
The difference between the two winnings applied in the above
equation gives us the house edge of a roulette game as
( 37 - 35 ) / 37 * 100 = 2 / 37 * 100 = 5.4%
This means that every time you spend a $100 on an offline or
online casino roulette, $5.40 goes to the casino and the rest is
redistributed to the winners. Evidently, there are quite a
number of casino games and the house edge varies from game to
game, many of them having a house edge less than that of the
roulette. For obvious reasons, a good gambler always prefers
games that have low house edges, while the casino itself loves
those games with high house edges. For example, the house edge
of craps is 1.4% which makes it one of the most preferred casino
games by the players.
Even-odds Sports Betting
Again, because of its simplicity, we shall consider an even-odds
betting as a representative of this category of gambling. By
even-odds we mean that the event (usually a sports game) has
equal chances of going either way. An example is a tennis match
between two competitive players each of which has an equal
chance of winning the match.
A fair bet, in this case, is just a simple bet between two
friends who just pick one of the tennis player as winner. If
these two friends wager $1 each, the winner will collect $2,
thus winning $1. If instead the bets are placed through a
sportsbook, the winner will collect only $1.91, since the odds
of an evens game at most bookies and online sportsbooks is 1.91.
If you are not familiar with the decimal representation of odds,
1.91 is the same as 10/11 in UK notation and -110 in US odds
notation. Odds of 10/11 mean that you’ll win $10 when you wager
$11; and odds of -110 mean that you have to wager $110 in order
to win $100. Anyway, since the winnings paid by a sportsbook is
only $0.91, the house edge of an even-odds betting will
therefore be
( 1 - 0.91 ) / 1 * 100 = 0.09 * 100 = 9%
So, this is how sportsbooks make a living. Since several
internet sportsbooks offer odds higher than 1.91 in order to
lure bettors, the house edge could be smaller than 9%, which is
one of the things that the bettor should be looking for when
searching for a sportsbook. On the other hand, if the bettor is
wagering on parlays the house edge would be significantly higher
than 9%; for big parlays, it could go as high as 40%.
It should be apparent by now that the gambler is better off with
casino games than sports betting. It should also be noted that
while the house edge could be a major factor to consider while
selecting a gambling game, it is by no means the only one. For
instance, one should consider the fact that casino games are
mostly games of chance, while sports betting also involves a
learned decision in selecting a pick, consequently leading to a
higher probability of winning a bet.
Cash 3
Depending on the state you are in, this lottery game may be
known by a different name such as Pick 3, Play 3, Daily 3, etc.
In this game, the player selects a three-digit number from 000
to 999, and plays the number as a straight or as a box. A
straight play is a prediction that the number will come exactly
as selected while a box is a prediction for the number to come
in any order. For instance, if a player selects the number 672
and plays it straight, he/she will win if the number drawn is
exactly 672. Instead, if the player plays 672 as a box, he/she
will win as long as the drawn number contains a 6, a 7 and a 2,
in any order (276, for example). Obviously, a straight game
pays much more than a box game for the same amount wagered.
Now consider 1000 friends (maybe in a club) selecting a number
as a straight, each for $1, so that all the 1000 possible
numbers are covered. When the winning number is drawn, the
person who has selected that lucky number will be deemed a
winner and will cash in all the $1000 collected, so making him
win $999. This is a fair game. In the case of state lotteries,
however, the winner will be paid only $500 in most states. Some
states may pay a little bit less, others may pay a little bit
more, but $500 is more or less the standard. The winner
therefore wins $499. The house edge for a Cash 3 game will
therefore be
( 999 - 499 ) / 999 * 100 = 500 / 999 * 100 = 50%
This house edge applies not only to the Cash 3 game but also to
all state lottery games such as Play 4, Cash 5, Mega, Fantasy 5,
Lotto, Power Ball, etc. So, whenever you are playing the state
lottery, remember that you are wagering only half of your money
on the actual lottery; the other half, you are just giving it
away. Where this other half goes is not the gambler’s concern,
since his/her main objective is to win some money in order to
pay the ever present bills, or to get out of a miserable life,
or to change his/her 20-year-old car. As regards contributing to
education and other noble causes, there are other means of
collecting money called taxes and charities.
Unfortunately, many states do not allow casino games, and
furthermore, sports betting is illegal in the United States.
The player is therefore left with no choice but to cross state
borders in search of a casino, or more recently, to engage in
online sports betting through the several offshore internet
sportsbooks. Nowadays, there is a plethora of trustworthy online
casinos and sportsbooks operating from Canada, the UK, Antigua,
Costa Rica, and so on.
The Conclusion
As far as the house edge is concerned, it has been shown that
casino games are the best choice for the gambler. On the other
end, any state lottery is a pretty miserable game to play.
Nevertheless, besides the house edge, there is also the
possibility of winning to consider.
Casino games, like lotteries are mostly games of chance; the
player just selects a number or numbers and waits to see what
luck brings him/her. There is absolutely no basis to prefer one
number to others. Some people try to analyze previously drawn
numbers in order to see the trend and predict the next numbers.
This strategy may work a few times, but not always. Keep in mind
that it is the players, and not the machines, who remember the
previous numbers. In short, the possibility of winning a
roulette or the lottery entirely depends on luck.
While there is little or nothing that a roulette or a lotto
player can do to initially select a possible winning number, the
situation could be quite different in the case of betting. With
a lot of information and some assistance from sports
handicappers, it is possible to predict the outcome of a sports
event with more certainty than predicting a Cash 3 number.