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Why the Online Casinos Can Be Beaten  

Matchplays are casino promotional coupons.  I have gotten them many times as part of "fun books" I received while checking into my room in Las Vegas at different hotel casinos.  On more than one occasion, I have received matchplays in the mail from casinos I have visited.  If you are a rated player or regularly join casino slot clubs, you have undoubtedly been offered matchplays.

A matchplay is a coupon, for say $5, which you must match at a table with a bet of equal amount.  With a $5 matchplay coupon at an even-money bet at craps for example, you can place the coupon along with a $5 chip of your own for a total bet of $10.  If the wager wins, you win $10 when you only really had $5 at risk.  If the bet loses, you still lose your $5 wager.  Since the matchplay coupon didn't cost you anything, this wager is almost a two for one proposition in your favor.

Matchplays offered by the land-based casinos are quite similar to bonuses offered by many online casinos.  Assume that you visit the Sky's the Limit Internet Casino and deposit $500 for play.  If this casino is offering a ten percent bonus, then it will deposit an additional $50 to your account once you have wagered the $500 you deposited.

You don't have to wager the $500 all at once.  You could make ten $50 wagers or one hundred $5 wagers.  The point is that the online casino requires that you at least put your own money at risk before it pays you the bonus.

When you play a low house advantage game, the bonus will put you in a the enviable position of having an edge over the casino.  When I say "edge" I mean a real bona-fide mathematical advantage over the casino's normal win percentage.  Once you have this edge and know how to exploit it, you can play the online casinos with the expectation of being a consistent winner.

You might wonder how the online casinos can afford to offer such bonuses.  If a casino in Las Vegas offered such a generous bonus, there would be lines around the block of sharp players waiting to exploit their advantage.  Yet, the statistics I have seen indicate that barely two percent of the persons on the Internet have ever made a wager at an Internet casino.

The Internet casinos can make such generous offers because they are literally rolling in cash.

Their profitability starts with the comparatively low cost of building a virtual casino compared to a land-based one.  Land-based gambling not only requires the construction of multi-million dollar structures, but it is very labor intensive.

If I were so inclined, I could purchase an online casino right now for less than $250,000.  This casino would be licensed and use the latest state of the art software and would be as legal as any online casino can be in the United States considering the current state of confusion.  While a quarter of a million bucks is not chicken feed, it wouldn't even pave a parking lot for a Las Vegas casino.

Brick and mortar casinos also have to contend with a lower win rate and a higher cost of attracting and keeping customers than online casinos.  The average casino hold is usually considered to be about 40 percent.  The hold is the amount the casino keeps out of the total amount of money put into play.  Let's say you went into Caesars Palace with $500 and exchanged your cash for chips at the craps table. 

After about an hour of play, you decide to leave the table and you take your remaining chips to the casino cashier and exchange them for cash of $300.  The total amount of your buy-in of $500 is the casino's handle, the amount of your loss of $200 is the casino's hold.  In this example, the casino hold rate is 40 percent.

While statistics on Internet casinos are scarce, there is every reason to believe that their hold rate is considerably higher.  Marc Falcone and Jason N. Ader of Bear Stearns report that of the income statements they have seen, online casinos have an unbelievable 65 percent return.  This return is probably going to fall in the future because of the extremely high advertising cost most Internet casinos face. 

Some analysts place the estimated hold at between 60 and 70 percent for the virtual casinos.  Since the online casinos do not have to employ an army of dealers, floormen, bosses, backroom personnel, security guards, janitors, change girls, cage personnel and so on, which are obligatory for the land-based casinos, much more of their hold goes right to the bottom line.

The average Atlantic City slot player loses about $35 per session.  However, to win this, the casinos have to provide free bus rides, free lunches, rolls of quarters and cash rebates at the end of the day.  As a rule of thumb, real casinos pay out 35 to 40 percent of their hold in the form of various complimentaries or "comps" to their players

The average online player is believed to lose about $200 per session.  While the casino must advertise to attract the player, it does not have to provide bus rides, rolls of quarters, free drinks and meals, or any of the other common comps awarded casino patrons.

In short, the Internet casinos are rolling in cash.  Casino Merlin (http://www.casinomerlin.com) went live March, 2000, and by mid April had 50,000 players.  Global Entertainment announced a record first quarter for the three months ended March 31, 2000.  Revenues for this three month period were $1.1 million as compared to $638 thousand a year ago. 

Microgaming Systems (http://www.microgaming.com) announced in May, 2000, that it paid out over $730,000 in winnings in April, its fourth consecutive month to break records.  The April payouts beat March by almost $100,000.

"These figures are a very strong indication that Internet gambling is on the rise," said Lisa Wycherley, senior vice president of operations at Microgaming Systems. 

Research company Datamonitor estimates that online betting and gaming revenues will reach a staggering $10 billion by 2002.

However, even though many cyber casinos are rolling in cash, the competition to attract new players is intense.  Many e-casinos have set up elaborate affiliate programs offering commissions as high as 50% of their net revenues to affiliates who send them customers. 

For many casinos, the fastest and easiest way to attract customers is to offer one of the few comps available for Internet customer - cold hard cash.   This explains the rise of bonuses available to online players   bonuses which can and will make you and me net winners on the Internet.

Just how much difference can these bonuses make?  The following table compares the possible win rates at a casino offering a 10 percent bonus.  We assume that the casino game we are playing has a normal house edge of 1 percent.

In each case we assume a buy-in of $500, matched by a $50 bonus.  In alternative A we put $1,000 into play.  After deducting the amount lost due to the expected house edge or vig (gambling slang for vigorish or "vig" indicating the house's percentage) of $10.00, we have an expected win of $40.  Comparing our win with the amount played ($40/$1,000), we compute our advantage over the casino to be 4 percent.

In case B, we only make a total of $550 in wagers for a net win of $40.50, after subtracting the estimated house vig of $5.50.  This gives us an edge over the house of ($40.50/$550) 8.09 percent.

In case C, we wager $2,000 and retain a net win of $30.  This works out to a player advantage of ($30/$2,000) 1.5%.

Comparison of Wins at a 10% Bonus E-casino
With a 1 percent House Advantage

 
Buy-in

 
Bonus

 
Total

Amount Played

House Vig-1%

Net Win

Player's Edge

A

$500

$50

$550

$1,000

$10.00

$40.00

4.00%

B

$500

$50

$550

$550

$ 5.50

$44.50

8.09%

C

$500

$50

$550

$2,000

$20.00

$30.00

1.50%

 

Quite clearly it is in our best interests to minimize the amount of wagers we make as our win rate increases with a lower amount played.

Picking the right game is critical when exploiting the bonuses paid by the e-casinos.  The table below assumes that the house edge for the game is 5% instead of the 1% assumed in the previous table.  In situation A, where the player buys in for $500, receiving a $50 bonus and wagering $1,000, the player's expected return is to break even.

In case B, if the player only wagers $550, he will have a 4.09% advantage.  However, in most cases, this advantage would only be theoretical because the e-casinos would not be satisfied with this amount of play.  As a practical matter, in most casinos you will have to play about double the amount of your buy-in in order for the casino to allow you to withdraw your winnings and the bonus.

In case C, we assume that the player makes $2,000 in wagers, for an expected net loss of $50.00, even with the casino's bonus.

While payment of the bonuses gives the knowledgeable player a beatable game, the selection of the casino is critical.  Equally important are the games played, the amounts wagered, the size of the bets made and the bet selection method used.  In the next chapter we will take a look at finding the best e-casinos for advantage play.

Comparison of Wins at a 10% Bonus E-casino
 
With a 5% House Advantage

 
Buy-in

 
Bonus

 
Total

Amount Played

House Vig-5%

Net Win

Player's Edge

A

$500

$50

$550

$1,000

$50.00

$-0-

 0.00%

B

$500

$50

$550

$550

$27.50

$22.50

 4.09%

C

$500

$50

$550

$2,000

$100.00

-50.00

-5.00%

 

  The above was taken from the Online Gambling Toolkit.

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