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How Do Online Casinos Make Money and How Much?

The casino industry has always been big business. The decadent resorts of Las Vegas alone are testament to this. Even the fact that there is a city in the middle of the Nevada desert is a dead giveaway to the long-term profitability of operating a casino.

How Do Online Casinos Make Money
In the end the house always wins.

Each year the biggest gambling companies take literally billions in revenue. Their profits are technically winnings, since each bet they receive has a chance to take money from them. However, casino operators aren’t usually worried about going broke to a lengthy period of bad luck. When taken at the hand-by-hand level, the phrase “the house always wins” isn’t exactly true. However, when you consider a casino’s profits over the course of a year, a month, or even a week, it’s clear that it’s not the players who are consistently winning.

If land-based casinos are profitable, online casinos are literal goldmines. Whereas the former requires staffing, premises, equipment, and other overheads, many of these facets of operating a gambling venue are taken care of by software in the online casino. This means even greater profits.

The Secret’s in the Games

You see, almost every game in the casino, whether online or real-world, has what’s known as a house edge. This essentially means that the probability of the player winning is always lower than the probability of the house winning.

Many people wrongly assume that they have just as much chance of winning as they do of losing at a casino. If this was the case, the industry wouldn’t be worth anything like what it is today. In reality, each game has been carefully designed to give the casino (the house) a higher likelihood of winning over the long term.

The easiest way to explain this is with a game of European roulette. In European roulette there are 37 numbers (0-36). This means the probability of the ball landing on any one specific number is 36 to one. In other words, if you bet on a single number 37 times, your number is expected to come up once.

If you were to use £1 bets in the above example, the casino would pay you out at 35 to one when you won. You would take your £1 back and receive £35 as winnings. Over the course of the 37 spins, you would have bet £37 and taken £36 back from the casino. The extra £1 is the casino’s profit.

Let’s consider a second example. Say you bet on only either black or red. The casino would pay you at one to one for a winner (you take back your stake and receive the same amount in winnings too). If there were no house edge whatsoever, the probability of you hitting red or black should also be 50 percent. However, it’s not. The fact that there is a green number on the wheel (or two green numbers in American roulette) means that the odds are in fact just under 50%. The “0” and “00” sections of the wheel represent the house’s edge.

Thanks to the house edge, it’s mathematically impossible for the player to profit long-term from casino games. Even if you do beat the casino, the house doesn’t care. For you, the game is against a single opponent – the house. For the casino it’s about every single player than walks through the door. Just like in poker, the player playing with the most favourable odds will occasionally lose but with enough gameplay (casinos get a lot of gameplay), their edge will emerge.

Although the above example details roulette, each game at both online and land-based casinos will have a house edge. One exception is poker, where players play against one another rather than the house. Here, the casino takes a tournament fee or a “rake” off each pot to ensure profitability.

Online Casinos Expenses

As mentioned, online casino expenses are typically far lower than they would be at a land-based casino. There is no lavish building, complete with decadent furnishings to finance, and games don’t require human dealers. The online casino operator doesn’t need a liquor licence and doesn’t require the same level of physical security as a brick-and-mortar venue either.

That said, online casinos aren’t free to operate. Servers need hosting, licences obtaining, and software deals need financing. All of this is very expensive.

Another huge expense for online casinos that is less relevant to land-based operators is marketing. Most land-based casinos rely on their presence to attract punters. It’s there and so are you. If you like gambling, you might attend the casino. Sure, they do have some marketing budget but the sheer lack of competition in an area means it’s minimal.

Compare this to an online casino. Online, you can visit any number of different venues within a few seconds of one another. It’s, therefore, important that online casinos spend money standing out from the crowd. They do this in a few ways. One is conventional or online advertising – TV or newspaper ads, and popups, etc.

Another is by offering all sorts of bonuses as an incentive for people to play. The casino will reduce the overall cost of offering such promotions using wagering requirements but they still cost money. Occasionally a player will win big from a bonus, yet for the number of new players they attract, it’s a necessary cost for a successful iGaming operation.

The Bottom Line

It’s very difficult to say exactly how much different online casinos make. For one, most online casinos are not publicly listed. They’re under no obligation to report income and expenditure. Complicating matters further is the fact that many of the largest casinos will also have sportsbooks. Bet365 reports a profit of around $896 million for 2018/19 yet does not detail what percentage of this is from the casino alone.

One thing is for sure though, operating an online casino is a highly profitable line of business. The iGaming industry alone was worth a staggering $40 billion in 2018. Several of the most profitable companies in the industry also either provide games for online casinos or actually operate casino games themselves. Examples include Playtech, 888, Holdings, Paddy Power BetFair, and GVC Holdings PLC.

Of course, not all online casinos will boast the kind of player counts as the likes of Bet365, Ladbrokes, and William Hill. For these smaller venues, it’s even more difficult to tell just how much profits they make. However, thanks to the tried and tested business model of offering games with a real chance to win, but that favour the casino, it’s safe to say that the online casino industry is suitably lucrative for those operating within it.

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