Casino Insider: The Difference Between House Edge and Hold Percentage
May 13, 2014
The house edge and the hold percentage are two often confused concepts. It is important to understand the difference as well as recognize how they apply to you.
The most important number relevant to a casino gambler is the house edge. That is the built-in advantage that the casino has in any given game. Even if the player makes flawless decisions throughout, over time the house will win money anyway. The edge refers to the cards being stacked against the player before they even enter the casino.
While that number is crucial for a casino manager as well, there is another that matters even more. That figure is the hold percentage, which refers to how many of the chips purchased are returned to the casino, regardless of the inherent advantage in the game. While these two concepts are often mixed up, this piece will analyze them in detail to eliminate any confusion.
House edge is a theoretical number made up by mathematical analysts. It assumes that the player uses flawless casino strategy and that action plays out in the long-term. That is why a player might win big money in an evening even if the edge is weighted heavily in favor of the house.
For example, lets say that you bring $100 to the casino and leave with $110. You won 10 percent of what you wagered. But the house edge calculates the casinos winnings over thousands of wagers made by thousands of people. The edge is determined by both the player’s odds of winning and the amount of money which is paid out relative to the amount bet.
Many games have a low house edge precisely because the casino wants you to win occasionally. That way you will keep playing and the house slowly drains your bankroll.
Hold percentage is a more tangible concept, based not on theory but on how much money actually flows into the casino’s coffers. The hold is always higher than the edge, meaning that casinos always make more money than they theoretically should in each game. Sometimes the disparity can be great, with the hold being multiples of the edge (we’ll discuss some examples later).
Why? Edge assumes that player’s make logical decisions. Hold doesn’t. Most players are not experts in their chosen game. Many don’t know what they are doing, many play intoxicated, and many are just stupid in general. Casinos count on players making poor decisions.
Edge versus hold in blackjack
In a standard blackjack game in which the player is not using a card counting system the house edge is .5 percent. This means that if you wager $1,000 on blackjack, you should theoretically leave the casino with $995. Not great for the house, because it takes them all night to get only enough money off of you to buy a burger and fries at McDonald’s.
But most likely you aren’t a blackjack expert. You make some mistakes, hit when you should stand, misread the dealer’s upcard, foolishly buy insurance against the dealer’s blackjack. So you lose more money than mathematical theory says you should. That’s where the human factor comes in.
While the blackjack house edge is a paltry .5 percent, in most casinos the hold percentage is about 14 percent. Real life human beings lose a lot more than a robot programmed to play strategically flawless blackjack would, and that’s how casinos make a lot of their money.
Casino’s affect the blackjack edge, and by extension the average hold, buy playing with both rules and payouts. For example, some Vegas casinos have recently begun paying only 6-5, rather than 3-2, on blackjack hands. This has been shown to increase the edge by 1.39 percent. And given that most players at these tables make strategic errors, one can bet that the hold is very high as well.
Hold in Baccarat
The popular game of baccarat has made casino gambling news in Vegas and Macau casinos, with the Daily Mail reporting that in 2013 it overtook blackjack as the main source of revenue for Vegas casinos.
While the house edge in baccarat is almost nil on this game of chance, the hold percentage can be huge. Vegas casinos generally report making 11 percent of all money wagered on the game. How can the hold be huge on a game with a small house edge?
Baccarat is the game of choice for Asian high-rollers, many of whom come to Vegas and wager millions of dollars in a single night. An unlucky evening for one of these “whales” can keep a casino operating in the black for an entire month. Casinos also charge a 5 percent commission when the banker wins a bet, which can potentially be a huge amount.
However, the gargantuan nature of baccarat betting causes major variance in the hold, as players can just as likely win huge amounts from the house in a given night. While Vegas casinos reported an average take of 11 percent on the game, some casinos reported a hold as low as 3.6 percent. Just as a huge night can pay for an entire month, it can also wipe out a month of profit.