How Casinos Work


The Mirage Hotel and Casino on the Las Vegas strip. See more casino pictures.
Photo Courtesy of Online Casino

The modern casino is like an indoor amusement park for adults, with the vast majority of the entertainment (and profits for the owner) coming from gambling. While musical shows, lighted fountains, shopping centers, lavish hotels and elaborate themes help draw in the guests, casinos would not exist without games of chance. Slot machines, blackjack, roulette, craps, keno, baccarat and more provide the billions of dollars in profits raked in by U.S. casinos every year.

Casino Image Gallery

In this article we'll look at how casinos make their money, the history behind them, what the popular games are and how they are played, what you could expect when you visit one, how casino's stay safe and the dark side of the business.

Casino Business

A casino is simply a public place where a variety of games of chance can be played, and where gambling is the primary activity engaged in by patrons. The typical casino adds a host of luxuries to help attract players, including restaurants, free drinks, stage shows and dramatic scenery, but there have certainly been less lavish places that house gambling activities. These would still technically be called casinos.

Poker chips of President Harry S. Truman.
Photo courtesy of The National Archives

A truly enormous amount of money changes hands at casinos every year. While there are certainly big winners at the gaming tables every now and then, the only sure winner in a casino is the owner. In 2005, commercial casinos in the United States had gross revenues of $31.85 billion. Add to that the revenue of Native American casinos, which brought in $22.62 billion in 2005, and it's safe to say that casino industry profits have been steadily increasing for more than a decade [Source: American Gaming].

Casinos make money because every game they offer has a built in statistical advantage for the casino. That edge can be very small (lower than two percent), but over time and the millions of bets placed by casino patrons, that edge earns the casino enough money to build elaborate hotels, fountains, giant pyramids, towers and replicas of famous landmarks. The casino advantage is known as the "vig" (short for vigorish) or the rake, depending on the game. The exact number can vary based on how the player plays the game and whether the casino has set different payouts for video poker or slot machines.

As of 2007, only two U.S. states do not have legal gambling: Utah and Hawaii [Source: Hawaii News]. Every other state either has state-sanctioned casinos or Native American gaming.

History

The Villa Giulia Roma
The Villa Giulia Roma
Photo courtesy of Jacopo Barozzi da Vignola

Gambling almost certainly predates recorded history, with primitive protodice known as astragali (cut knuckle bones), and even carved six-sided dice found in the most ancient archaeological sites [Source: Schwartz]. However, the casino as a place for people to find a variety of ways to gamble under one roof did not develop until the 16th century. A gambling craze swept Europe at the time, and Italian aristocrats often held private parties in places known as ridotti [Source: Schwartz]. These were basically private clubs for rich people, but the popularity of gambling meant that was the primary pastime. Technically, gambling was illegal, but rarely was a ridotto bothered by legal authorities - apparently the nobles knew just when to expect the Italian Inquisition. The lower classes were also gambling, but they didn't have a fancy place to do it in.

In 1638, the government of Venice decided that if they ran a gambling house themselves they could better control it and, while they were at it, make a lot of money. Thus, they authorized the opening of not just any ridotto, but the Ridotto, a four-story gambling house with various rooms for primitive card games and a selection of food and beverages to keep the gamblers happy [Source: Schwartz]. The Ridotto was important for two reasons -- it was the world's first government-sanctioned gambling house, and the first that was open to the general public. High stakes games meant that the clientele were still generally rich people, but in principle, the Ridotto makes Venice the birthplace of the casino. The idea spread throughout Europe as people either thought of it themselves or copied it from the Italians. Indeed, most popular modern casino games were invented in France. As for the word itself, a casino was originally a small clubhouse for Italians to meet in for social occasions. The closure of large public gambling houses like the Ridotto pushed gambling into these smaller venues, which flourished [Source: Schwartz].

Original facade of the Newport Casino before modifications.
Public Domain

In the United States, gambling went through waves of popularity and decline, with a strong wave in the 1800s. Gambling on Mississippi riverboats and in frontier towns were an integral part of the 'Wild West' culture, but when moral conservativism took hold of the country in the early 20th century, gambling was on the way out. It wasn't until 1931 that the desolate state of Nevada decided to legalize gambling. Like the Venetians before them, Nevada politicians figured they might as well gain something from all the illegal gambling that was going on anyway. Plus, the brand new Hoover Dam (then called the Boulder Dam) was sure to bring tourists running -- why not give them another way to spend their money within Nevada's borders? [Source: California State Library]. Soon, casinos drew gamblers to Reno, then Las Vegas, where the downtown gambler's casinos gave way to the Strip, a neon oasis of themed resort casinos and glamorous stage shows. Atlantic City, New Jersey tried to bring legal gambling to the east coast in the 1970s, with limited success. But the biggest change in the U.S. casino business since 1931 happened in the late 1980s, when Native American tribes decided to get a piece of the action. We'll discuss Native American casinos a little bit later.

Casino Games

A blackjack game
A blackjack game
Public Domain

­A wide variety of games can be found at casinos, and some casinos seem to specialize in inventing new games to draw more players. In some places, the games that are allowed are regulated by state laws. This section will cover the most common casino games.

Blackjack

Blackjack is one of the easiest table games. The object is to get a hand of cards whose values are as close to 21 as possible without going over (busting). Only the values of the cards are considered, not the suit -- picture cards are worth ten, and an Ace can be worth 11 or one, whichever is more advantageous to the player. The house advantage can be minimized by using a strategy or even counting cards, but if a casino suspects card counting, they can throw you out. The house edge without counting is about two percent. For more details, see How Blackjack Works.

Slot Machines

Slot machines are the most popular casino games, and casinos earn a larger proportion of their money from them than any other game [Source: PBS]. Part of the slot machine's appeal is the simplicity -- the player puts in some money, pulls a handle or pushes a button and waits to see the outcome. No amount of player skill or strategy can affect the outcome in any way. Varying bands of colored shapes roll on reels (actual physical reels or a video representation of them). If the right pattern comes up, the player wins a predetermined amount of money. Slot machines used to be mechanical devices with reels of the shapes spinning past, but today all slot machines are controlled by on-board computer chips. There are still slots with actual reels, but they are computer-controlled as well. Modern slot machines come in a dizzying array of colors and themes.

Slot machines in Las Vegas.
Public Domain

Most states have laws regulating the minimum payout frequency of a slot machine, usually about 75 percent. In other words, the house edge is a whopping 25 percent. However, to entice players or compete with other casinos, most slot machines have payout rates in the '80s or '90s. State law governs whether the payout rates are published or posted near the machines themselves.

Roulette

Roulette is a classic casino game was invented by the French (the name means 'little wheel'). A spinning wheel is divided into 38 spaces, each space containing a number from one to 36. The other two spaces have the numbers 0 and 00. The spaces are also divided between the colors red and black (the 0 and 00 spaces are green). A metal ball is dropped onto the wheel as it spins, rolls and bounces around a bit, and eventually settles into one of the spaces. The players bet on which space the ball will end up in. Bets can be placed in single numbers, various combinations of two or more numbers, even or odd numbers, red or black spaces or sets of a dozen numbers at once. While the house edge varies (different bets have different payouts), it is roughly between five and seven percent.

Roulette wheel
Photo courtesy of Toni Lozano

Craps

Craps is a dice game, and is often considered the most complicated casino game. The players bet on the outcome of the roll of two six-sided dice, or on a series of consecutive rolls. The casino edge in craps is about 1.5 percent. Explaining all the details of betting on craps is beyond the scope of this article.

Craps game
©2007 Martin Ouellet

We'll look at more casino games in the next section.

Keno and Other Games

A game of Texas Hold 'Em
A game of Texas Hold 'Em
Photo courtesy of Todd Klassy

Keno

Keno is essentially a lottery held in a casino. Players purchase a card and choose a series of numbers. The casino draws numbered balls at a scheduled time. If a player's numbers match those drawn, the player wins. Virtually every casino expert recommends staying away from keno -- the odds are stacked against the players even more heavily than in other games.

Baccarat

Baccarat is a card game often played in a separate room of the casino. It is characterized by minimum and maximum betting limits that are usually higher than other table games. Depending on how the players bet, the house edge can be as low as 0.6 percent, but averages around 1.25 percent. In fact, certain winnings are "taxed" by the casino at five percent to ensure they make money on the game.

As for the game itself, two hands are dealt, one representing the Banker, one representing the Player. The value of the hand is reduced to a single digit, and the higher hand wins.

Video Poker

Video poker machines are similar to slot machines in that the player can play alone, with no need for other players or a dealer -- all the action is controlled by a computer after the player inserts money. However, video poker does offer the player some chance to affect the outcome of the game with skill. In a typical draw poker version, the player sees five cards. He then chooses which of the cards to keep, and the computer replaces the others with new cards randomly "drawn" from the virtual deck. The payout is determined by the quality of poker hand that the player managed to assemble. Many machines are "Jacks-or-better" machines, meaning that a pair of Jacks is the lowest hand that pays any prize money. Better hands, such as a full house or a flush pay out even more, and the best possible hand, the royal flush, pays out the jackpot. This could be a progressive jackpot that grows the longer the machine goes in between royal flushes.

Poker

Poker is a bit different from other casino games in that the players play against each other, not the casino. The house edge comes in the form of a rake, a small percentage of each pot that the casino takes at the end of every hand. Alternately, the casino may charge poker players based on the amount of time they spend in the poker room.

[House edge stats source: Nestor]

The Casino Experience

The Atrium at the Crown Casino in Melbourne, Australia.
The Atrium at the Crown Casino in Melbourne, Australia.
Photo courtesy of Jamesbehave

The interior design of a casino has some very specific goals -- keep the patrons happy and make them feel that they're having a unique experience. It doesn't hurt to minimize their awareness of the passing of time, as well. Casino décor can vary greatly, but they try to give off an air of expensive taste. Lush carpets or richly tiled hallways complement carefully designed lighting, which is often dimmed slightly to give the casino some excitement and mystery. Often, a large prize of some kind is displayed prominently, such as a sports car on a rotating pedestal. Casinos on the legendary Vegas strip take this to another level. A single casino resort can cost $1 billion or more, and may include multiple luxury hotels, restaurants, shopping centers, enormous fountains or even giant replicas of Egyptian pyramids or volcanoes.

Casinos take a number of steps to keep gamblers content. Free food and drink keeps them on the casino floor and might even get them intoxicated, which doesn't exactly reduce the house edge. One of the reasons casinos use chips instead of real money is that chips make money into an abstraction (chips also help the casino track how much money is going in and out of the casino). Players are less likely to be concerned with the money they're losing, since it doesn't look like actual money. The casino may put ATM machines in strategic locations, although some states regulate how many and where they can be placed.

Windows and clocks are extremely rare in casinos. The absence of natural light and chiming clocks allows players to gamble for hours without realizing how long they've spent (or, more importantly, how much money they've spent) on the casino floor. One would think that a simple wristwatch would render this strategy useless, but casino designers continue to employ it.

Comps are another way to keep people gambling longer. Making high rollers and big spenders feel special encourages people to try to be big spenders and high rollers. We've already discussed the perils of playing for comps. One recurring casino myth is that casinos pipe pure oxygen onto the casino floor, ostensibly to give gamblers an "oxygen high" that lowers their inhibitions. There is no evidence that this has ever taken place, and if it did, the casino owners would face criminal charges.

We'll look at casino security in the next section.

Casino Security

An 'eye-in-the-sky' at the Trump Taj-Mahal casino.
An 'eye-in-the-sky' at the Trump Taj-Mahal casino.
Photo courtesy of Raul654

Something about gambling (probably the presence of large amounts of money) seems to encourage people to cheat, steal or scam their way into a jackpot, instead of trying to win by random chance. That's why casinos spend a large amount of time, effort and money on security.

Security starts on the floor of the casino, where casino employees keep their eyes on the games and the casino patrons to make sure everything goes as it should. Dealers are heavily focused on their own game, and can easily spot blatant cheats like palming, marking or switching cards or dice. Table managers and pit bosses watch over the table games with a broader view, making sure patrons aren't stealing from each other and keeping an eye out for betting patterns that could signal cheating. Each person in the casino also has a "higher-up" person tracking them, watching them as they work and noting how much money their tables are winning or losing.

Elaborate surveillance systems offer a high-tech "eye-in-the-sky" that allows security personnel to watch the entire casino at once. Cameras in the ceiling watch every table, change window and doorway. They can be adjusted to focus on certain suspicious patrons by security workers in a separate room filled with banks of security monitors. The video feeds are also recorded, so if a crime or a cheat is detected after the fact, the casino can review the tapes and find out who the culprit was. Note slot machine payouts are determined randomly by the computer chips inside the machines. No one watches the slot floor and controls the payouts.

There is a more subtle aspect to casino security -- the routines and patterns of casino games. The way the dealers shuffle and deal the cards, the locations of the betting spots on the table and the expected reactions and motions of the players follow certain patterns. When someone does something out of the ordinary, it's a lot easier for security people to spot it because of the patterns.

Here are some tips on casino rules (written and unwritten) that will help keep you on casino security's good side:

  • Never touch any game equipment (i.e., cards or dice) with two hands. Try to avoid touching things at all, if possible. But if you need to, such as a blackjack game where your cards are dealt face down, or at the craps table, only use one hand. Keep the cards or dice above the table and in view of the dealer at all times.
  • If you're not playing a game, it's OK to watch, but don't disturb the other players.
  • Don't touch your chips once you've placed your bet, and don't collect your winnings until all bets have been paid up.
  • Don't reach all the way across a table to place a bet, especially if it means you might knock over another player's chips. Ask the dealer to place the bet for you.
  • Never place any items other than chips on the gaming table.

Legal Status of Casinos

The Las Vegas Strip
The Las Vegas Strip
Photo courtesy of Brendel Signature

Initially, Nevada was the only state to allow legal gambling. Casino owners realized they could capitalize on the "destination" tourists who came to visit casinos by placing a large number of them in one place. Despite the added competition, this would help draw in huge numbers of casino visitors from across the United States and the rest of the world. Later, Atlantic City, New Jersey also legalized gambling. In the early 1990s, Iowa legalized "riverboat" gambling. Other states realized their citizens were traveling to Iowa to gamble, and opened their own casinos. At the same time, Native American casinos were proliferating at a rapid pace.

Riverboat casinos represent an attempt to allow gambling but limit its geographic and economic scope. The casino can only be located on a riverboat that floats in a body of water, and gamblers can only stay for the duration of a "cruise" that usually lasts two hours. In reality, the riverboat casinos never move -- the "cruise" is really just a shift of two hours, at the end of which the gamblers must leave. Many riverboat casinos are also required to use a loss limit. This is a predetermined dollar amount, somewhere between $200 and $500, which is the maximum a patron can lose during one "cruise." As competition from other states increases, many states are easing or abandoning both the riverboat and loss limit requirements of their casinos.

Luxury tourist riverboat on the Yangtze River (Chang Jiang).
Photo courtesy of Leonard G.

The legality of Native American casinos is based on the fact that Native American territory is considered sovereign, not entirely subject to U.S. laws. Just how sovereign a tribe is a bit fuzzy -- think of a tribe as a 51st state. It can govern itself and make its own laws, but if it does something that overtly disturbs the public good of the rest of the country, federal authorities will step in. U.S. criminal laws are enforced within Native American territory, while civil law is largely powerless. This is an important fact, because it means that if you are hurt at a Native American casino you have no right to sue the casino even if the owners were negligent.

Depending on your feelings about the issue, you can either thank or blame one man for the explosion of Indian casinos: Arthur James Welmas, leader of the Cabazon tribe in California in the 1980s [Source: NPR]. The landmark Cabazon vs. California Supreme Court decision said that if a state allowed any kind of gambling (including lotteries), the state could not ban gaming within Indian territory because it then became a civil rather than a criminal matter. In response, Congress passed the Indian Gaming Regulatory Act (IGRA) in 1988. This law established federal oversight of Native American gaming and sought to keep organized crime from infiltrating Indian casinos like it had in Las Vegas in earlier decades.

We'll look at the dark side of casinos in the next section. 

The Dark Side of Casinos

The Trump Taj Mahal casino in Atlantic City, New Jersey.
The Trump Taj Mahal casino in Atlantic City, New Jersey.
Photo courtesy of Raul654

There are numerous opponents of casinos and a fair amount of evidence showing that they do cause economic harm to communities and individuals. Casino money also acts as a magnet for corruption, and for many years "casino owner" was synonymous with "Mafia boss."

As the casino business in Nevada expanded in the 1950s, owners sought funds to finance expansion and renovation in hopes of drawing even more Americans to the strip. Legitimate businessmen were reluctant to get involved in casinos, which had the taint of "vice" since they were illegal in every other state. Organized crime figures had plenty of cash from their drug dealing, extortion and other illegal rackets, and they had no problems with gambling's seamy image. Mafia money flowed steadily into Reno and Las Vegas, but the mobsters weren't content to simply provide the bankroll. They became personally involved, took sole or part ownership of some casinos, and even influenced the outcomes of some games with the threat of violence to casino personnel.

However, real estate investors and hotel chains had even more money than the gangsters, and soon realized how much they could make with casinos. Donald Trump has owned several casinos, and so has the Hilton hotel company. With such incredibly deep pockets, these companies bought out the mobsters and began running their casinos without mob interference. Federal crackdowns and the possibility of losing a gaming license at even the faintest hint of Mafia involvement means legitimate casino businesses keep the mob far away from their gambling cash cows.

Perhaps even more insidious is the damage done by compulsive gambling. Studies indicate that people who are addicted to gambling generate a disproportionate amount of profits for casinos: five percent of casino patrons are addicted, generating 25 percent of the casino's profits [Source: PBS]. Economic studies show that the net value of a casino to a community is actually negative [Source: UIUC News Bureau]. Critics contend that casinos primarily draw in local players, not out-of-town tourists, so casino revenue represents a shift in spending from other forms of local entertainment; and that the cost of treating problem gamblers and lost productivity from gambling addicts reverses whatever economic gains the casino may bring. In numerous communities where a casino has opened, calls to gambling addiction hotlines have increased by several percentage points in subsequent months and years.

For more information on casinos and related topics, check out the links on the next page.

Related HowStuffWorks Articles

More Great Links

Sources

  • American Gaming Association. "Gaming Revenue: Current-Year Data." http://www.americangaming.org/Industry/factsheets/statistics_detail.cfv?id=7
  • Dunstan, Roger. "History of Gambling in the United States." http://www.library.ca.gov/CRB/97/03/Chapt2.html
  • Field, Shelly. "Career Opportunities in Casinos and Casino Hotels." Facts on File (June 2000). 978-0816041237.
  • Harrison, Dennis R. "Fell's Guide to Casino Gambling." Frederick Fell Publishers (April 1, 2000). 978-0883910139.
  • Johnston, David. "Temples of Chance: How American Inc. Bought Out Murder Inc. to Win Control of the Casino Business." Doubleday & Co. (1992). 0-385-41920-1.
  • Nestor, Basil. "Unofficial Guide to Casino Gambling." Wiley (December 11, 1998). 978-0028629179.
  • NPR. "The Man Who Brought Casinos to the Indians." http://www.npr.org/templates/story/story.php?storyId=6697388
  • PBS Frontline. "Gambling Facts & Statistics." http://www.pbs.org/wgbh/pages/frontline/shows/gamble/etc/facts.html
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  • Reutter, Mark. "Casino's [sic] costs far outweigh their economic benefits, economist says." http://www.news.uiuc.edu/biztips/01/10gamble.html
  • Schwartz, David G. "Roll the Bones: The History of Gambling." Gotham (October 5, 2006). 978-1592402083.
  • Vogel, Jennifer. "Crapped Out: How Gambling is Destroying the Economy & Destroying Lives." Common Courage Press (December 1997). 978-1567511215.