Home The Effect of Buy-in Churn on the Live Game Hold Percentage

The Effect of Buy-in Churn on the Live Game Hold Percentage

The other day I was involved in a discussion about the effect “short plays” were having on the casino industry’s hold percentage. The other two members of the discussion were the VP of casino operations and the general manager of a medium-size Midwestern casino. The general manager was inquiring as to factors that might be involved with a recent drop in their live game’s hold percentage. The drop in hold percentage was across the board and not limited to any one game type. The VP of casino operations suggested that one of the factors affecting the negative trend was the possibility that the customers were making a series of “short plays” at the tables instead of their usual length of playing time. “How would that affect our hold percentage?” asked the GM. The VP went on to explain that customers experiencing negative hand results at the beginning of their playing session would leave sooner than normal and that customers who were winning would “take their money and run” instead of staying at the tables and attempting to exploit their wins. This is a common side effect of a poor economy. Customers have less discretionary income—enough available so they can still gamble but much less than they normally would have to gamble. This is commonly referred to as “scared money.”

The GM turned to me and asked why this situation had a negative effect on the performance of their live games and hold percentages. I quickly pointed out that “hold percentage” in live games is only a measurement between a player’s buy-in and the amount of money the casino wins, not a true measurement of performance. What this “short play” phenomenon does affect is the amount of wagers made by the player in regard to the initial buy-in. The players reduce their number of overall bets and reduce the number of times the buy-in is “churned.” If the VP didn’t confuse the GM with his explanation of short play, then my comment regarding churning surely did. What is churning and how does it affect the hold percentage and live game win?

Churning the Initial Buy-in

Churning is a term that is usually related to the financial field, specifically the buying and selling of stock. A broker who is consistently getting his clients to trade stocks, not because they need to trade equity positions but because the broker wants to earn more commission on trading activity, is regarded as a broker who is churning his accounts. As existing positions sell and new positions are acquired, the broker earns commission income each time the stocks are churned. In the gaming industry, churn represents the number of times a casino customer makes wagers equal to his initial buy-in. For instance, if a blackjack player buys in for $500 and wagers $25 per hand, he will churn, or play through his $500 buy-in, one complete time after 20 hands. Once he has completed one churn of his buy-in, the casino can assume it will win (in theory) the equivalent of the mathematical house advantage multiplied by the initial buy-in. In this situation, if the blackjack H/A is 1.5 percent, the casino can expect a theoretical win of $7.50 each time the buy-in is churned ($500 x 1.5 percent = $7.50). Based on an expected production of 60 rounds per hour, the casino can assume the player’s money will be churned three times during an hour of play. Using these calculations the house can expect to win $22.50 and hold 4.5 percent of the $500 (see Table 1). If the dealer could deliver 80 rounds per hour, the churn would increase to four times, the win would increase to $30, and the hold could climb to 6 percent. In essence, the more the player churns his buy-in, the more money the casino can win.

Churn and Comps in the Sports Book

Years ago, while I was the VP at the old Aladdin Hotel Casino, I was approached by one of the sportsbook players for a “comp.” The customer wanted to know if I could write a comp for him and his wife in our fine dining room, Fishermen’s Port. He also proudly announced that he had just made a $2,000 pro football single team bet in our race and sportsbook. I apologized to the customer and told him I was unable to buy him and his wife dinner in Fishermen’s Port, but I would be more than happy to write them a comp for two people to our dinner buffet.

Why didn’t I comp this $2,000 bet to our better dining facility? Why was I only willing to put him and his wife into the buffet? Wouldn’t he be considered a big bettor? No. The reason why is he is only churning his buy-in of $2,000 one time. The bet he made on Friday would be in play the entire weekend, experiencing the house estimated advantage of 3 percent only once during that time period. Based on this assumption, the customer’s theoretical value to the casino is only $60 ($2,000 x 3 percent = $60). At a player reinvestment of 40 percent of theoretical win, the football bettor qualifies for a comp value of $24. [Note: The $2,000 sports bettor is equivalent to the blackjack player who plays for four hours at approximately $10 per hand.]

Churning Non-Negotiable Promo Chips

If your casino uses promotional chips to any great extent, you may experience a lower than normal hold percentage on the games receiving promo chip play. Take baccarat and non-negotiable “play till you lose” promo chips, for instance. Each “play till you lose” chip is wagered for two hands on average (actual play is calculated at 1.98 times). Since they can’t be exchanged for casino chips or cash, they must be played on the games until they lose. This creates an immediate churn number of two the moment the promo chips are purchased by the customer at the cage. In addition, most casinos drop the promo chips into the drop box and they are considered the same as “cash drop” at face value. This presents the casino executive with an interesting situation that usually isn’t anticipated when designing the original promotion.

As an example, consider the following situation: The casino uses a “dead chip” program for rewarding customers who meet a specific criteria of live game play. Each player reaching this bonus limit is allowed to buy in for $1,000 at the cage and is granted $1,100 in non-negotiable “play until they lose” chips. Table 2 illustrates the effect of the “washed” $1,100 in promo chips that will wager through, or churn, an estimated two times.

Going one step further, let’s suggest the casino uses promotional chips extensively to reward players. Based on the promo chips being dumped down the drop slot on the baccarat games and are equivalent in value to cash drop, let’s assume the total amount of promo chips dropped per day is 10 percent of the total drop. Table 3 illustrates the effect promotional chips have in pulling the game’s hold percentage down from 12 percent to approximately 11 percent.

Churn and Multiple Pass Line/Come Odds

Why has the craps hold percentage taken a dive over the past 20 years? Could it be the reduction in initial buy-in churn that the casinos are experiencing due to the use of multiple odds? Twenty years ago almost every casino offered single or double odds. When I broke in dealing craps in the mid-’70s, only a few of the more “adventurous” casinos offered double odds to attract players to their tables. Today, 10 times, 20 times, and even 100 times odds are not uncommon. How would offering liberal multiple odds affect a casino’s hold percentage in craps? Does it have something to do with the time it takes to churn the bigger buy-ins?

When offering pass line and come odds in craps, the casino is offering the player a free opportunity to gamble. This opportunity is created when the casino pays the player “true odds,” or the true value of his or her wager. This “freebie” wager has become a major part of the casino game of craps over the years and is expected by the serious dice shooter. Since this free wager is so commonplace in craps wagering, it becomes quite understandable that the average dice bettor places a large portion of his gambling chips on the layout that are not subject to the game’s mathematical edge. In reality, chips used to wager on the odds are not that much different than the chips the player has sitting in the table’s rail. In addition, because the multiples used to determine the limit a player can wager on odds bets are reaching such high numbers, the odds bettor is required to buy in with greater amounts of money. This situation increases the player’s need to buy in for large amounts of chips.

For example, Table 4 compares the difference between a dice player wagering $25 on the pass line and taking double odds ($50 odds wager), and a dice player wagering $25 on the pass line and taking five times odds ($125 odds wager). Since the player taking five times odds will require more chips to complete his total wager, he is more likely to buy in for a larger initial amount, in this case twice as much as the customer betting double odds. In both situations, the dice players are subject to the same house advantage of 1.4 percent on their original line wager. This condition results in both players losing identical theoretical amounts of their line bets, or $14, even though the 5X odds bettor places a significantly greater amount of chips on the table’s layout.

The two players have decided to use two separate odds multipliers when wagering odds behind their original pass line wagers, however, this does not change the theoretical win for the house. The only issues that are affected by this difference are game volatility and the amount of money the players use when they buy chips. Since the 5X odds player has bought into the game for a greater amount of money, the casino’s ability to churn his initial buy-in is less, requiring twice as many pass line decisions to churn his buy-in as it does for the 2X dice player. The reduction in hourly churn does not affect the hourly theoretical win, but it does have a great effect over the hold percentage created by the two players. After three hours of table play the casino can expect to hold 14 percent of the 2X odds player but has a limited expectation versus the 5X player, who will theoretically lose only 7 percent of his buy-in.

Final Comment
The important point to this article is to show how the number of times the player churns the initial buy-in affects the hold percentage of your live table games. Churn helps support the reason why time and motion issues (game pace) are so important. It also illustrates why certain promotions could force your games’ hold percentage to decrease, as well as explaining why some multiple odds dice games can’t rise above the 14 percent mark after years of holding 17–18 percent. The greater the churn, the more the casino can earn from the increase in wagering decisions. In addition, the increase in number of churn per hour will increase the casino’s ability to retain or hold a greater amount of the money that is placed down the gaming table drop slot. Table 5 shows some examples of churn involving other casino games.

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