To profit on 20% "rebate" on losses

Hey guys. In my country, we have these electronic gaming stations, which are practically internet cafes, but are dedicated only to online casino games. You deposit at the cashier, play on your computer terminal whatever RTG casino game you like, then cash out if you win.

The operator of this electronic gaming station gets back around 20% of all the players' losses. (The remaining 80% goes to the government and other expenses.) So if for the whole day 100,000 is lost by the station's players, he'll get around 20,000.

My question is this: Can the operator consistently make a profit by playing in his own station? Considering that many games such as blackjack and baccarat have a relatively small house edge, does the 20% "rebate" on his losses provide a scenario wherein he can, mathematically, consistently make a profit? If so, how? :)

Quote: boomshakalaka

Considering that many games such as blackjack and baccarat have a relatively small house edge, does the 20% "rebate" on his losses provide a scenario wherein he can, mathematically, consistently make a profit? If so, how? :)

The difficulty is that the business is not the same as the owner. While mathematically it works, you still have to transfer the profits to the individual owner without getting soaked on income tax.

The NGC busted small time operators with about 30 machines. They were doing just as you proposed, but paying the winnings out of a bucket of cash. That way they could siphon off some of the money without reporting it. The commission sends in undercover agents to get evidence, and then fined them heavily and threatened to take away their license.

One small bar with 15 poker machines had a unique problem. They used to have a casino with over 1000 slot machines. They closed the casino intending to renovate, but after they closed, the bank stopped the funding. They had a $150K in bonuses at the casino that were not won, which the owners were intending to award when the renovations were done. The Casino Commission let it go for about 4 years, then they ordered the owners to dispense the $150K. But they now only had 15 video poker machines to do it. They had no choice but to put huge bonuses for royal flushes which gave the player a huge edge.

What the bar did was not advertise what they were doing. The first several bonuses were won by employees and friends. Once word got out many other players (including several in this forum) tried their luck.

Thanks for the reply pacomartin. But I am asking more on the theoretical aspect of this. Let's say that we can do away with all the income tax for now and that the operator playing in his own place is not illegal at all (this is not in the states). Can he consistently make a profit given the set-up and the inherent odds of the games?

I must be missing something.
The player does not pay for his TIME at the machine.
The player deposits his Bankroll with the Cafe, plays on a machine and accumulates wins and losses and then cashes out at the Cafe.
The Cafe then pays 80 percent to the government and keeps 20 percent.

What am I not understanding?

Hi FleaStiff,

You are right with all you wrote. Plus, in this situation, the Cafe operator is also the player. And I forgot to mention, that the government shoulders the down if the house is down at the end of the month (in which case the cafe operator doesn't get anything).

Let me just put it this way. I'm playing blackjack with you, with you being the dealer and I'm playing with optimal strategy. We are using the rules of any of the RTG Blackjack games. We'll play for 30 days, settling our balances at the end of each day. If I'm up at the end of the day, I'll get the entirety of that up. But if I'm down at the end of the day, say I'm down $100, you'll give me back $20. Do i have the edge against you given this set up? Thanks.

Find a nearly 50/50 game (baccarat, paigow poker). Bet as much money on one hand as is allowed. As an example I'll use $1000 on baccarat player. If you win you get +1000. If you lose you get -800. So you get +1000 about 49% and -800 around 51%. This is +82 on average, for a player advantage of 8.2%. You can do this for 30 straight days. On average you would expect to win over 2400. You can increase the total EV by continuing to bet if you lose the first hand, but then it gets more complicated as to when to exactly stop.

Sounds like the best investment he could make would be to have his "internet cafe" be unattractive so that ALL his terminals were manned solely by his own crew of players.
I think the government agency is going to get wise though.

I think a similar deal is discussed under the review of "Terribles" on this board.

In general, as others have said the game needs to be as close to 50/50 as possible and you need to play as few hands as possible.

In more simple terms find a 51/49 house edge game and play one hand at $1,000 once per period.

Assuming no varriance in 100 periods you win $49,000 and lose $51,000.

Take a 20% rebate on losses and you win the same $51,000 and lose $49,000 but get a check for $9,800 rebate. Income is now $60,800 and loss $39,200 or a profit of $21,600.

IRL this will be hard to do. Varriance will kill you. The person paying the rebate will eventually see what you are doing and shut you off or/and forcing you to use beards.

Quote: boomshakalaka

Can the operator consistently make a profit by playing in his own station? Considering that many games such as blackjack and baccarat have a relatively small house edge, does the 20% "rebate" on his losses provide a scenario wherein he can, mathematically, consistently make a profit? If so, how? :)

Check the recent threads on Don Johnson and the millions he reaped from Caesars, Tropicana, etc. in Atlantic City. Largely thanks to his special 20 percent rebate.

Thanks for all the replies. I kinda thought it would work but I also knew I couldn't just keep playing everyday because that would just mean I'm going to be down most days and get nothing at day's end!

So play everyday, for one big hand (so that 49% of the days i'll be up) and get em rewards back. Sounds good!

Btw AZDuffman I think it's supposed to be
Take a 20% rebate on losses and you win the same $49,000 and lose $51,000 but get a check for $10,200 rebate. Win is still $49,000 and loss is now $40,800 or a profit of $8,200.

Also, what do you exactly mean "variance will kill me?" Since the math of this set-up is on my side, any variance should be but temporary and the numbers will eventually settle in my favor right?

And to SOOPOO, what does EV mean? :)

Thanks again.

Don Johnson's story is real cool by the way. Seems like a smart guy grounded in the realities of the odds of the game. Don't know though if the "20% of losses forgiven if over $500K" pertains to any single deal or a whole session. Because if it's for any single deal where he loses 500k (given multi hands and splits), that seemed a real great situation for him.

Quote: boomshakalaka

Also, what do you exactly mean "variance will kill me?" Since the math of this set-up is on my side, any variance should be but temporary and the numbers will eventually settle in my favor right?

And to SOOPOO, what does EV mean? :)

Thanks again.

Eventually can be more than 100 hands.

After 100 hands, ~68.2% of the time you'll be between Up 8 units and down 12 units. Or have results of 54 wins/46 losses to 44 wins/56 loses.

In the latter cases, you've won 44 units, lost 56 loses, with a rebate of 11.2... not covering your loss of 12. You'll be down 12 units or more after 100 games 16% of the time.

Don't understand the math of how 68.2% was got but "You'll be down 12 units or more after 100 games 16% of the time" is simple enough for me. :) Thanks.

Standard deviation. One standard deviation either side covers 68.2% percent of the results.

I could of course have made a mistake. Working this stuff out for a variety of number of plays is pretty simple on a near 50/50 game and I'd advise you do your own checks if you are the maths part of the operation.

EV ... Expected Value ??

Variance... is what makes you have an expectation that in the long run you will be up 49 percent of the days ... but that doesn't mean there won't be some pretty amazing strings of Down for that day.