By Guest Contributor Eliot Jacobson, Ph.D., Jacobson Gaming, LLC and Raving Partner, Table Games Operations and Casino Math Analysis
I am always looking for new ways that players beat the casino fair and square. Usually this has to do with playing against one of the new proprietary table games or side bets. But recently, after hearing Don Johnson speak (he's the guy who beat Atlantic City out of more than $15 million), I realized that I had just learned about the biggest advantage play of all: beating loss-rebate programs.
When Don Johnson decided to attack Atlantic City, he negotiated a number of perks that moved blackjack squarely in his direction. The most significant of these advantages was the ability to receive a 20% rebate on his losses whenever he lost more than $500,000 in a day. I did some computer modeling and determined that with proper strategy, his expected earnings per day just by exploiting the loss-rebate discount were about $86,000. Taking into consideration all of the benefits he was given, his expected win per day was $137,000. Not too shabby.
Most casino marketing books preach the need to have loss-rebate percentages rely on total time played. For example, in baccarat, the casino may offer a loss-rebate of 5% for playing 1-to-9 shoes, 10% for 11-to-19 shoes, and 15% for 20 shoes or more on a single trip. This percentage will apply to any player loss, there does not need to be a threshold minimum loss. This type of graduated schedule forces the player to earn his rebate, thereby generating sufficient theoretical win for the casino to pay for his loss-rebate.
More typical, though, is for a casino to offer rebates that are loss-based and not time-based. For example, a casino might offer a 5% loss-rebate for a loss from $100,000 to $300,000, a 10% loss-rebate for a loss from $300,000 to $500,000, and a 15% loss-rebate for any losses over $500,000. This type of loss-rebate program encourages hit-and-run play. The advantage player bets as big as he can on a high-variance/low-edge game (like blackjack or craps with 3/4/5 odds). If the player loses big, then he cashes out his rebate and heads to the next casino where he can get a similar deal. If the player wins big, he cashes out his winnings and heads to the next casino where he can get a similar deal. Don Johnson negotiated exactly this loss-rebate framework.
The typical player has three thresholds to stop playing. He will leave after he:
Exhausts his bankroll (loss threshold).
Wins a sufficient amount (win threshold).
Exhausts his time bank (time threshold).
The advantage player who is attempting to take advantage of a loss-rebate program will stop playing exclusively based on his win/loss thresholds and not based on a time threshold. There are optimal values for the win/loss thresholds that maximize his expected income for a single trip to a casino. The advantage player should keep playing until he hits one of those two stopping points (if possible), and then quit playing until the next "trip."
In the case of Don Johnson, his optimal thresholds were a loss of more than $800,000 or a win of at least $1,600,000. Moreover, Don Johnson's trip reset every day. He could simply play until he hit one of his thresholds and quit for the day, and then have it all start over the following day. For a more typical player, the trip resets based on a physical trip to a casino that is negotiated along with airfare and other perks. It is up to the casino's marketing department to define a "trip" for a high-level player.
The game that Don Johnson played against was at far higher limits than most casinos can tolerate. But most casinos do offer some sort of discount to their top-most tier of players, whatever that tier happens to look like. Even a mediocre loss-rebate can lead to a player advantage if it is loss-based and not time-based. The appeal of a player coming in with a large line of credit and casino-maximum wager will lure the casino into offering terms of play that put the casino at a square disadvantage off-the-top to the player. Savvy players know this and are busy targeting loss-rebate programs not only in Atlantic City, but nationwide. Don Johnson was the tip of the iceberg. He pulled back the curtain and the industry must now face the burden he exposed.
It's obvious the system is broken and that it's been broken for a long time. This fracture is systemic. Any action to fix a casino's internal discount procedures may jeopardize their entire high-end play. A valuable player does not want new obstacles put in the way of benefits he has been receiving all along. He'll gladly defect to another casino where the loss-rebate system operates in the manner he is accustomed. Competitors will fall over backwards to provide this to him. It is going to take a revolution in the industry to eliminate this type of advantage play. In the meantime, the best casinos can do is to identify high-level players who are beating their discount programs and back them off.
The House of Pane
I am always looking for new ways that players beat the casino fair and square. Usually this has to do with playing against one of the new proprietary table games or side bets. But recently, after hearing Don Johnson speak (he's the guy who beat Atlantic City out of more than $15 million), I realized that I had just learned about the biggest advantage play of all: beating loss-rebate programs.
When Don Johnson decided to attack Atlantic City, he negotiated a number of perks that moved blackjack squarely in his direction. The most significant of these advantages was the ability to receive a 20% rebate on his losses whenever he lost more than $500,000 in a day. I did some computer modeling and determined that with proper strategy, his expected earnings per day just by exploiting the loss-rebate discount were about $86,000. Taking into consideration all of the benefits he was given, his expected win per day was $137,000. Not too shabby.
Most casino marketing books preach the need to have loss-rebate percentages rely on total time played. For example, in baccarat, the casino may offer a loss-rebate of 5% for playing 1-to-9 shoes, 10% for 11-to-19 shoes, and 15% for 20 shoes or more on a single trip. This percentage will apply to any player loss, there does not need to be a threshold minimum loss. This type of graduated schedule forces the player to earn his rebate, thereby generating sufficient theoretical win for the casino to pay for his loss-rebate.
More typical, though, is for a casino to offer rebates that are loss-based and not time-based. For example, a casino might offer a 5% loss-rebate for a loss from $100,000 to $300,000, a 10% loss-rebate for a loss from $300,000 to $500,000, and a 15% loss-rebate for any losses over $500,000. This type of loss-rebate program encourages hit-and-run play. The advantage player bets as big as he can on a high-variance/low-edge game (like blackjack or craps with 3/4/5 odds). If the player loses big, then he cashes out his rebate and heads to the next casino where he can get a similar deal. If the player wins big, he cashes out his winnings and heads to the next casino where he can get a similar deal. Don Johnson negotiated exactly this loss-rebate framework.
The typical player has three thresholds to stop playing. He will leave after he:
Exhausts his bankroll (loss threshold).
Wins a sufficient amount (win threshold).
Exhausts his time bank (time threshold).
The advantage player who is attempting to take advantage of a loss-rebate program will stop playing exclusively based on his win/loss thresholds and not based on a time threshold. There are optimal values for the win/loss thresholds that maximize his expected income for a single trip to a casino. The advantage player should keep playing until he hits one of those two stopping points (if possible), and then quit playing until the next "trip."
In the case of Don Johnson, his optimal thresholds were a loss of more than $800,000 or a win of at least $1,600,000. Moreover, Don Johnson's trip reset every day. He could simply play until he hit one of his thresholds and quit for the day, and then have it all start over the following day. For a more typical player, the trip resets based on a physical trip to a casino that is negotiated along with airfare and other perks. It is up to the casino's marketing department to define a "trip" for a high-level player.
The game that Don Johnson played against was at far higher limits than most casinos can tolerate. But most casinos do offer some sort of discount to their top-most tier of players, whatever that tier happens to look like. Even a mediocre loss-rebate can lead to a player advantage if it is loss-based and not time-based. The appeal of a player coming in with a large line of credit and casino-maximum wager will lure the casino into offering terms of play that put the casino at a square disadvantage off-the-top to the player. Savvy players know this and are busy targeting loss-rebate programs not only in Atlantic City, but nationwide. Don Johnson was the tip of the iceberg. He pulled back the curtain and the industry must now face the burden he exposed.
It's obvious the system is broken and that it's been broken for a long time. This fracture is systemic. Any action to fix a casino's internal discount procedures may jeopardize their entire high-end play. A valuable player does not want new obstacles put in the way of benefits he has been receiving all along. He'll gladly defect to another casino where the loss-rebate system operates in the manner he is accustomed. Competitors will fall over backwards to provide this to him. It is going to take a revolution in the industry to eliminate this type of advantage play. In the meantime, the best casinos can do is to identify high-level players who are beating their discount programs and back them off.
The House of Pane