MENU
CONTACT US

What Is House Edge and How It Works in Online Gambling

  • May 21, 2024


In iGaming, where online casinos and sportsbooks hold the most sway, one term reigns supreme; ‘House Edge’. But what does House Edge mean? And why does it matter to both iGaming operators and players in equal parts? 

House Edge in iGaming Explained: Strategies, Insights, and FAQs | SOFTSWISS, influences your winnings (or losses), and stands as a major cornerstone of any online casino or sportsbook operator’s overall financial strategy. 

House Edge in iGaming Explained: Strategies, Insights, and FAQs | SOFTSWISS

Understanding House Edge in iGaming

At its core, the House Edge represents the mathematical advantage that gambling games have over the players. From the operators’ perspective, this ensures their casino and sportsbook operations remain profitable in the long run.

Tracing its roots back to early forms of gambling, the built-in concept of House Edge recognises that all games must be slightly tilted in favour of the ‘house’ to cover costs and turn a profit. It’s the main reason why, despite players’ lucky streaks, the house has a mathematical edge over time. 

What is House Edge and Why Does It Matter?

As touched on above, House Edge, in essence, is the built-in advantage casinos and sportsbooks hold over players. However, it’s important to realise that the concept of House Edge isn’t about ‘rigging’ games or ‘cheating’ players out of potential wins. 

Here’s how House Edge applies to online casinos and sportsbooks:

  • House Edge in Casino Games: For games like slots, roulette, or blackjack, the House Edge is a percentage built into the very rules of the game. It represents the average amount a player can expect to lose compared to their original bet over an extended period.

For example, a slots House Edge of 4% means that over the long term, the player can expect to lose an average of €4 for every €100 wagered. 

  • House Edge in Sports Betting: Sportsbooks set odds that incorporate a House Edge known as ‘vigorish’, ‘the vig’, or ‘juice’, a fee charged by a bookmaker for accepting a wager. This ensures that no matter which team wins, the sportsbook can still make a profit.

For example, let’s say the sportsbook offers odds of 1.90 for a team to win. This means a successful €100 bet would pay out €190 (your original stake plus €90 in winnings). However, based on the teams’ strengths, the ‘fair’ odds might be closer to 1.85. This difference (the sports betting vigorish or juice) represents the sportsbook’s built-in House Edge of around 2.6%.

  • House Edge in Poker: In poker rooms, both online and in land-based casinos, the House Edge takes the form of a ‘rake’, a commission fee taken by the house per pot or per hand depending on the stakes and the type of game. This fee is usually a percentage of the pot or a sliding scale commission capped at a maximum amount.

For example, a typical rake might be 5% of the pot up to a maximum of €5. This rake ensures that the poker room profits regardless of which player wins, helping to cover operational costs and help generate revenue.

For operators, House Edge is crucial for setting odds that guarantee long-term profitability whilst also balancing fairness, ensuring a sustainable and viable business model. For players, understanding House Edge means recognising those games where their chances might be slightly better over others. 

Calculating House Edge: Understanding the Numbers

The calculation of House Edge might seem overly complex, but it basically boils down to the relationship between the probability of winning and the payout ratio.

For example, if flipping a coin was a game offered by an online casino, a 50% chance of winning would suggest an even House Edge. However, if a game’s payout is less than what would be expected based on the odds of winning, then the difference between the expected payout and the actual payout represents the House Edge.

To put this into an iGaming perspective, let’s consider a simplified roulette example:

  • You bet €1 on a single number in European Roulette (which has 37 pockets).
  • Your chance of winning is 1/37, or 0.027.
  • The house’s expected profit on this bet is roughly €0.027
  • House Edge for this bet = (€0.027 / €1) x 100 = 2.7%

what does house edge mean

To calculate the House Edge, you subtract the total winnings of players from their total bets, and then divide the result by the total bets. Multiply this by 100 to express it as a percentage. This then shows the portion of the bets that the ‘house’ keeps as profit on average.

Now, before diving any deeper into complex calculations, it’s essential to differentiate between House Edge and its counterpoint, the Return to Player (RTP) rate, as both concepts play key roles in iGaming.


House Edge Vs RTP: Everything You Need to Know

The relationship between House Edge and Return to Player (RTP) is a tale of two perspectives; the first focuses on the online casino or sportsbook’s long-term advantage, and the other on the theoretical percentage an online casino game is designed to pay back to players over time. 

Balancing these metrics is an ‘art’ that can enhance player engagement without compromising on an operator’s revenue and understanding their relationship is key. For example, a slot with a 96% RTP should mean that it has a 4% House Edge.

relationship between House Edge and Return to Player (RTP)

House Edge in iGaming Explained: Strategies, Insights, and FAQs | SOFTSWISS

The Inside Track: RTP and House Edge

Misconceptions between both RTP and House Edge are common, however understanding even just the minor nuances of each can lead to a more satisfying iGaming experience for players and a more profitable business model for operators in the long term.

Here’s why both concepts matter:

In the simplest terms, House Edge represents the operator’s perspective, outlining the profit margin expected from each game. On the other hand, RTP tells players the share of total wagers they might win back over time. 

The Smart Bet: Balancing RTP and House Edge

Understanding the interplay between RTP and House Edge allows both operators and players to make better-informed decisions. Now, let’s explore how they can leverage this knowledge:

For Operators

Building a successful iGaming brand hinges on offering a diverse game selection that attracts players whilst also ensuring long-term profitability. Here’s where a keen understanding of RTP and House Edge comes into play:

For Players

Knowing how RTP and House Edge interact equips players to approach their gameplay strategically. Here are some tips:

Finding the sweet spot between RTP and House Edge is crucial in cultivating player loyalty and retention. It involves crafting an iGaming environment where players feel their chances are fair, likely encouraging repeat visits. 

Choosing the Right Games: the House Edge Playbook

Choosing the House Edge in iGaming Explained: Strategies, Insights, and FAQs | SOFTSWISS games is all about strategy. By understanding the basics of House Edge, you have the power to shape your iGaming experience, whether you’re an operator crafting a winning portfolio or a player seeking the best chance of success. 

For Operators: How to Craft a Winning iGaming Portfolio

As an operator, carefully selecting games based on their House Edge is key to crafting an iGaming platform that balances profitability with player engagement. 

Here’s how to optimise your gaming portfolio:

For Players: How to ‘Sharpen Your iGaming Edge’

As we mentioned previously, players can use their understanding of House Edge to make smarter choices about what to play, potentially improving their outcomes.

Here’s how:

House Edge in iGaming Explained: Strategies, Insights, and FAQs | SOFTSWISS


House Edge in Action: Real-World Strategies for Success

Understanding House Edge isn’t just theoretical – it’s essential for practical decision-making. Grasping this concept enables operators and players to make choices that not only enhance their iGaming experience, but also contribute to their long-term success.

House Edge in Action

For Operators: Leveraging House Edge for Player Loyalty

Regular informed portfolio updates are always important. Operators should carefully analyse player engagement data, game popularity, and House Edge metrics to optimise and refine their game offerings. This means finding that perfect balance between games with varying House Edges and catering to different risk profiles and player preferences.

Insights from this data can reveal that new players may gravitate toward lower House Edge games, whilst more experienced players might seek out high-risk, high-reward opportunities. Armed with this knowledge, operators can tailor their game selections to better meet diverse player needs.

This information can also be invaluable for managing the casino lobby effectively. Operators can customise game lobbies based on players’ previous betting history, location, language, or other factors, similar to how Netflix customises its line-up of films country by country.

For Players: Choosing the Right iGaming Venue/Brand

Understanding how the House Edge shapes the iGaming experience is crucial for players. While operators need to maintain this edge for business viability, savvy players can still improve their own outcomes. Here’s how:

The Win-Win of Sharing House Edge Info

When operators educate their players about House Edge, they demonstrate a commitment to fairness, which in turn builds trust. Knowledgeable players are empowered players. When players feel they have a fair chance, even with the house’s inherent advantage, this can help create a loyal player base.

Conclusion

In iGaming, knowledge of House Edge separates those who simply play, from those who play strategically. By understanding the concept and respecting its mathematical reality, operators and players can work together to create a more transparent, fair, and mutually rewarding experience. 

Operators who prioritise educating players about House Edge and RTP demonstrate a commitment to ethical practices that can foster long-term loyalty. And players armed with this knowledge are empowered to make informed choices and manage their expectations appropriately. When both sides embrace the nuances of House Edge, it unlocks a win-win scenario where the industry can thrive sustainably while players enjoy an engaging and fulfilling iGaming journey.

Frequently Asked Questions

House Edge in iGaming Explained: Strategies, Insights, and FAQs | SOFTSWISS

Can operators and game providers adjust House Edge?

Yes, operators and game providers have the ability to adjust House Edge on casino games. This is typically done by tweaking the payout ratios, odds, and other game mechanics. However, most reputable providers and operators aim to strike a balance between a reasonable House Edge for profitability and ensuring the games remain fair for players.

What factors influence House Edge in different games?

The House Edge can vary significantly across different iGaming products due to a number of factors, including: - Game mechanics and probabilities of winning combinations/outcomes - Payout structures and ratios - Volatility and potential jackpot sizes - Whether the game is chance-based (slots) or skill-based (blackjack) - The specific rules and rules variations implemented by the operator Generally, games with simpler mechanics and lower potential payouts will have lower House Edges, whilst more complex games with bigger jackpots will tend to have higher House Edges.

House Edge in iGaming Explained: Strategies, Insights, and FAQs | SOFTSWISS

House Edge in iGaming Explained: Strategies, Insights, and FAQs | SOFTSWISS

Can players use House Edge to their advantage?

While players can’t completely overcome the House Edge, they can use their understanding of it to make more informed decisions about which games to play. By prioritising games with lower House Edges, players can tilt the odds slightly more in their favour over the long run.

How do players see House Edge?

From a player’s perspective, House Edge is an unavoidable mathematical reality of advantage gambling. However, players who understand this concept tend to view it as a fair trade-off; they know the house will have an advantage, but they play anyway for the entertainment and thrill of the games. Transparent operators who educate players about House Edge are often seen as more trustworthy.

Does House Edge vary between online and land-based casinos?

House Edge or House Advantage can vary between online and land-based casinos, but the overall principles are the same. Online casinos may have a slight House Edge advantage due to lower operational costs, but they also face more competition which can drive them to offer games with more favourable odds. Land-based casinos may have higher overhead costs, but they can leverage a more immersive physical experience. Ultimately though, casino house advantage remains a central factor for both online and offline gambling operations.

Does the house always win?

While the house does maintain a mathematical edge over players in the long run due to the House Edge, it’s not strictly true that ‘the house always wins’. Individual players can and do experience winning streaks, and in the short term, the outcome of any single bet or game is uncertain. The House Edge simply means that over many wagers, the operator will come out ahead on average. But smart, strategic play can help players maximise their chances of winning in the short term.

How do you like this article?
Share This Article
Useful Articles
Back to Knowledge Base