HOW THE CASINO FIGURES OUT YOUR COMPS: THE AVERAGE DAILY THEORETICAL LOSS
A lot has already been written about the Average Daily Theoretical Loss, or the ADT, as its known. Rather than write a detailed, math intensive breakdown of the subject, I will keep this explanation very simple.
With very rare exceptions, every game the casino offers has a built in advantage to the house. This means that in the long run, you will lose to the casino. How much you lose can be calculated based on the game you play, how long you play, and what you wager, among other factors. How much you will be expected to lose in the long run your ADT.
Some games will have a higher ADT, and some games will have a lower ADT. Some games, such as craps, can have both a high and low ADT, depending on how you play the game. The game with the highest ADT is slots. Slots are fast and expensive to play, so they have the highest ADT.
Whether you win or lose is irrelevant to your ADT. If you win, it doesn’t change your ADT. If you lose, it doesn’t change your ADT, either. It’s a strict beancounter formula of how much the casino expects you to lose on average; it’s not a formula based on how much you actually win or lose in the real world. That’s not to say the casino will treat you differently based on your actual wins or losses. For that discussion, read my explanation of comps.
The reason the casinos take a theoretical approach to your wins and losses is something known as the schooling effect. Since the casino services thousands or tens of thousands of players a year, the variance (meaning the ups and downs) for the casino is relatively low.
On any given day or year, you might win or lose, even though the odds are against you. This is known as variance. For example, if you and I agree to flip a coin twice, and assuming the coin flip is fair, you would expect to win one and lose once, since the odds are 50/50. But variance might dictate that you will win or lose both coin flips. Just because the coin landed twice on heads, does not mean the 50/50 probability has changed. That’s just variance.
However, if we flip the coin 1 million times, it’s now much more likely that head and tails will appear closer to 50/50, than if we flipped it ten times.
For the casino, the large volume of players means that the casino flips the proverbial coin millions or even billions of times; therefore, the casino will likely to come closer to the 50/50 ratio than if you or I flipped a coin only ten times.
Similarly, if you play blackjack or craps, you might play a few hundred or even a few thousand hands a year. You could have high variance and come out a winner, even though the casino has the mathematical advantage on you. The casino, though, plays millions or even tens of millions of hands per year, and it’s astronomically unlikely that the casino will come out a loser against all of its combined, or ‘school’ of players (although, whether or not the casino can meet its bills with its’ winning is another issue).
That’s why the casino takes a bean counter approach to your mathematical loss. So it’s not how much you actually win or lose, it’s all about your ADT. The higher your ADT, the more comps you get.
For my discussion on comps, read here.