Quick question about casino maximum bet policies

[lurppis]

Hi all,

I was just in the midst of some musings about casino economics and thought I'd stop by and ask for some thoughts.

I once heard (possibly on these boards) that casinos have a tendency to be very risk-averse, and that some analysts would argue they ought to be less so. I'm thinking in particular about casino-wide betting limits. At my local casino, which is quite large, and attracts a lot of international play, I believe the maximum bet is $300,000. I'm not 100% on these details, but that's what I remember hearing, and also that it was reduced from $1 million a few years ago. I think this applies to Baccarat, with Blackjack having a lower maximum. To put this into perspective, this is at a store where yearly profits are of the order of $300 million.

Now, one purpose of such maximums is to limit the casino's potential exposure to cheating or advantage play, at least in theory. In practice, I imagine if an AP had the same bankroll as a casino, the correct advantage play would be to open a casino, rather than playing at one, so the AP's max bet is likely to be the limiting factor, not the casino's. Still, I'm no expert, and I'd love to hear some other thoughts on this.

The other (probably more significant) purpose of an absolute max bet is to limit the casino's exposure to variance. Obviously no casino wants to wipe out their yearly profits by accepting a single enormous wager and losing. So I want to ask all of you, what is the correct size for a casino-wide betting maximum? What factors affect it, and how would a casino correctly calculate it? And is it true what I heard? Do casinos tend to incorrectly set this value too low?

Here's what my intuition suggests so far: a big casino like the one I described accepts thousands of bets every day, and from them it makes a very consistent profit. It also accepts very large bets, and if a few go the wrong way, the profits for the day or week could be eliminated. This may be viewed as an unacceptable outcome by management, or investors, but probably isn't that bad in reality. Is it possible that the replenishability of the casino's bankroll is being overlooked? After all, the low- and medium-stakes bets are so numerous that they must show a very consistent profit on a daily or weekly basis. As long as enough money is kept in reserve to always be able to accept these bets (and fund new capital works, and self-insure against natural disaster, and whatever else casinos need money for), isn't the rest of the casino's bankroll more or less a suitable playground for extremely high-action risk-taking, safe in the knowledge that there will be more money to play with next week, month or year, and that the casino is sure to win in the five- or ten-year long term? If so, how much higher could the maximums safely be set? Obviously there are lots of unknown variables, but I'd love to hear even very qualitative responses.

Thoughts? Other examples?

Lastly, if anyone has a good grasp of the theory of table maximums, I'd be curious to hear more about those, too. I recently tried to google an explanation of the reasoning behind table maximums (other than the obvious relevance to card counting in blackjack) and all I could find was the repeated assertion that table maximums are not put in place to prevent progression betting systems. Apparently lots of people think that they are. Huh.

[Tom]

The amount of profits that would be generated from having a higher limit than $300,000 is probably negligible versus the amount of risk, which increases exponentially with higher limits. The casino didn't just pull their $300K limit out of thin air, I imagine that they have an entire department dedicated to optimizing profits versus risk. The key to success in running a business is knowing your customers, performing surveys and finding out the incomes of the high-rollers who come into the casino probably plays a big part of it. The high limit at casinos near me is $25K. Quite frankly I think a $300K limit is absurdly high itself. If I was a high roller I wouldn't imagine playing more than that, and if a higher limit was offered I would immediately be suspicious of the casino. Another reason they cap the limit, because they don't need anything higher! Remember, gamblers are crazy and the casino is not. Why give gamblers the possibility of winning even more money.

The casino environment is constantly changing, and the way the casino manages this is by establishing control values. Table maximums are constants....values that do not change, so the amount of risk and revenue remains consistent. There is an expectancy and deviations within the mean that are, frankly, predictable. Slots are variable values and their payouts are changed every month (or every quarter) to stay in line with the longer-term consistency value. A variable limit on tables would erase the constant values and quite frankly, eff up the stats for the casino's financial road-map. Management is ALL about logic and order and established process, and investors won't invest without it. Also, don't forget casinos have taxes of all sorts, so perhaps a higher limit or no limit at all would morph their bottom line.

I really am no expert on this kind of thing but I have run my own business and understand the perspective of a casino.

[RWM]

Here in the US management would be vomiting all over themselves if they had to fade 300k bets. Even though their bankrolls are in the billions the max BJ bet at most properties is 25k, sometimes 50k. The reason is they are chasing stock price. They never want to explain to shareholders that they had a down quarter because some whale got lucky. The MGM barred Kerry Packer even though he was a huge losing player just because they didn't want to fade his action after he beat them out of 20m or so.

[21forme]

The MGM barred Kerry Packer even though he was a huge losing player just because they didn't want to fade his action after he beat them out of 20m or so.

Classic casino logic.

[AussiePlayer]

The MGM barred Kerry Packer even though he was a huge losing player just because they didn't want to fade his action after he beat them out of 20m or so.

A few London casinos refused him entry because they simply couldn't handle it if he had positive variance.

[lurppis]

Classic casino logic.

See, this is the really the heart of my question - does the typical casino policy really differ from the casino's optimal strategy (given their specific utility curve, whatever it might be) and if so by how much? If casinos are not economically rational in this matter, are stock prices the sole reason?

[21forme]

Casinos tend to have people of lesser than average intelligence working for them, at all levels. Most managers don't seem to understand the math of their own games.

There was a similar episode to what RWM described in the early days of AC - a whale winning big (millions) at baccarat. Management cut his max bet. He cashed out and took his money next door to another casino, and gave it all back, plus some.

[RWM]

In the US it is about the stock price - or in the case of the privately held casinos, fear.

[Gamblor]

Casinos tend to have people of lesser than average intelligence working for them, at all levels. Most managers don't seem to understand the math of their own games.

There was a similar episode to what RWM described in the early days of AC - a whale winning big (millions) at baccarat. Management cut his max bet. He cashed out and took his money next door to another casino, and gave it all back, plus some.

They absolutely and completely do not understand short term variance (which makes me question what are they looking at all day).

[bigplayer]

It is not just variance, but the casino is required to keep a certain multiple of their top bet in cash on hand in the cage (or vault) to cover all of the action likely to happen in the casino on any given night. Casinos are owned by corporations who want a steady return on their investment...that means there is significant pressure to keep limits low enough so that they can grind out most of their players. Notice limits at Baccarat can be higher because the max payoff is 1:1 on player and 0.95:1 on banker. A single blackjack wager of $50,000 can result in an $400,000 total payoff if a player splits 3x and doubles all of them and wins. Put a high roller betting $10,000 a hand and the casino might have a CE to win $500,000 over a weekend, give the high roller a max of $300,000 and the casinos CE might be only $50,000 as the player is more likely to win big and quit or lose big and bust out. 10 hours of play with an average bet of $30,000 is far better for the casino than one hour with an average bet of $300,000 even though the house technically will make the same either way.

[Gamblor]

Also keep in mind its not out of the question someone is up 50 units or down 50 units just flat betting in a couple hours of play. If betting $300,000, that's $15,000,000. That's more than the net for tables games for many casinos in a quarter.

I've been getting a few too many of those sinking like a stone shoe after shoe mostly flat betting and being down 50 units lately. Why don't I recall the times I went up about 50 units from just flat betting?

[ZenMaster_Flash]

"Why don't I recall the times I went up about 50 units from just flat betting? "

"Selective Memory"

[Gamblor]

"Why don't I recall the times I went up about 50 units from just flat betting? "

"Selective Memory"

In all likelihood yes. But still seems like if I ever were to experience just sitting there flat betting and being up 50 units, it would be like seeing bigfoot or a UFO