Know thy enemy. So said Sun Tzu in The Art of War, and more than two and a half thousand years later, it’s still a favorite quote among everyone from MBA lecturers to – well, to gambling tipsters. Another equally well-worn maxim from that particular universe is that the house always wins. But anyone who is a regular casino player knows that the truth is a little more complicated than that.
Perhaps we can use Sun Tzu’s phrase as a way to set about disproving the second. Fair enough, a casino is a business, and just like a supermarket or a building contractor, it needs to generate revenue in order to survive. That revenue comes from the players who are feeding money into the machines, and fairly obviously, the amount that is wagered must be less than the amount paid out in winnings, or the casino will run out of cash in short order.
Understanding how this comes about is the first step in potentially beating the odds and emerging victorious, at least sometimes. The delta between the amount wagered and the amount paid out in winnings is known as the Gross Gaming Revenue (GGR). It’s a useful thing for gamblers to understand in order to have a better insight into what makes a casino tick. But it’s an even more important concept for anyone who is considering dipping a toe into America’s rapidly growing gambling industry.
Calculating GGR
GGR is also sometimes known as the game yield. From the player’s perspective, it is essentially the inverse of the Return to Player (RTP) figure with which most people are familiar. From the viewpoint of the casino, GGR is the business’s sales or revenue – of itself, it does not constitute earnings or profit.
The GGR on a given day, month or year can be calculated by simply summing the overall amount wagered and subtracting the sum of all payouts. Of course, the casino will have an overall target for GGR, just as any other business will have revenue projections as part of its annual budget. But in the same way that a supermarket will have figures by product lines and categories, the casino will likewise monitor GGR for games and categories of games.
GGR Margin
Of course, if you’re familiar with the RTP concept we mentioned earlier, you will know that is expressed as a percentage. GGR as we have defined it so far is a quantity of money, so the correlation between the two might not be immediately obvious.
To shed some light here, it is useful to look at a related metric called the GGR Margin. This expresses the GGR as a function of the overall amount wagered. In other words, it tells the casino how wagers made by gamblers translates into revenue for the casino. To calculate the GGR margin, you simply take the GGR and divide it by the amount wagered.
As a general rule, a casino will expect the GGR margin to remain stable regardless of how busy or quiet the casino is, subject to the usual variance that is a natural consequence of each game’s uncertainty factors. However, the longer the time period under examination, or the broader the range of games, the more stable the margin will remain. For example, on a given night someone might have a big win on a progressive jackpot game. That night, the GGR margin for that game will be lower than usual. If it’s a really big win, it might even dent the figure for the whole casino. But over the course of the month, it will even out against nights when players have been less lucky.
It goes without saying that for a casino business, the higher the GGR margin, the better, as it represents higher revenue generation for every turn of the cards or spin of the reels. However, that has to be balanced against the commercial realities of what is a highly competitive business sector. They need to offer high payout percentages to attract customers and to present a casino experience that is preferable over the rest. Get too greedy when it comes to GGR margin, and players will simply vote with their feet and place their wagers elsewhere.
GGR Margin in Action
Casinos can use GGR to optimize their product portfolio in a way that will maximize revenue generation. This is particularly important for the many new providers that are appearing on the scene as more states approve legislative reform and legalize online platforms for casino gaming and sports betting. Evaluating data from other states on wagers made and winnings paid out will provide insights on where to focus during those early months.
Conversely, for those who are new to the world of online betting, having a firm grip on the casino’s best cash cows provides valuable insights on where to place wagers for optimum return.
