‘Ploperators’ I couldn’t help but use the term again; operators that act more like players than a business operation.

I’ll set the familiar scene; a group of senior management, out of their offices and huddled around a CS agents PC, blindly hitting refresh every 20 seconds. They  have a big winner, playing NOW!. The winner could be 6 or 7 figures up depending on the operation, they are hitting max bet and now everyone is watching their every spin as if they were playing right there with them. And you’ll hear the audible thought process;

“We should take game down it is broke”

“Let him/her play it will average out”

Which often leads to two camps: “Reduce the bet size we can’t take the risk” and “we can’t reduce bet size otherwise we’ll never see the funds back”. If we get to this then we’re in ploperator territory, and you’re already thinking can I bet/play against this player.

Don’t get me wrong a substantial number of gaming business have remained profitable from a small number of highly valuable VIP’s and contemplating a business that won’t allow a small group of VIPs big bets is difficult. So I offer observations for any business  considering setting bet sizes and whether or to whom they should take big bets.

Big bets are not just from VIPs. By a proper VIP I mean a player with the means to bet substantial amounts whilst not creating a problem and as part of a regular gambling entertainment regime, but for many the VIP is in a minority of big betters. You are also at risk from; the  problem gambler who goes on tilt (he can be max betting in those first 3 deposits before you profile him as a problem and if he doesn’t win you may even be refunding his deposits), the bonus player who with a 100/200% deposit match really can’t sit there grinding at 50p a spin, the house-party group who getting ready to hit the town, herd the host into big bets with the remaining balance and the most dangerous of all, the casino player who has already won; the casino player who deposited £100 and would like to leave with £200 but with luck on their side they hit £980 (lets say) not quite the “K” MASSIVE win and so can now, on streak, bet big, “as long as I leave with £200 then I’ve still won right?”. So think about this, most of these big betters in one way or another have actually started betting big with your balance!

Increasing bet size will increase volatility of the business. OK so that isn’t rocket science for anyone; if you double a bet size, you double the exposure value of a big win and hence volatility of the numbers. The problem lies in the also well understood premise that more players will reduce volatility; if you have lots of players placing a £1 bet some will win and some will lose the overall exposure being less than if there is just one player or low volume. The problem is the two don’t quickly even each other out, a small increase in variance has dramatic increase in effect of outliers.

For example one player playing at £10 a spin on Dead or Alive or Immortal Romance (over 5,000 max multiplier) will expose the house for £50,000 for £1 players to nullify this risk they will need £1.5M bets (assuming 3.3% house edge) that is 30,000 customers placing 50 bets each. So think about this, business volatility is driven by your max bet and the number of people playing at max bet, everything else is just noise.

A single big win is the difference between a good and a bad year. If its not a VIP then a large win is a life changing amount, new car, paid off the mortgage the chances are it isn’t going to be spent in a casino and that will hit the bottom line. Lets take the small casino, lets say £1M a month in GGR. So working solely on affiliates at a 40% rev-share that marketing investment of 400K each month returns a healthy 2.5 in ROI. With 12% Casino Software costs, 7% in banking costs, 30% of GGR coming from bonuses and 75K a month in fixed costs means at the end of the month the casino makes a monthly profit of £435K. Assuming 400k is continually invested in marketing this will yield £420K profit annually. Now lets stay we gambled against an Immortal Romance winner who with big bet has taken £100K win which is almost 3 months bottom line profit; and a 23% hit on annual profit would be damaging but lets remember that we are in the marketing business and that hit also hits our budgets for the next month so instead of having £400K the marketing budget for month 2 is only £335k which can only render a next month marketing budget of £352K for month two and £374K for month three etc. Over the course of the year that £100K hit has an effect of reducing profit by 33% and not 23%. So think about this, a serious win won’t just hit your end of year profit but will hit your current monthly marketing budget a more fatal issue that sees your ROI figure work against you.

OK as much warning as fact but at the point you ask yourself “should we take this bet” it is already too late, you’re already betting with your business, you have house edge in your favour but that may be small comfort to your investors and employees.