Average Casino Profit Margin
We all know that real-money casinos make a chunk of change. Online casinos and land-based venues alike are seldom short of a profit. However, exactly what kind of casino profit margin in the USA are we talking about? Join us as we explore how casinos hope to make their money and what kind of returns they are looking at.
Profitability of the Casino Gaming Industry
Casinos do have expenses — let’s get that straight. However, no matter how lavish the casino promotions offered are, no matter how much a player wins, the casino usually comes out on top. The US gambling industry is reportedly worth $53 billion a year, with that figure growing steadily year on year (save for the COVID-19 pandemic). Naturally, this is a big business, and everybody wants a slice of the pie.
The figures may not be in yet, but the casino hotel and resort industry alone is set to hit $73 billion in 2022.
Sports betting holds a sizable $4.3 billion share of those revenues, with online casino gambling accounting for $2.65 billion in 2021. Of course, put together, they are still some way off the total haul, so land-based casinos tend to lead the way when it comes to casino gaming profitability in the US.
Average Casino Profit Margin Explained
You don’t need to have a background in economics, finance and business to understand profit margins. The profit margin of any business (including casinos) is effectively a percentage that showcases how much revenue has been generated. The most common of these margins is the net profit margin, which is the bottom line once all a casino’s expenses have been tallied and removed from the total revenue earned.
The average casino profit margin in the USA is tricky to calculate, as casinos come in all shapes and sizes. Those in Las Vegas and Atlantic City generate much more than land-based casinos based out in the middle of nowhere. However, a fair net margin estimate (considering the larger venues) is thought to be around 5 to 8%. That might not sound like much, but it often equates to tens of millions of dollars per casino per year.
As touched on, there are several statistics you can consider when trying to work out how much a casino makes. We’ve included the primary ones for you below.
Operating Casino Margin Statistics
The operating casino margin is the total amount of revenue a casino has made after operational costs have been removed from the profit. These can include (but aren’t limited to) staff wages, player winnings, utilities such as electricity, licensing costs, advertising and marketing, and so on.
Pre-Tax Margin Statistics
Every business has to pay taxes, and gambling taxes are often quite high. Pre-tax margins tend to look quite healthy, even after operational costs have been removed. They would do since Uncle Sam hasn’t taken his share of the spoils at that point. Once the taxes have been removed from the statistics, things look leaner for casinos — not too lean, mind you.
Net Margin Statistics
Net margin statistics are the numbers you really want to see. These tell you the total profit made by a casino once all possible expenses have been removed from the equation, including taxes, winnings paid out to players, operational costs; you name it — everything we’ve already discussed above. Net margins, therefore, represent the real money a casino has made throughout a quarter or year. As mentioned, they can vary wildly, making it tricky to get an exact average for the casino industry.
Gross Gaming Revenue at Casinos
Also known as GGR, Gross Gaming Revenue (sometimes referred to as “game yield” is another statistic one can look at to see how profitable a casino is.
Gross Gaming Revenue is a figure that showcases the difference between how much money a casino has made through player wagers minus the costs paid out in winnings.
Many people deem casinos with smaller GGR figures to be “fairer”.
Casino Operating Expenses
Every casino has operational expenses, as mentioned above. These can eat into a casino’s profit margins even more so than taxes. Without operational costs, casinos simply wouldn’t exist. Of course, operational expenses have less impact on an online casino profit margin. Online casinos have far fewer expenses than land-based venues, making them more profitable. Let’s explore some of these expenses next.
Infrastructure & Marketing
If you’ve got a land-based casino, it’s fair to say that the building will require regular maintenance. Infrastructure costs can also include electricity, heating, staff wages, lightning, food and drink, and even the hosting of special events.
At the same time, you also have marketing, and casinos do an immense amount of marketing to get their name out there. They must often spend more than online casinos, which can rely on social media and emails to promote their brands. Land-based casinos tend to go all out on marketing, which can include sponsorships, television commercials, posters, billboards, magazine ads and more.
Obtaining a License
Obtaining a license is a costly but necessary process for all casinos. Land-based venues must also obtain licenses. There is more wiggle room with online casinos, but we’d still expect legit online casinos to have to pay handsomely for the best licenses. It isn’t just the licenses that can prove costly, either. Many businesses must have a specific amount of capital (to pay out winnings, predominantly) and adhere to other regulations, lest they be fined. The fines are never cheap.
Below, you will find the average cost of obtaining an online casino license across the world, coupled with the average duration of each license.
|Cost of Casino License
|United Kingdom (UKGC)
While UKGC and Malta licenses are the most trusted, and they don’t appear to be over-the-top when it comes to cost, you should note that both have additional terms. For instance, operators must pay additional fees based on their revenue, and those operators must adhere to all regulations associated with being a license holder.
The UKGC and MGA’s licensing authorities can (and have in the past) issued fines to operators who breach those terms.
For this reason, most small-scale operators find Curacao-issued licenses affordable and ideal. These include many offshore casinos catering to US players.
Why Does the Casino Always Make a Profit
Check almost any casino profit margin, and you will see that they usually make money. Why do casinos always manage to turn a profit? There are some clear-cut reasons why and we’ve explored some of those below. They include:
- Casinos have the house edge on every bet, ensuring a guaranteed income with every bet.
- Since most players won’t win on every hand, the casino is assured of some sort of profit, even if they have to pay out every once in a while.
- Casinos do not allow members to consume food/drink on their premises unless they buy it there, and those prices are often extortionate.
- Casinos require you to play with chips. Many players will wager until they’ve run out of chips instead of exchanging them. Ensuring that casinos can keep players gambling.
- Online casinos have relatively few operational costs compared to land-based ones, helping them turn a larger profit.
- The casinos make the rules for each game, and they always tailor those rules to give themselves an advantage.