Questions and answers on those Dead Chips

Questions and answers on those Dead Chips

April 11, 2017 3:11 AM
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Perhaps reflective of the increased competition for Baccarat, I received an unexpected number of phone calls and emails regarding a recent article that broadly explained a marketing program known under a variety of names such as Dead Chips, Rolling Program or Non-Negotiable Commission Program.

In general, these programs are designed to attract players by offering a “commission” on each wager lost to be settled at the end of play. As these commissions are given to the player or in some cases junket representatives regardless if the players net win or lose during their trips, they have become a very popular program throughout Asia. For the balance of this article and as a basis for answering the most common questions, we will assume the offered program requires four turnovers of the player’s bankroll and returns 1.5% as a commission on the first turnover, and 1% on each ensuing turnover with the commission being settled at the end of player’s trip.

Why offer a Dead Chip program? Reasons will vary by region and particular casino marketing needs. For casinos in Asia and Australia they have become an expected norm and are usually offered to customers playing at significant cash levels or to junket groups where the group is playing on front money. In the U.S. these programs are typically used to build market share or to simply incentivize certain premium customers to play cash instead of credit at a particular casino.

What is the impact on the House’s Edge in offering a Dead Chip program? Contemporary game math for baccarat calculates the house’s edge per each bet on the Player hand as 1.24% and 1.053% per each bet on the Banker hand. If the players spread their bets equally between Player and Banker hands, under conventional rules the house would expect to average 1.1465% per hand.

If the Dead Chip program offers a 1% rebate on each losing hand, then the advantages drop to 0.7814% on the Player hands and 0.6060% on the Banker hands for an average House Edge of 0.6941%, a roughly 40% decrease in edge. In our example program the House Edge is lowered to 0.63755%

Why should casinos worry about “chip washing”? In the original article I suggested, when players on a Dead Chip program are winning, the casino should be mindful of players washing chips. This is best explained with a real life example.

A small group had put up $3,000,000 to play on a Dead Chip program and at the end of three turnovers of their bankroll they were up $1million. They asked if they could stop at three turns, cash out their winnings and take the commissions earned to that point.

The casino host told them they were free to cash out, but unless they turned over their bankroll a fourth time they would not qualify for the commission, which at that point was worth $105,000.

They then proceeded to wager $80,000 per hand on Player and $70,000 per hand on Banker such that they were only exposed to $10,000 a hand for 42 hands until they turned their bankroll the required fourth time. The casino manager was happy to take the action as he knew he was a guaranteed winner for that betting action, but he did not consider the pending commission.

While on a per hand basis he was right, the reality was the players were focused on the commission, which at the end of four turns would be $135,000. So, instead of putting $3 million at true risk the players only put $420,000 at risk. Net result on that particular turnover, the players lost $26,500 but qualified for the $135,000 commission net adding $108,500 to the $1 million they were already ahead.

Why should the casino be concerned over multiple different Dead Chip program players playing on the same table? The notion of limiting different Dead Chip program players on the same table is simply good game management. As noted above, the house edge on Dead Chip programs is very low, it only makes sense to try and improve the house’s position on any individual game by comingling the lower house edge players with higher house edge players wherever possible.

Does it really work? A particular Las Vegas casino used a Dead Chip program as part of its strategy to build its baccarat business, but tightly controlled its use to low volume periods and customers outside of its core base. The casino incrementally attracted over $175 million in front money deposits, over a billion in wagers and won over $36 million through the program from new customers; proving the axiom that even with a greatly reduced house edge, as long as there is volume in the wagering category the house will come out ahead.