Figuring the house edge

Dec 12, 2000 7:49 AM

QUESTION: What is the so-called "house advantage" on a bet, and how can I calculate it?

GURU: A number of factors go into the house advantage. The most important is the difference between the odds of winning the bet and the actual payoff. Here’s a simple example: a coin flip has even money odds of either heads or tails. From a betting standpoint, this means if you bet $1, you’ll win $1 at 1-1 odds if you predict correctly. If the payoff is less than $1, say 98 cents, then the difference (two cents) is the house advantage. As a percentage, the house would have an advantage of 2 percent.

So what’s the effect of the house advantage? For the aforementioned coin flip, the player will lose two cents for every $1 bet during play. In a short time, the player may win, but in the long run the house advantage will prevail.

For a football parlay, if the actual odds of hitting a three-teamer were 7-1 and the casino paid the player 7-1, the house advantage would be zero. Casinos couldn’t exist on that situation. So, in most sports books, the payoff for a three-team sports parlay is 6-1. In this case, the casino arbitrarily gives itself a house advantage of 12.5 percent.