Because of the somewhat unusual business model of the online casinos, many people are wondering how do they make money? Especially when you add up the myriad of bonuses, reward programs, gigantic progressive jackpots, and let’s not forget the many no deposit bonus offers, it’s no surprise that many folks want to know how the online casinos make money. In this quick guide we will explain exactly this – how do online casinos make money.
To get to the bottom of this, first we need to realize that there is no mystery involved here. The online casinos are just like any other business in the world – you add the revenue, you minus the expenses and whatever is left is the profit, i.e. the money an online casino makes. So, let’s look at each of those factors separately and see how the internet casinos make money.
Adding up the revenue
This is the simplest of equations, when we consider that the online casinos operate exclusively, well, “online”. Unlike traditional land-based casinos, which may have multiple revenue streams, such as from restaurants, adjacent hotels, shows, etc. The online casinos, due to their internet-exclusive nature, don’t really have any other revenue streams other than the money people lose playing the casino games.
A small side-note, here we are looking at the pure online casinos, i.e. those gaming businesses which are 100% online. With legalization of online gambling in many parts of the world, including in the US, there are quite a few land-based casinos which also offer an online version. Those, of course, would follow a completely different business plan.
Back to the revenue of the pure online casinos, the income comes completely and fully from the players’ losses. At this point you may be thinking that the casinos must be shaving their players quite a bit, since the only way they can make money is when their customers lose money. But you’d be wrong for two reasons.
First, if all you did at a casino is lose, then it won’t take long for people to abandon that gaming website. Not to mention the wrath that would fall on such casino when people begin to voice their opinion and share their miserable experience on the various online outlets, such as social media, forums, blogs, etc.
The second reason comes next, namely the much lower expenses an online casino incurs, compared to a land-based, offline one.
Subtracting the expenses
The fewer (and smaller) expenses each online casino has are one of the contributing factors to how the online casinos can make money without robbing their customers blind. If we compare even a portion of the expenditures a traditional land-based casino incurs to those of the online casinos, it becomes clear that their internet-based counterparts have a drastically reduced operational cost.
One example would be the lack of a building to hose the casino. While an offline casino will need to buy the building and the land, pay property taxes, staff it with people to maintain it, clean it, take care of the guest, etc., the online casinos have no such expenses. Sure, the online casinos will still have to hire a decent size staff – for customer service, in the payment department, IT personnel, the size is dwarfed by the number of people an offline casino needs to employ. The online casinos will have to spend money on servers, security, internet connection and other such overhead, but once again, compared to a traditional brick & mortar casino, those expenses seem like peanuts.
The largest expense an online casino has is, you guessed it, the large number of bonuses given away to their customers all day, every day. Of course, if the player loses the bonus, it’s not really an expense, but as we all know, plenty of people end up winning real money from playing with the casino bonus money, so that charge is quite a liability for the online casino.
Another big chunk of the casino revenue goes to advertising and player acquisition. While most land-based casinos are well-known brands, and in the case of Las Vegas or Macau, have an entire city pretty much dedicated to them, the online casinos are facing bigger difficulties in developing a name recognition. To do so and distinguish yourself from the dozens of other online casinos, you not only need to offer a superior product, but you need to ensure that people would actually try out your product in the first place. Thus, advertising becomes quite the expense for every online casino.
The final tally
In the end, just like any other business, you take the revenue, subtract the expenses and what’s left is the profit. This has been a quick guide to how the online casinos make money, we tried not to bore you with intricate details.
For example, we didn’t really touch upon expenses such as licensing fees the online casino has to pay to the software developer. The online casinos do not create their own games, much like the land-based casinos don’t have their own factory that designs and build slots, so they both outsource this function to other companies, for which they have to pay.
But the basics of how the online casinos make money is fully covered. An online casino will require a careful planning in order to strike a balance between their need for profitability and the need for players to win money when they play their casino games. It sounds easy on the surface, but the realist is such that many online casinos simply don’t make it past one or two years of operation. Cost of player acquisition, failed marketing campaigns, and even a string of big winners could easily put an online casino under.
This may force some of the casinos to turn to shady or outright illegal practices – slower payouts, missed payments to winners, lack of newer games, or downright vanishing with people’s money are things that may occur if a casino fails to deliver on their initial business plan. Thus, it remains very important for players to choose their online casino wisely and play only at reputable casinos whole have been in the industry for many, many years. Sticking to the very best online casinos would ensure that your experience will be fun and trouble-free.