Cheque Cashing Facilities
The use and potential cost thereof in relation to high end junket play.
By Andrew MacDonald
Gaming Manager, Adelaide Casino, 1994
Introduction | Cost Structure | Mathematics | Associated Costs |
| To demonstrate this mathematically the following is provided:- | ||||||||||||
| = probability group/player wins multiplied by winnings (integration) = mean group winnings |
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| pw | ||||||||||||
| = probability group/player loses multiplied by losses (integration) = mean group loss |
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| ql | ||||||||||||
| Cost to the company of a returned cheque
= mean group winnings less tax benefit Therefore, Cost = 0.8 pw + 0.2 ql Example at 5000 hands for the game of Baccarat using relative probabilities for “Player” and “Banker” and a win percentage of 1.25% at fixed unit betting. An approximation of the integration across the curve of expected win (loss) in association with the respective probability of achieving these wins (losses) yields the following:- pw at 5000 hands = 7.03 units |
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| Therefore Cost | = 0.8 x 7.03 + 0.2 x 69.53 = 5.624 + 13.906 = 19.53 units |
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| which is the same as, | ||||||||||||
| = 0.2 (ql – pw) + pw = 12.5 + 7.03 (see table in Attachment; Tax and Winnings) |
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| 1. = 19.53 units A provision of 0.05% of turnover (hands) is made for labour and expenses= 0.05% x 5000 2. = 2.5 units A provision is also made for commission which would be paid if the group/player won (that is when the cheque is not required to be presented) as opposed to circumstances where the commission would be held back until the cheque clears. This, in the example provided, was set at 0.5% of hands multiplied by the total probability of the group/player winning, = 0.5% x 5000 x 18.67% 3. = 4.67 units Therefore, (Total Cost) = 19.53 + 2.5 + 4.67 If the desired net to gross margin is = 28% Then the net on 5000 hands = 5000 x 1.25% x margin x (1-returned cheque %) |
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| Liability | = chance of returned cheque % x total cost = 10% x 26.7 units = 2.67 units |
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| Therefore Net – Liability = 13.08 units | ||||||||||||
| Desired Net | = 5000 x 1.25% x 28% = 17.5 units |
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| Therefore, margin required to be operated at to meet desired net after any liability is incurred | ||||||||||||
| =
= |
{(5000 x 1.25% x 28%) + (returned cheque % x total cost) } /{5000 x 1.25% x (1-returned cheque%) } 35.86% |
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| To operate at this margin, commission and expenses can only total 0.55%
0.55% = 5000 – 5000 x .2 – 35.68% x 5000 of turnover. This could be further enhanced by incorporating potential bet distribution data and exit criteria, however, this is probably beyond the scope of most but for those interested I am sure reading either my article on “Player Loss” or on “Setting Table Maximum Bet Limits” may help or I would suggest getting in touch with someone like Professor Peter Griffin or Professor Jim Kilby. What has been demonstrated here is that with sound business principles it is possible to extend to high end players large sums via cheque cashing facilities while minimising the overall cost to the company. Alternatively we can keep the same commission levels and cost structures and in moving from cash programs to cheque or credit programs simply accept the potential debt liability as a cost of doing business. In an already low margin, high risk segment it may be too easy though for this to push a formerly profitable business segment into an unprofitable one. |
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