Casino Float

I’ve been curious about the business of casino operation for a while. One of the things I’ve been thinking about is the float on chips. People buy chips to play games. The chips can be out for a long time before being redeemed.  Chips are redeemed in one of two ways. One is that a customer of the casino returns them to the cashier. The other is that “the house” returns them to circulation. Since the casino has to retain cash to cover the value of outstanding chips they can’t actually benefit from float*. They can count the money as theirs only when the house itself returns the chips to the cashier.

In theory that doesn’t make much difference between the time chips leave the cashier and they time they return is usually pretty short – generally hours.  But sometimes chips stay unredeemed for long periods of time. Some are lost, some are saved as collectables (I have a small collection myself) and some are held in safe deposit boxes (by patrons) for later visits to the casino. In those cases the casino still has to keep cash at the casino to cover the value of chips that are long outstanding. And no float.

What I’ve been seeing lately is casinos bringing in new chips – changing the design, logo, colors, etc – and declaring the old chips no longer valid. They do this with plenty of warning of course. But at some point the chips are no longer redeemable chips in circulation and the casino can take the money that people paid for those chips and use it themselves. This is cheap profit – well as long as the chips cost less to buy than their face value. Since most chips are well less than a dollar to buy (probably much less than a dollar if bought in the bulk that casinos buy them) and a dollar is generally the lowest value chip I think that profit might be pretty good.

I do wonder how much money is involved though. I tend to expect people to turn in chips that are worth more than $5. I’ve sure a lot of $1, $2, $2.50, $3 and $5 chips are never turned in and that they add up to a good number. But how good a number? Is it lost in the noise of total profits or is it a significant number. I figure that casinos have to report this somewhere but I haven’t yet gone looking for it.

Just one more thing that makes casinos more complicated than they appear on the surface.

(*Float being taking advantage of the time between when the customer pays for the chips and the chips are redeemed to invest or earn interest)

One Response to “Casino Float”

  1. Matt says:

    I doubt that they have the full amount in cash. Surely enough to cover more than they issue in a day, but I bet they can bank on a lot being not cashed in the same day. In fact, it’s probably one of those accounting things that’s so thoroughly decoupled from cash flow that it’s hard to answer the question. After a while they’d realize they consistently had $12 million (totally arbitrary) more cash than needed, and start banking some of it for interest. I’m sure there’s a big buffer since not all days are the same, but I bet that if you bought lots of chips every single day over the course of a few years, and then one day cashed them all in, they’d not have enough. Kind of like banks and cash, really.

    Kind of like gift certificates. Besides people who lose or forget about them, you have people who wait months to redeem them, and then lots of people that end up with $3.76 left on a gift certificate to a fancy steakhouse and just throw it out.

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