The mathematics and marketing of dead chip programmes: finding and keeping the edge

Abstract

A general perception exists among casino executives that the premium players contribute a disproportionate share of profits. Consequently, to attract and retain high‐end customers, many casinos are using ‘dead chip’ programs and other incentives. Dead chips are non‐negotiable chips that are not exchangeable or redeemable and cannot be used for any purpose except to gamble. Very often the result of such a program is to reduce the effective statistical advantage of the house on games played. This article provides a mathematical framework to determine the effective house advantage under dead chip programs with applications to a variety of games and discusses the marketing and management implications of dead chip programs in light of these results.