Basic question on Economics of Off shore rebates

[Kasept]

Originally Posted by jms62

I don't understand the economics of off shore rebate shops that deal with wales that play millions of dollars at say break even or a slight loss where the rebates push the wale into the black. What is the profit model for the rebate shop in this equation? Why would they continue the relationship? Can someone with knowledge into this enlighten me please?

Business-wise, it's a margin-sharing arrangement that puts a premium on, and relies on, volume. Sharing their margin back to the whale in the form of a rebate, the shop accepts a lower percent of margin on projectably a large amount of incoming revenue secured by the whale's loyalty based on the rebate.

As an example, instead of making .12 cents on a bet (per dollar), they take .04 cents and kick .08 cents back to the bettor. By attracting and keeping the big player that churns, they take a lower profit on a big base. A big player that stays close to even is guaranteed a profit after rebate.

A term for it in retail is merchant banking. The Club Store Industry (as started by Price Club/Costco) operates a similar model. Low overhead, big volume, small margin.