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A Balanced Take on Optimal RTP for New Turnover Taxation in Germany

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A Balanced Take on Optimal RTP for New Turnover Taxation in Germany
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What should be the optimal return to player (RTP)? This is a hotly debated question in the German gambling industry following the changes in the turnover taxation that are scheduled to come into force from 1 July 2021.

While several figures and many theories have been advanced, we found particular LinkedIn post by Robert Lenzhofer, Co-Founder and CEO of Hölle Games, particularly well-balanced and insightful.

We are reproducing the post with minor changes here, with permission from the author. You can find the original post here.

Over to Mr. Lenzhofer now…


I have published a LinkedIn poll recently with the title: “If/when Germany introduces the 5.3% turnover tax, what RTP rate is best suited considering both game-play and effective tax-paid?”

After one week and 120 votes from industry experts, the poll showed the following result:

Picture of poll outcome. 90-92% RTP gets 52% votes. 87-89 gets 33%. 84-86 gets 8%. 81-83 gets 8%. Total 120 vots. Poll is closed

There are a few ways of looking at this, but I think the key take-away is that the industry this poll represents is fairly evenly split between above 90% RTP and below 90% RTP.

The tax explained

First, to ensure we are on the same page, a quick explanation of the tax proposed:

Currently a 5.3% tax on turnover has been proposed and a draft-legislation does exist. I won’t go into the politics and the thinking behind this, but rather try to analyze the numbers.

A 5.3% tax on every bet being placed on an online slot means an operator can not offer an RTP over 94.7%. At 94.7% RTP, the operator would break even exactly on a bet-level, but obviously would lose money as marketing, employees and general operation have to be financed somehow. Considering financial overhead in any operation, that means the maximum RTP a casino is technically able to offer while avoiding bankruptcy is probably around 93% or more likely at 92%. This is the top ceiling and at the same time too high to be profitable.

Now, there is a bit of uncertainty and I’m also not entirely sure if the number to calculate against is 5.3% or rather 5.033%. The tax is 5.3% on turnover, meaning a 1 EUR bet causes a tax of 5.3 cents, which totals to 1.053 EUR. The tax-portion of 1.053 EUR is less than 5.3%. 100*5.3/(100+5.3) = 5.033 resp. 5.033%. I do calculations here in this document based on 5.3%.

How to balance RTP and profitability

We’ve established above that 93% or 92% is the top ceiling, but where is the bottom?

The table below shows how a Slots-operator will be taxed, calculated into the GGR-equivalent %-age number and cross-referenced with RTP. For reference, many other jurisdictions in Europe offer a GGR-based tax-rate of around 20%. As you can see from the table below, the 5.3% tax-rate on turnover wouldn’t be so bad, if players would accept 80% RTP. At 80% RTP, the GGR-equivalent tax-rate is 26.50% and thus a competitive tax-rate.

Table describing various tax rates with respect to betting amount

The coloring I have done here may be slightly biased, especially in terms of RTP so please take with a grain of salt. But if you roughly accept that the red-area you want to avoid on the RTP and on the GGR-% side, then you end up with an RTP-bandwidth between 84% and 91% to play with.

Further, and again granted you accept the coloring, an operator obviously wants to find an RTP in the green and a GGR-% in the green. Here we arrive at 88% and 89% RTP.

Now, a lot has been written that players will not accept such low RTP’s as say 84%. There are counter-arguments made that in land-based slots the RTP is exactly at that level and actually 88% is on the higher-end in land-based casinos.

On the other hand, for many market-participants the number “9” is a psychological blocker. Players, Affiliates and a couple of Slots-Studios I speak to feel very anxious offering product below 90% as this number still feels somewhat close to the industry-average of 94 to 97%. 89% sounds very different than 90%, although it is “just” 1% in RTP dropped.

Sportsbook vs. Casinos

It will be interesting to watch if Sportsbook or Sports-led brands will choose a differing RTP-rate than Pure-Play Casinos. A Sportsbook can more easily stay on a higher RTP and just pause all short-term expenses (bonus, marketing, etc.) and focus on cross-sell. A pure-play Casino will have to look a lot more closely on bottom-line and in my opinion will have a hard time offering e.g. 90% RTP-Slots as the GGR-equivalent tax-rate is 53%.

Game-Mechanics?

Will there be new Game-Mechanics invented to combat this problem? Looking at the table above again, the second column states how many spins a player on average can make until 1 EUR is spent depending on the RTP-Level. At 95% RTP this is 20 spins. Now, if a Game-Mechanic can be invented that provides a low mathematical RTP while at the same time provides a similar amount of real spins, then this could be a solution to the problem.

Conclusion

The above explanation is in no way complete – there are actually interesting studies which analyze how much an RTP is “felt” by the player and there is probably very good data the land-based industry has to offer.

But, to move away from being neutral, here’s what I personally think: The reality will be that everyone will push the RTP down and experiment with the lowest acceptable RTP as this maximizes their income. As such, come 1st of July, we’ll see a lot of RTP’s experimented with. Imagine you are a pure-play casino and you can provide a Game-Mechanic that feels good to the player and has a nice session length, while staying at or below 40% GGR-equivalent-tax. I believe things start to fall apart financially for an operator at 40% tax-rate. If you own your own media-assets and have good deals with your suppliers and run a tight operation then a 40% tax is possible to do really well in Germany. That means, the average-RTP across the portfolio will have to be around 87-88%. I think you can mix in 91% games into the portfolio just so that is part of the portfolio too, but the majority of revenue of the white-market in Germany will in my opinion come from Slots around 88% RTP. And since some games will be mixed in at 90/91% you can expected some slots to be mixed in at 84/85% rate as well.

 

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Central Europe

Hölle Games Go Live on Bet-at-home.de

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2024 has started off with some exciting launches for the Berlin-based start-up Hölle Games, who continue their strategy and desire of providing top content for their home market. With the latest launch on bet-at-home.de, Hölle Games becomes one of a handful of game suppliers to offer their content on the site, joining a select few prestigious studios like Merkur and Blueprint, all which have been approved to offer their games.

Bet-at-home has a long pedigree, stretching back to its founding in 1999 in Austria. This long history in iGaming means they are now both a household name and a well-respected brand for German speaking casino fans and sports bettors.

A huge chunk of content, from Premium titles like “Autobahn Automat”, to Classic franchises such as “Höllische Sieben” and “Steinreich” are already available on the site, with more to follow.

Robert Lenzhofer, CEO of Hölle Games, said: “I’m thankful for the efforts of the bet-at-home team and especially grateful for Marco’s support – it’s always a pleasure to work with colleagues from the early days of one’s career – thank you Marco.”

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Central Europe

Bundesliga International and Sportradar Announce Long-Term Extension of Exclusive Partnership

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Bundesliga International, a subsidiary of DFL Deutsche Fußball Liga, and Sportradar announced the extension and expansion of their global partnership for an additional six years, through to the end of the 2031-32 season. Over the course of the extended agreement, the two parties will collaborate on bringing to market innovative data and audiovisual products that enhance the offering for fans around the world.

The current partnership was scheduled to conclude at the end of the 2025-26 season. However, with this early renewal, Sportradar receives the rights to:

  • Sublicence video content from Germany’s top two divisions to its global network of sportsbook clients;
  • Collect and exclusively distribute live match data for betting purposes, collaborating with Bundesliga and its stakeholders on an aligned approach for media data (from the start of the 2025-26 season);
  • Provide betting and streaming rights for all matches in the WOW Virtual Bundesliga, the DFL’s esports offering;
  • Expand the product and enhance the scope of Sportradar’s Virtual Sports Bundesliga, the company’s one of a kind interactive gaming experience;
  • Further combat match-fixing, with the inclusion of education and prevention services, in addition to the existing bet monitoring through Sportradar’s Universal Fraud Detection System (UFDS), reinforcing both partners’ commitment to integrity.

This extended agreement continues Sportradar’s status as the official provider of betting and streaming rights for the Bundesliga and Bundesliga 2 (outside of the DACH region) and includes other DFL properties such as the German Supercup and each season’s relegation playoff matches. It also enhances Sportradar’s position to collect and distribute official data.

As two leaders in the advancement of sports technology, innovation is a key pillar of the partnership. Both parties are committed to developing exciting new products and services to engage the market and create immersive experiences for sports fans across the globe.

Peer Naubert, Chief Marketing Officer of Bundesliga International, said: “The Bundesliga has long been regarded globally as a frontrunner when it comes to cutting edge innovation, and our long-term partnership with Sportradar continues to reflect this. From the start, we have been aligned in pushing the boundaries of technology for the benefit of the fan, and this early prolongation, which by the end will take us to more than 25 years of collaboration, is an outcome of the trust and excitement we share for the future.”

Moritz Gloeckler, SVP of Rights and Strategic Projects at Sportradar, said: “We are the ideal partner to work with the Bundesliga in widening and deepening their fan base through the development of new AV and data-driven products, using the latest technologies such as augmented streaming and AI. This agreement aligns with our broader strategy to selectively invest in long term rights across key global sports which enable the continued innovation and enhancement of our offerings for our clients. We look forward to many years of partnering with the Bundesliga to redefine the soccer fan experience.”

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Central Europe

Low6 equips BETFAN with free-to-play arcade games

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Low6 equips BETFAN with free-to-play arcade games
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The multi-game partnership sees the legal Polish operator build out its proposition by appealing to the nostalgia of much-loved games

Low6, the leading gamification innovator, has secured an agreement with BETFAN, a new legal Polish bookmaker, to deliver a suite of free-to-play games. The operator has earmarked Low6’s pioneering spin on free-to-play games as a strategic addition to their product offering to retain and boost their active player base.

The new product offering will launch BETFAN’s first arcade-style game, Horse Race. The side scroller game challengers players to navigate a horse between sporting objects by tapping their touchscreen or mouse. The further they progress in the game, the more points they earn.

The portfolio will also include a Bingo game where players will be issued a digital card of sporting events that are marked-off in real time with in-play action. Players are rewarded by getting a line or full-house on completing their card.

“Our goal is to make constant progress.” comments Jakub Świsłowski, Vice President of BETFAN. “The future of our sportsbook division sees free-to-play games as a key development in our product offering. We truly believe that our partnership with Low6 will allow us to make a huge difference in the Polish market and this cooperation will also open up new doors for sportsbooks in Poland”.

“BETFAN, like Low6, are focused on innovation and we’re delighted that part of our portfolio of games will be implemented within their product suite.” comments Jamie Mitchell CEO of Low6. “That our first game is delivered as a new, innovative arcade solution means we have something that the betting market has never seen before. We can’t wait to flick the switch and launch our arcade offering to the wider sportsbook and igaming verticals.”

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