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The Right RTP for the German 5.3% Turnover-taxation?

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The Right RTP for the German 5.3% Turnover-taxation?
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By: Robert Lenzhofer, CEO & Co-Founder at Hölle Games

So, you may have seen a poll I have published 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?” If you haven’t seen it, here is the poll again for reference:

https://www.linkedin.com/feed/update/urn:li:activity:6790660730564825088/

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.

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 & in my opinion

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.

Update 07/05/2021:

I didn’t mention in this article two other potential solutions. One is directly taxing the customer on the bet and the other is directly taxing the customer on a win (paying the tax-authorities on a bet-level, but collecting funds/tax from players on a win) like currently most sportsbetting companies do in Germany. These solutions also lower the effective-RTP-rate to the customer (just charged at a differing touch-point).

The main issue with those solutions is that an operator ends up with an equivalent-GGR taxation of around 57% which isn’t sustainable. Here are some calculations of these alternative solutions: DE 5.3% Taxation Calculations

Central Europe

ComeOn Group launches in-house developed casino API with Apparat Gaming as first onboarded games provider

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Leading iGaming operator ComeOn Group announced the launch of their in-house developed casino API. The group announced German based Apparat Gaming to be the first games provider to benefit from its new API approach, giving ComeOn’s customers access to a portfolio filled with a wide range of exciting games. The agreement with Apparat Gaming marks an exciting business relationship as both entities have the German market as one of their core focuses for the upcoming years. The games are currently available for the German market with a plan to expand into other markets in the near future.

The new casino API is based on cutting edge, seamless technology that will enable ComeOn’s content partners to quickly integrate and benefit from instant distribution across all its jurisdictions and brands. This is part of ComeOn’s continuous focus on product quality to deliver a top of the line entertainment experience to its customer base.

Cristiano Blanco, Chief Product Officer at ComeOn Group, said: “We are very pleased to see Apparat Gaming using our innovative integration technology to provide their exciting games portfolio to all our jurisdictions and brands. This integration was completed within a matter of a few weeks, showing ComeOn’s technical integration power and the level of experience Apparat Gaming has”

Martin Frindt, Co-founder responsible for the partnerships at Apparat Gaming, said: “It is a great honour that ComeOn has chosen Apparat Gaming for their first API integration. Based on this confidence in our capabilities as well as our upcoming games portfolio, we look forward to a great partnership.”

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Gauselmann Group Granted Licence for Virtual Slots in Germany

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The Gauselmann Group is one of the first providers to be granted a licence to operate virtual slot-machine games in Germany. Since the beginning of August, the Eastern Westphalian company has been authorised to offer its popular and successful slot-machine games online in Germany under the domain www.merkur-spiel.de and thus legally provide first-class gaming fun on the worldwide web.

The Gauselmann Group filed the application for permission to offer virtual slot-machine games with the Saxony-Anhalt State Administration Office back in July 2021.

“We have been waiting in the wings for some time with our range of virtual slot-machine games under the ‘Merkur Spiel’ brand. So we are all the more enthusiastic that we can now offer our online players the chance to enjoy the same Merkur classics that have been played millions of times at our bricks-and-mortar venues. This approval is an important and big step for us towards becoming the best omnichannel provider in the whole of Europe,” said Markus Ettlin, Management Spokesperson of Merkur Sportwetten GmbH.

The development of games content for both the land-based and online segments has been one of the core competencies of the Gauselmann Group for many years. At a total of 13 locations worldwide, gaming specialists develop highly innovative games and game systems based on current market and customer trends, thus always striking the right cord with gaming enthusiasts. While international gaming has long been at home in the digital world, now the German online gaming market is also able to benefit from the innovative games developments of the Gauselmann Group.

The offering of virtual slot-machine games on the Internet complies with the legal requirements set out in the State Treaty on Gambling. The licence certifies that the family-run corporate group fully complies with the regulatory and statutory requirements governing the operation of virtual slot-machine games.

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Central Europe

German games industry has published its annual report for 2022

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German games industry has published its annual report for 2022
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What are the trends in the German games market? How many people are employed in the development and publishing of computer and video games in Germany? And how have the conditions for game development changed here in Germany? Answers to these and many other questions can be found in the ‘Annual report of the German games industry 2022’ that was published today by game – the German Games Industry Association. Over nearly 60 pages, the annual report delivers a comprehensive overview that extends from video game players in Germany to market developments through to regional support measures and fundings. Various German games industry institutions have been given their own chapters, including devcom, the esports player foundation, the Foundation for Digital Games Culture (Stiftung Digitale Spielekultur) and the Entertainment Software Self-Regulation Body (USK), as have gamescom and the German Computer Games Awards (Deutscher Computerspielpreis). As a result, the ‘Annual report of the German games industry 2022’ succeeds in providing an in-depth look at the latest developments in Germany as a games location.

The annual report of the German games industry is published in German and English and is available free of charge on the game website.

 

game – the German Games Industry Association

We are the association of the German games industry. Our members include developers, publishers and many other games industry actors such as esports event organisers, educational establishments and service providers. As a joint organiser of gamescom, we are responsible for the world’s biggest event for computer and video games. We are an expert partner for media and for political and social institutions, and answer questions relating to market development, games culture and media literacy. Our mission is to make Germany the best games location.

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