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

Niji Narayan

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The Right RTP for the German 5.3% Turnover-taxation?
Reading Time: 4 minutes

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

Scientific Games to Provide WAVE Retailer Terminals to Bremer Toto-Lotto GmbH

Niji Narayan

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Scientific Games to Provide WAVE Retailer Terminals to Bremer Toto-Lotto GmbH
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Scientific Games Corporation has announced that Bremer Toto-Lotto GmbH, the state lottery in Bremen, Germany is modernising the retail experience with a move to high-performance WAVE retailer terminals.

As part of a new deal with Bremer Toto-Lotto, Scientific Games will provide the new, advanced WAVE terminals along with the Company’s new SYMPHONY EDGE terminal software, cloud-based SYMPHONY terminal management system and software maintenance.

Scientific Games has supplied Bremer Toto-Lotto GmbH with lottery technology for more than 25 years and currently provides the Lottery with its world-leading instant games, a digital lottery subscription programme and a central gaming system. The company is a supplier to all 16 lotteries in Germany.

“Moving to more advanced lottery terminals across our network brings us yet another step closer to modernizing the lottery experience with Scientific Games, our trusted, longtime technology provider. We are confident that this is a very positive move that will be well-received by our retailers,” Michael Barth, Managing Director of Bremer Toto-Lotto GmbH, said.

“As our first SYMPHONY EDGE terminal software and SYMPHONY terminal management system customer in Germany, we applaud Bremer Toto-Lotto GmbH on its innovative vision and leadership in Germany toward modernizing the lottery retail experience,” Matthias Müller, Managing Director Germany for Scientific Games, said.

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Central Europe

Betsson Signs Deal with Masterpiece Gaming

Niji Narayan

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Betsson Enters B2B Sportsbook and Platform B2B Agreement With Masterpiece Gaming
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Betsson has signed a B2B supply deal with Masterpiece Gaming Limited, a subsidiary of German media group ProSiebenSat.1.

 As per this multi-year agreement, Betsson will provide its in-house developed sportsbook and technology (Techsson) as well as customer support, odds, risk management and its Payment Platform (PAAS) to Masterpiece Gaming.

This agreement is in line with Betsson’s long-term growth strategy and confirms the company’s status as a global, in-demand supplier of B2B sportsbook and platform solutions.

“This deal proves that we have a competitive sportsbook product that is attractive and in demand by the market. Adding Masterpiece Gaming to our list of B2B sportsbook solution partners confirms our ambition to be a strong supplier on the B2B sportsbook market as part of our growth strategy. We are proud that Masterpiece Gaming has chosen us as a supplier,” Pontus Lindwall, CEO of Betsson AB, said.

The agreement is based on a performance based product fee and will run for two years, with an option of renewal.

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Central Europe

EMP Expands Riot Games Partnership as New German National Partner for the LEC!

George Miller

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EMP Expands Riot Games Partnership as New German National Partner for the LEC!
Reading Time: 2 minutes

As we gear up for a hot 2021 Summer Season of action at the League of Legends European Championship (LEC), we’re delighted to announce that apparel brand EMP will be joining us as a National Partner of the German LEC broadcast!

EMP is an officially licensed seller of League of Legends merchandise, creating stylish designs based on some of the most iconic characters to hit the Rift. You’ll be seeing EMP appear throughout the German LEC broadcasts, highlighting some of their incredible LoL merch designed to show off your love of the game and the champions within. We’re extremely excited that they’ve chosen to take their partnership even further and work with us at the LEC.

“We’re looking forward to expanding our collaboration with Riot Games, also in the area of sponsorship and events,” says Head of Social & Brand Media at EMP, Philipp Bensmann. “We hope for a fair and exciting season with many unique interactions within the European League of Legends community.”

“Our company differentiates itself through our exclusive merchandise products, including licensed League of Legends merch, and our close relationship with fans,” adds EMP’s Chief Digital Officer, Sascha Müller. “That’s why collaboration with an exclusive, professional and community-adjacent league such as the LEC is an important further strategic step for our gaming engagement.”

EMP are joining us for what is set to be an incredibly exciting season of action. MAD Lions are returning from an impressive Mid-Season Invitational run to prove that they’re not just a one-time winning team. Fnatic are making huge roster changes in an effort to regain their place at the top of the leaderboards. No matter who you’re rooting for, it’s sure to be an incredible season.

The LEC returns today, with EMP as a National Partner for Germany. Make sure to catch all the action on lolesports.com.

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