Breaking Down GGR and NGR
In the iGaming industry, one of the most important considerations for operators is the costs associated with securing their games from iGaming technology providers. This article is relevant to new operators who are considering launching a new platform or adding additional games and/or a sportsbook rather than existing operators, to help them understand the difference between GGR and NGR.
Common iGaming Technology Fee Structures
Typically, operators pay a monthly fee that is designated in GGR, which stands for Gross Gaming Revenue. GGR is a simple performance indicator to calculate. It represents the absolute difference in player wins vs player losses (also known as hold). GGR does not include any expenses, so if an operator had a GGR of $1,000,000 that would mean that for that time period, their cumulative base of bettors lost $1,000,000 more than they won – excluding including any bonuses or promotions.
iGaming technology providers normally charge a variable rate that is dependent on the operator’s hold, with starting costs of ~10% GGR paid monthly.
Lets look at a simple example:
We’ll look at a simple example of a GGR calculation. If an operator uses a Black Jack product with a 10% GGR share structure, and they have the following monthly holds:
- $100,000 in June
- $80,000 in July
Then the operator would pay their technology provider $10,000 in June and $8,000 in July.
Less Common Fee Structures
Some iGaming providers charge based on handle and the expected value of the handle rather than on the actual hold. For instance, if a game has a house edge of 5%, and $10,000,000 is wagered on that game, the house is expected to have GGR of $500,000. However, variance plays a key role, and the house will almost certainly not have GGR of exactly $500,000. Fee structures based on expected value, opposed to the actual hold, leaves operators at risk in the event that players won more than expected – or conversely benefit from players losing more than expected.
An even rarer fee structure is one based around NGR, or Net Gaming Revenue. Similar to GGR, NGR is a common performance indicator in the iGaming industry. Unlike GGR which has a clear calculation (simply weigh player wins vs player losses), the way NGR is calculated can vary depending on what expenses are included. For instance, NGR can be as simple as taking GGR and deducting player bonuses, or as complicated as including the cost of affiliate programs and advertising spend.
Since NGR is impacted by so many factors and is largely dependent on how aggressive an operator is with their bonuses and promotions, it is not a great metric for revenue sharing agreements, but rather as a in-house KPI for operators.
How does GGR or NGR affect me as a prospective operator?
The 3 most important things prospective operators should consider when reviewing the fee structures of their technology providers are:
- How much GGR they will be sharing with their iGaming technology provider as part of their partnership, since GGR is akin to Gross Revenue. Just a couple percentage points in GGR can have a significant impact on their NGR which is similar to Net Revenue. Since GGR is the gross revenues before any expenses, the percent paid in GGR has a multiplying effect on an operator’s bottom line. As an example, an operator is paying 15% of their GGR to their iGaming technology provider, while having margins of 25%. If this operator were to be paying 10% in GGR instead of 15%, it would improve their profitability significantly since each percentage point in GGR would boost their bottom line by 4%. In this example, the operator would increase their net profit by 20% just by paying 5% less in GGR!
- Many iGaming technology providers have a monthly minimum. This means that even if an operator has a down month where they did not generate their usual wagered volume (and as a result, hold decreases), they could potentially end up owing more money than they generated to their technology provider. Due to this, it is important to work with a betting technology provider who prioritizes their relationships with their clients, and has the leeway to accommodate unusual circumstances. As the popular saying goes, the customer is always right.
- Operators should also ensure they have discounted rates as their hold increases. While many technology providers will offer substantial discounts (cutting their share of GGR by as much as half) for operators who have higher handle and hold, some technology providers have a flat GGR share regardless of the GGR generated. To reiterate the first important point we highlighted, even small changes to a GGR share can have large impacts on profitability for an operator.
Now that you are more familiar with the fee structures of iGaming technology providers, it’s time to learn how to evaluate different technology providers. Check out our posts on The Most Important Factors To Consider When Selecting A Sportsbook Provider and 20 Questions To Ask Betting Technology Providers.