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16 October, 2021

The Difference Between GGR and NGR

The iGaming industry is competitive. Whether you want to start an online casino, a sportsbook, or both, you need to clearly understand the costs associated with running your operation. One of the most important calculations for operators to consider is the difference between GGR and NGR, and how the two can impact your bottom line. This article is geared toward people who are considering launching a new iGaming platform or adding additional games and/or a sportsbook to their existing platform to help them understand the difference between Gross Gaming Revenue and Net Gaming Revenue.

The most common iGaming technology fee structure

As an iGaming operator, you typically pay a monthly fee to your online casino or sportsbook platform provider that is calculated as a percentage of GGR, or Gross Gaming Revenue. GGR is easy to calculate. It represents the absolute difference in player wins vs player losses, also known as “hold”. GGR does not include any expenses such as salaries, bonuses, or promotions. That means if your online casino or sportsbook has $1,000,000 in Gross Gaming Revenue in one month, your players lost $1,000,000 more than they won on casino games or sports bets. As mentioned previously, white label casino software or sportsbook software providers normally charge operators based on a percentage of GGR. Percentages typically scale by volume, meaning that the higher your GGR in a given month, the lower the percentage charged by your platform provider.

Calculating GGR

We’ll look at a simple example to calculate this metric. Say your casino software provider charges you a monthly fee of 10% of GGR, and over a two month period your players lose a total of $1,800,000:

January

Player wins: $800,000
Player losses: $1,600,000
GGR: $800,000

February

Player wins: $1,000,000
Player losses: $2,000,000
GGR: $1,000,000

Taking 10% of player losses over those two months, you would pay your technology provider $80,000 in January and $100,000 in February.

Less common fee structures

There’s a reason why casino software providers normally charge operators as a percentage of Gross Gaming Revenue rather than as a percentage of Net Gaming Revenue. Similar to Gross Gaming Revenue, Net Gaming Revenue is a common performance indicator in the iGaming industry. Unlike GGR which has a clear calculation, NGR calculations can vary from operator to operator. For instance, NGR can be as simple as taking GGR and deducting player bonuses, or as complicated as including the cost of affiliate programs, staff salaries, and other marketing 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.

Calculating NGR

Let’s use the same example as before and now calculate NGR.

January

Player wins: $800,000
Player losses: $1,600,000
GGR: $800,000
Deductions for bonuses and promotions: $200,000
Monthly salaries: $100,000
NGR: $500,000

February

Player wins: $1,000,000
Player losses: $2,000,000
GGR: $1,000,000
Deductions for bonuses and promotions: $300,000
Monthly salaries: $100,000
NGR: $600,000

Taking 10% of NGR based on this calculation, you would pay your technology provider $50,000 in January and $60,000 in February.

An even less common fee structure some iGaming software providers charge is based on 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, you are expected to have Gross Gaming Revenue of $500,000. However, variance plays a key role, and you will almost certainly not have Gross Gaming Revenue 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.

How do GGR and NGR affect operators?

The 3 most important things you should consider when reviewing the fee structures of iGaming technology providers are:

How much GGR you will be sharing with your iGaming technology provider as part of your partnership, since GGR is akin to Gross Revenue. Just a couple percentage points in GGR can have a significant impact on your 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 your bottom line. Let’s look at a quick example of an operator who 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!

Most iGaming technology providers have monthly minimum fees. This means that even if you have a down month where you did not generate your usual wagered volume, you could potentially end up owing more money than you generated to your iGaming 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.
You should also ensure that you have discounted rates as your 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 a significant impact on your profitability.

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 how to evaluate casino software providers and how to start an online casino. If you want to learn more about other important financial metrics for iGaming operators, check out The Ultimate iGaming Operator Finance Playbook here for a deep dive.

Ready to get started with Lion Gaming? Contact us here or send us an email at hello@liongaming.io to learn about our groundbreaking Fer0x Engine and how our advanced iGaming technology can help you succeed in this industry.

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Christine Lewis

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      Our address
      Lion Gaming Group Inc.
      855 2 St SW #3500
      Calgary, AB
      T2P 4K1 Canada
      Our address
      Lion Gaming Group Inc.
      855 2 St SW #3500
      Calgary, AB
      T2P 4K1 Canada