People look at net gaming revenue as a simple formula, but in reality, this number shows the true profitability of an online casino brand. Some might confuse NGR with GGR, and although both of these metrics are indicators of how profitable gambling operators are, there’s a key difference between them. The Ace Alliance team is here to help you distinguish between them and find out more about what net gaming revenue represents.
What Net Gaming Revenue Means in Practice
Net gaming revenue (NGR) is a metric that shows the actual profit of a gambling operator after all operational costs are deducted. This number indicates how much “pure” profit an online casino makes, rather than the total revenue generated.
The reason why net gaming revenue NGR is important and shows the true financial power of an operator in the online gambling market is that gross gaming revenue may be a high number, but the costs incurred to run the business may also take a huge toll.
As such, even if the gross gaming revenue generated by a gambling operator is in the millions, the operating costs could also be high. For example, an online casino may have a GGR of $3 million in a fiscal year, but if the operational costs are $2.5 million, then that means that the actual profit of the brand is $500,000, which is nowhere near the GGR.
Having a stable NGR is crucial for operators who want to maintain a successful business. Operators can improve NGR by focusing on long-term player lifetime value rather than short-term acquisition costs.
How NGR Is Calculated
To understand net revenue better, one must know how to calculate it. Accurate NGR calculations provide the foundation for evaluating player behaviour and optimising overall business strategies.
The Basic Formula
GGR plays a key role in the calculation of net gaming revenue. The formula that companies use to calculate NGR margins is the following:
- NGR = Total Wagers (GGR) – Total Payouts – Bonuses – Gaming Taxes – Direct Expenses
Operators must establish robust systems and processes to ensure accurate reporting and tracking of NGR. Sustainable NGR growth requires discipline across three levers: cost management, promotional strategies, and operational efficiency. Not only that, but accurate reporting of NGR ensures compliance with the law and plays a key role in avoiding penalties.
Common Deductions, From Bonuses to Taxes
All expenses that a gambling operator has should be taken into consideration when calculating NGR. The important thing that everyone should know here is that calculating NGR isn’t a mathematical equation but a business-defined metric. That’s why every gambling company calculates it differently and takes different operational costs into consideration. Some general expenses that are often taken into consideration are:
- Winnings paid to players
- Licensing fees
- Affiliate program expenses
- Bonuses and promotions
- Taxes
NGR vs GGR: What They Tell You About Profitability
Gross gaming revenue represents the total number of bets that players make at a gambling operator, minus player winnings. This metric is a good indicator of the income of the company and the activity on the website itself. GGR can be a good indicator of the potential of an iGaming business. However, a business may have a good GGR, but its pure profit may be negative if the total expenses are taken into consideration.
This is where NGR comes into place. NGR takes every expense that the business has (taxes, promotional costs, etc.) and shows the real profitability. If you want to check the true operating profit, NGR is the metric that you should be looking into. Better NGR means that the operator is not just attracting wagers, but also managing costs, bonuses, payment fees, taxes, and player payouts efficiently. In other words: GGR shows how much money is flowing through the platform, while NGR shows how much of that money the operator actually keeps.
Why NGR Matters More Than Raw Revenue
The raw revenue will show you the operator’s stance in the iGaming industry. It can also give you a glimpse into its current business performance, but investors care more about the NGR because it’s a better indicator of how stable the company is. The more stable it is, the better the chances are of long-term success. NGR can expose artificial growth, especially when it comes to player incentives.
Here’s an example of how that would work. Let’s say that a new online casino has a lucrative welcome bonus where it offers $50 to everyone who registers and deposits $10. The gross gambling yield will only take into consideration those who have deposited $10 and will deduct any potential winnings that have been cashed out from its average revenue.
NGR, on the other hand, will consider all additional expenses. This includes calculating how much money players wagered versus how much they won with the bonus and seeing what the correlation is between the two. Additional expenses like fees related to keeping the website stable and running, marketing campaigns to attract players to claim that particular bonus, and more are included.
NGR Is More Complicated Than It Looks
On paper, NGR looks like a simple calculus. It’s typically calculated by subtracting all expenses from the total money wagered on a gambling platform. This metric is a bit more complicated than it looks, though.
Different Businesses Define It Differently
Every business defines NGR differently. This is because every iGaming entity has different expenses, but there are also jurisdictional factors that should be taken into consideration. In some jurisdictions, regulators deduct bonuses from the taxable GGR. In the US, for example, bonuses are also taken into consideration in the GGR that’s being taxed.
There’s also the question of the types of games that the casino offers. A good example of that would be a casino that focuses on poker games. Unlike other casino games, the casino’s role in poker is different. In this scenario, the casino doesn’t benefit from the player’s wagers but from the gaming activity and the total number of players that are competing.
Since we mentioned the US, gambling operators put a major focus on sports wagering simply because betting is a more widespread activity than online gaming. Only 6 states have legalised online gambling, whereas in Europe, there are far more regulated markets (Germany, Sweden, the UK, Spain, Romania, Greece, etc.)
It does that via rake. Rake can be collected as a fixed fee, a timely fee, or based on the prize pool. As such, these gaming operators can’t calculate their net profit based on the players’ bets. There’s also the issue of product-specific costs. Applicable taxes and specific bonuses can play a huge role in calculating NGR.
Why This Matters in Affiliate and Partner Deals
NGR plays a key role in all partner and affiliate program deals because they calculate a casino’s overall performance based on this metric. Serious operators are always transparent in this matter because that’s how they can get the best affiliate deals and increase their growth potential.
Reading Between the Lines of NGR
Calculating the NGR is all about paying attention to the details and making sure that it’s related to the iGaming business specifically. There’s no universal formula for this metric. Standard expenses, including bonuses and licensing fees, should be taken into consideration, but an operator should also take a look at other expenses, such as potential payment processing fees.
NGR will tell you all about the financial health of a specific online casino. The better it is, the more stable the business is. Moreover, if the NGR is growing YoY, then that means that the financial performance of the casino is improving and that the casino is experiencing growth.
Final Thoughts on Net Gaming Revenue
Net gaming revenue plays a crucial part in the success of an online gambling entity. It shows the true profit of the operator and its success rate. Serious operators know its importance because transparent NGR reports are key to acquiring affiliate and partner deals. This financial reporting can also be in line with regulatory compliance and enable the entity to operate in a jurisdiction under a valid licence.
When compared to the GGR, NGR has a much more effective role. GGR may reflect the operator’s popularity and activity, but when it comes to the true financial success, NGR is the metric that you should be looking into.