All businesses have to incur costs in order to make a profit, and that includes online casinos. The initial image of a casino, whether that is a traditional land-based operation or an online platform, is that they are money-making machines that just rake in endless pots of cash. Of the two, an online casino is seen as having a major advantage because of much lower overhead costs than a physical location. But even running an online casino requires a surprising amount of outlay.
The best casinos worldwide spend a lot to attract players. Take, for example, online platforms that welcome Filipino players. If they offer welcome bonuses, those costs are already factored into their overall budget. Even sites with convenient transactions and, say, an online casino 50 minimum deposit requirement — where you can start playing with just 50 pesos — still cover transaction fees paid by the operator. But in what other areas do online casinos face heavy spending?
Marketing Costs
Promoting casino bonuses is a form of marketing, and marketing is one of the biggest drains on an operator’s profit margins. But it is extremely necessary because a casino wants to attract as big a customer base as possible, and for that, they have to build a reputation.
Online casinos make their presence known through advertising, and any time they launch a new promotion, they have to advertise it too, so it’s an endless cycle. Marketing is essential for player acquisition, whether that’s through social media or affiliate programs, and it can account for up to 50% of an operator’s Net Gaming Revenue (NGR).
NGR and GGR
The Net Gaming Revenue is an important number for online casinos. It provides a more accurate picture of profitability over Gross Gaming Revenue (GGR). Gross Gaming Revenue is the total in bets received minus the winnings, so if players bet $1,000,000 and win $930,000, the GGR equals $70,000.
But NGR also takes into account the outgoing costs that the business absorbed to make a profit. So the Net Gaming Revenue is the GGR minus things like bonuses and promotions, payment processing fees, affiliate commission, software royalties and so on.
What takes one of the biggest chunks out of the NGR is bonus costs from the likes of free spins, VIP clubs and welcome bonuses. This can easily account for 20–40% of GGR, so from a 70,000 GGR, up to $28,000 of that could go on promotional costs alone.
What is left after all the expenses equates to profit, and this is going to change throughout a financial period depending on what promotions are around, how much people bet and how much people win.
General Operational Costs
Although an online casino doesn’t have the burden of maintaining and staffing a physical location, there’s still a massive outlay on general costs. Licensing for a jurisdiction is a big hurdle, which can cost anywhere up to hundreds of thousands of dollars. Annual renewal fees also come into the picture, along with legal services that a casino needs to ensure licensing is successful.
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Online casinos have to run customer support, and although AI now plays a major role in this area, it’s still an expense. There are real agents providing support as well, all of which have to be paid. That also covers agents who support key areas like Know Your Customer security checks.
Then there are the substantial technology costs that an online site needs to operate. From server fees and cybersecurity for handling payments, tech doesn't come cheap. Website design, management and software development and updates are all other costly expenditures.
Payments
Linked to online casinos are third-party payment systems, so the casino doesn't handle deposits and withdrawals themselves. When depositing with a bank card, for example, the casino will be charged a commission by the fintech company processing it, which could be anywhere from 2% to 15%.
Royalties
An online casino needs games to operate, and that means linking up with software developers. Software developers allow online casinos to use their titles for a commission, which gives operators a way to generate money, but at a cost. Game providers typically take 10–20% of a casino’s Gross Gambling Revenue.
Balancing the Books
There is always a financial balancing act happening for online casinos, and profit only comes after paying out on all the expenses from the gross revenue. But it’s surprising to see just how much an operator does have to pay out, with the costs of bonuses and marketing making some of the biggest dents in the GGR.
Related reading: the epoch of cryptocurrencies the interface of bitcoin and online casinos in america.
