How profitable are online casinos?

Gambling is full of sayings that hint the odds are not in the punter’s favour: ‘you never see a poor bookmaker’ or ‘the house always wins’. And, considering the gambling industry rationally, it’s obvious this is the case. They are businesses, and businesses exist to make a profit. In the case of gambling that profit comes from punters paying more in stakes than they take in winnings.Establishing exactly how profitable online casinos are is difficult, though. Casinos, like any business, are naturally reticent to share too much information about their business operations and the international nature of gambling, meaning that many casinos operate through complicated ownership structures to minimise costs, makes it incredibly difficult to say with certainty how profitable individual casinos may, or may not, be. However, there are ways to get an idea of how profitable online casinos are. Beware, lots of numbers follow!

The maths

The basic principle behind the gambling business model is the same regardless of the type of gambling. While the gambler hopes for a big win, the bookmaker or casino is simply hoping that people spend more in stakes than they win. This is, essentially, a mathematical process.In bookmaking, especially for events where there is large interest in a high level of public knowledge and understanding, these odds often reflect the market but the bookie will also adjust these. The bookmaker’s aim it to, hopefully, cover all outcomes. Knowing they will pay out on something, they hope to make their odds attractive enough that punters will place enough bets on all the outcomes that their total takings will more than cover the winnings they have to pay out.An online casino will operate in a similar way. Their games will be managed so that, when played over a long period, the player will pay more than they win. Casinos licensed in the UK are required to publish the ‘return-to-player’, or RTP, for their games. This figure, essentially, details the profit margin that those games operate. Online slots, for example, typically have an RTP in the mid-nineties, giving them around a 5% profit margin. This may seem small, since operating costs have to be deducted from that figure. However, with high numbers of players, often playing with large amounts, it soon adds up to a significant amount.

The costs

The operating costs of an online casino, while not insignificant, are not necessarily high either. One of the benefits of online business is that many of the overheads often associated with business are absent. Compared to traditional bookmakers and casinos, online casinos can operate at scale with relatively low costs. They do not need to own or rent properties, and avoid the additional costs, like taxes and maintenance. Online casinos also have different staffing requirements.While any online operation will require a number of technical staff to operate and maintain the software and hardware, they do not need any of the staff associated with off-line gambling. There is no-one needed to service physical machines or to deal with customers when the operation is largely self-service.Gambling Commission figures show that online gambling, including both betting and casinos, employed just under 10,000 people in the most recent year they have published figures. By comparison traditional betting shops and casinos employed nearly 60,000 people in nearly 7,500 active premises.There are costs that both traditional and online casinos have in common. They will both have to pay registration and licensing fees to the Gambling Commission, which can be high, and both will have to pay gambling tax.Online casinos do have some costs that are unique to them. Aside from the operating costs associated with the internet they will also have to pay licensing and maintenance fees for their software or, if operating as a white label where they pay another operator run the casino using their branding, they will likely have to share some of their profits.

The turnover

The Gambling Commission publishes data on the state of the gambling industry that indicates the amounts of money involved. Showing a general trend of remote betting and gambling increasing in popularity, largely at the expense of non-remote options, the most recent figures show that, in the year to September 2019, online casinos had a gross gambling yield — the difference between the money they took and the money they paid out — of £3.19 billion.The commission’s data provides an interesting insight into where this comes from. The total turnover of online casinos in the year was a staggering £91.9 billion. Slots made up the biggest share of that, contributing 62% of the turnover and 69% of the yield, making it the most profitable element of the casino’s business both in terms of volume and margin.It also gives an idea of the online casino industry’s size and growth. Just ten years before it generated a yield of just £33 million for operators. From that it has grown so that it has now, just, eclipsed even the National Lottery’s gambling yield.

The gaming duty

The question of how profitable online casinos actually are is much harder to calculate. The gross gambling yield is not pure profit, but a simple calculation of stakes taken less winnings paid. The casino will still have to pay their operating costs, even if these are lower than traditional casinos the running costs of staff, equipment, marketing and fees will quickly add up.We can estimate profit from the gaming duty the Treasury receives. But this estimate can only be approximate. Although remote gaming duty, paid by all online casinos, is a flat rate of 21%, other gaming duties are on a sliding scale. Land-based casinos, for example, will pay anything between 155 and 50% depending on the type of games they offer and size.Additionally, the Treasury does not offer a detailed breakdown of their tax take, merely a total of all the monies they have received for betting and gaming. This, however, is enough for a back of an envelope calculation.In the same year that we have Gambling Commission figures for, ending in September 2019, the Treasury reports taking £2.99 billion in betting and gaming duties. The Gambling Commission reports a total gambling yield, from all types of gambling, of £14.3 billion, meaning the average duty paid was just under 21%. Surprisingly, and conveniently for our purposes, the flat rate remote gaming duty is about the average level of duty for the whole industry.We know, using Gambling Commission figures, that online casinos accounted for about 22% of the total gambling yield so it’s reasonable to assume they paid about 22% of the gaming duty, or about £658 million. This figure is 20.6%, and very close to the 21% remote gaming duty. However, even with the best accountants it’s hard to see how they would get it much lower. In an industry with a £90 billion turnover, but relatively low fixed costs and only 10,000 staff, it’s hard to see how the operating costs will amount to anything more than the tiniest fraction of their yield.

How profitable are online casinos?

The ultimate answer depends on your view. In many businesses the answer would be not very, typically there’s an expectation a profit margin will be between 10% and 20%. Casinos fall some way short of this. Based on the assumed figures their net profit margin, after tax and costs, is only 2.7%. However, it is a very high turnover business. While other sectors might not be able to make it worthwhile to operate for that level of profit, the sheer volume of online gambling means that even a meagre 2.7% adds up to a lot.It’s also important to note that there are relatively few operators sharing that pot. The Gaming Commission reports only 648 remote licences, including those for bingo and betting. Even assuming that these 648 licences were all for online casinos, they would still on, average, be paying around £1 million each on duty, but still taking nearly £4 million in profit.Not all operators are equal, of course, some online casinos will be making far more than others. But even the average casino will be a big business. That meagre £4 million in profit will need a turnover of around £148 million and there are not many businesses able to operate at that scale.While the sums are huge, it is a result of the sheer size of the gambling industry, not because casinos are fleecing their customers. Knowing that in your everyday shopping you can expect one-tenth or even one-fifth of the price you pay to form somebody’s profit margin, makes the margin at an online casino look much more reasonable. You gamble hoping that luck is on your side and you’ll win, but if you don’t, the vast majority of your money rewards someone else’s good luck, while less than 3p in the pound makes it into the casino’s pockets.