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Gross Gaming Revenue (GGR)

The difference between the amount of money players wager minus the amount that they win

What is Gross Gaming Revenue (GGR)?

Gross gaming revenue (GGR), also called game yield, is a key metric used by gambling and betting companies. It reflects the difference between the amount of money players wager minus the amount that they win. It is important to note that gross gaming revenue is equivalent to “sales” or “revenue” – not “profit” or “earnings”.

 

Formula for Gross Gaming Revenue

The formula for calculating gross gaming revenue is the following:

Gross Gaming Revenue

 

Where:

  • Amount wagered refers to the amount of money collected from gambling and/or betting transactions
  • Winning payouts refers to the amount of money that’s been paid out to customers for winning

 

Quick Summary:

  • Gross gaming revenue (GGR) is a key metric used by gambling and betting companies. It represents the difference between the amount wagered minus the amount won.
  • GGR margin measures gross gaming revenue as a percentage of the amount wagered.
  • It is not atypical for gambling and betting companies to report a cost of sales of zero.

 

Gross Gaming Revenue Margin

Gross gaming revenue (GGR) margin is calculated with gross gaming revenue as a percentage of the amount wagered. Typically, the GGR margin is stable, with slight deviations due to a player’s skill/luck. The GGR margin is calculated as follows:

 

GGR Margin - Formula

 

A higher GGR margin is always desirable, as it indicates that the company is retaining more money relative to the amount of wagers made.

However, the GGR margin for the industry is typically in the low-to-mid teens due to the nature of the business. Companies need to incentivize players to make bets, and they do so by offering high payout percentages.

 

Practical Example

Anticipating legalization of online sports betting in the United States, John is looking to start an online gambling and betting website. Due to having limited capital, he is initially only able to introduce one type of game on his website. John looked into other companies and compiled the information below. Assuming that the popularity for each game will be the same on his website (as in, the total wagered will be identical), which type of game would generate John the highest revenue?

 

Sample Data

 

To determine which type of game would generate John the highest revenue, we can determine the GGR margin of each.

Sports betting: ($1,523,123 – $1,324,214 / $1,523,123) = 13.06%

Casino games: ($950,123 – $877,656 / $950,123) = 7.63%

Sports betting offers a higher GGR margin and would, therefore, generate a greater amount of revenue for John.

 

Gross Gaming Revenue on a Financial Statement

Gambling and betting companies commonly report a cost of sales of zero on their income statement. The reason being is that there are no inventories and/or costs directly associated with their revenue-generating activities.

For example, The Stars Group (TSE: TSGI) only recently started reporting its cost of revenue, which consists of gaming duty, processor costs, and royalties. Previously, these line items were reported under selling, general, and administrative expenses.

As a result, many gambling and betting companies do not include a gross profit line on their income statement. The typical income statement of such a company may look as follows:

 

GGR on a Financial Statement

 

Therefore, the gross profit margin, calculated as total revenue minus cost of goods sold (COGS), divided by total revenue, is a metric seldom used by gambling and betting companies.

 

More Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:

  • Bookie
  • Projecting Income Statement Line Items
  • Revenue Streams
  • Top Banks in Macau

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