Guest Post: Changes to Slots Game Mechanics to Boost Onshore Market Could Lead to Optically Lower Onshore Channelisation

Josh Hogdson, Chief Operating Officer, H2 Gambling Capital

Since regulation came into effect in July 2021, virtual slots in Germany have been subjected to a 5.3% tax on player stakes, although this tax is excluded from the taxable base, making the effective tax rate approximately 5.03%. By taxing stakes rather than gross gaming revenue (GGR), the more traditional taxation model, every bet, win or lose, is taxed rather than only taxing player losses (i.e. operator revenues). As operators are being taxed on bets where they lose money, rather than just being taxed on their revenues, operators are forced to materially change their pricing structure, which in turn alters the dynamics for the player.

Traditionally, the return-to-player (RTP) of a slot game is about 95% - meaning that an operator has a c5% GGR margin. Keeping to this model, an operator would pay 100% of its revenues in tax – not a commercially viable business model. The only way to get around this is to increase the GGR margin – which means to offer a lower than desired RTP.

The average RTP offered by German onshore operators in 2024 was 88.5%, a significant gap to similar markets where GGR is taxed instead. For comparison purposes, we use the UK and Ontario markets as they both report slots / iCasino turnover as well as GGR (a number of markets don’t report slots turnover). The UK reports gross gaming yield (GGY) after bonuses, so adjusting for player bonuses, the data suggests a RTP of 94.4%-95.0% over the past 3 years. As for Ontario, their recently regulated market only reports total iCasino turnover and GGY after promotions but adjusting for both of these (and the fact that slots are the significant majority of iCasino gross win), the data implies that the average RTP is also around 95%.

Ontario is a good example of a comparable market to Germany as it regulated shortly after Germany itself did, having been a market that was openly targeted by offshore operators who then had the opportunity to become locally licensed - much as in Germany. However, Ontario opted to tax GGR (at 20%) rather than stakes, allowing operators to set GGR margins at what they believe to be most viable to attract players to their onshore offering and as a result, there is a meaningful difference in the RTP offered.

There are a number of other dynamics that make the market less attractive in Germany than in Ontario (deposit limits, time between spins, no table games etc), but the significantly lower RTP materially changes the user experience. If we compare the size of the Ontario market in the quarter before regulation to that 2 years later, the market has grown 3-fold. We compare this to Germany and use the tax data from late 2021 as the pre-launch market size. This is tax paid by operators accepting German players, but prior to having to get an actual license (and therefore not having to comply with all the German regulations). Tax from the last quarter of 2021 implies a GGR of €360m in that quarter. Operators who chose to remain in the market and get licensed generate GGR of just €132m in Q4 2024 – a fall of 63%.

Germany Virtual Slots / Ontario iCasino GGR from Licensed Operators (Indexed to 100)

Source: H2 Gambling Capital, August 2025

Tax Surcharge

Operators have realised that, amongst other challenges, the low RTP is impacting the attractiveness of the onshore product offering. In order to try and combat the increased interest in the German offshore market and improve channelisation, a number of legal operators are beginning to take the turnover tax directly from the players as a surcharge, rather than pay it from their own GGR. In this case, a €1 spin would either be accompanied with a 5c surcharge, or a €1 stake could have the 5c taken off, so the effective stake becomes 95c. By doing this, operators are able to offer competitive RTP’s as the tax is already accounted for. This is very visible to the player as RTPs of slot games are clearly shown to the player.

The hope is for players to see the higher RTP and therefore the higher payout and recycling of winnings providing a more enjoyable gaming experience along with the perception of better value when in fact they are in the same financial position as before due to the surcharge. Anything that increases the attractiveness (or even the perceived attractiveness) of the onshore market is a positive. However, this has a hugely distortive impact on the reported market data.

Reporting Differences

The table below illustrates the potential differences in reporting if the majority of operators were to adopt this surcharge. From the perspective of players, the government and operators, nothing would change as player losses, tax paid or GGR post-tax would all remain the same. However, from a market analysis perspective, there is a material change to the market metric, reported GGR, declining 44%. Therefore, when we inevitably see GGR fall in the market, it will be difficult to attribute this clearly between market weakness and any change to game dynamics.

As a result, turnover will now have to be adopted as the primary metric for this market, which does not come without its own difficulties. Not only is turnover also affected by this change, albeit less materially than reported GGR, down 5%, but turnover is not typically provided by other markets making it considerably harder to compare across markets.

Potential Difference in Reported German Tax Data

Source: H2 Gambling Capital, August 2025

Summary

In short, anything that makes the onshore market more attractive to players is beneficial but not for industry commentators. When adopting this new method, onshore online slots would no longer be a €489m GGR market but rather a €274m market. This change would result in an apparent decline in channelisation, even though in reality, player activity remains unchanged. This adds yet another layer of complexity to one of Europe’s most complex markets. Usefully, the German regulator, GGL, has begun providing data on the onshore market, however these operational changes are now likely to blur this data making analysis even more difficult.

Copyright H2 Gambling Capital 2025

Disclaimer

Whilst great care has been taken in the preparation of this publication H2 Gambling Capital take no responsibility whatsoever for the accuracy or completeness of the data and information provided within this Report. Although we have sought to ensure that all of the data and information contained herein have been obtained from/based on reliable sources its accuracy cannot be guaranteed, and no warranty is given as to the correctness of the information in this publication.

This document may also contain forward-looking statements and opinions that involve uncertainties and assumptions. All estimates, opinions and forward-looking statements contained within this Report merely constitute a judgment as at the date of the document. As such, should any of these uncertainties materialise or any of these assumptions prove incorrect, betting and gaming in the jurisdictions covered by this Report could differ materially from H2 Gambling Capital’s expectations outline within this document. In such an event H2 Gambling Capital accept no liability whatsoever for the accuracy of these and does not intend to update these forward-looking statements.

It should be noted that as an updated version of the original Report all of the summary statistics contained within this report have been updated in order to take account of H2 Gambling Capital’s revised forecasts for the industry. Although every effort has been taken in order to ensure that all figures outlined within the report have been updated H2 Gambling Capital take no responsibility for any that might have been missed during the re-editing process.

Copyright

Printed in the United Kingdom. All Rights Reserved 2025. All publications referred to in this update are owned by H2 Gambling Capital. The publication is sold on the basis that the purchaser agrees not to give, lease, lend, resell or disclose either all or any part of it, whether in printed or electronic format, to any party outside of the official purchaser’s immediate organisation. If any part of this publication is used for private, non-commercial purposes, the source of the material (namely, H2 Gambling Capital) shall be clearly acknowledged.

If any part of this publication is sought to be used for any commercial purpose (including for the avoidance of doubt, articles, papers, reports, advice notes) the prior written consent of the copyright owner must first be obtained. The copyright owner as part of its business issues licenses for the reproduction of its copyright material and the licence fee is dependent upon the extent and nature of use. Please contact the copyright owner for further information.