Revenue stock

According to a blog published by Regulus Partners, a global strategic advisory business focused on the sports and leisure sectors, last weekend, the use of Gross Gaming Revenue (GGR) as a proxy for revenue is “misleading, short-sighted, and self-defeating for the global gambling market”.

As such, Regulus claimed, the reporting metric “needs to be consigned to the dustbin of reporting and Key Performance Indicator (KPI) history, fast”.

Explaining this contention, the firm described how definitions of GGR vary dramatically depending on where a company is located. Indeed, it explains, several jurisdictions have different names for what is in effect, the same indicator.

Importantly, some jurisdictions, such as New York and Michigan, count free incentive bets as part of their GGR, whereas others, such as the UK’s and Malta’s exclude these bets, requiring them to be subtracted from the net revenue.

The background to this variation, is that “the gambling industry tends to love an acronym more than it cares about the precise definition,” the blog says, and GGR is bigger than revenue, so it appeals to those who think size trumps accuracy when lobbying or “buttering up” investors.

A key danger when using GGR, as identified by Regulus, is that it is particularly vulnerable to being unduly inflated by the aforementioned incentive bets.

This has seen operators, suppliers and investors make some “very big bets while publicly using some very duff data”.

Another danger is that when a focus on GGR starts to drive perceptions of success, it can sometimes create a temptation to “game the system”.

“For big gaming markets that give GGR breakdowns… the easiest way to show a market share gain is to issue more attractive customer incentives. The fact that this is not really revenue, not paying any bills and is probably suppressing underlying expenditure is tomorrow’s problem”, warned Regulus.

These vulnerabilities, combined with the recent move towards the use of GGR over net revenue, has left “several jurisdictions dangerously exposed”.

According to the Global Strategy Advisory firm, if the industry continues to push GGR as a revenue proxy, then problems will get worse.

Firstly, companies will plan in the hope of achieving bigger revenue numbers that are actually achievable.

Then, stakeholder and investor trust in the sector will be eroded as revenue and tax figures fail to match high but contaminated forecast ambitions.

Additionally, some companies will be tempted to ‘game the system’, in turn risking bad outcomes for consumers in general and the vulnerable in particular.

Until these issues unfold in a way that is clearly linked back to “dodgy’ KPIs, regulators and tax authorities will keep assuming that GGR is the ‘right metric’, driving black market leakage at the margins and potentially destroying the feasibility of entire markets, Regulus cautioned.

“GGR can hurt your business, your consumers, and your regulatory sustainability”, reiterates Regulus.

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