Fixed-Fee Vs Revenue Share: Recalculating Platform TCO When Tax Rates Double
Rising gaming taxes can significantly alter sportsbook platform economics, making total cost of ownership an important consideration when comparing fixed-fee and revenue-share models.
Several factors affect the profitability of sportsbook software solutions. When gaming taxes rise, operators may need to look beyond headline platform fees and reassess their total cost of ownership (TCO).
A pricing model that appears cost-effective under one tax regime can become less attractive following a tax increase.
To illustrate the difference, this example compares three commercial models: a fixed-fee platform, revenue share calculated on pre-tax revenue and revenue share calculated on post-tax revenue.
The key consideration is that tax increases do not affect every platform pricing model equally.
What Is The TCO Of Running A Sportsbook?
The overall cost of operating a sportsbook extends beyond upfront platform costs and gross gaming revenue (GGR).
A number of expenses can contribute to the total cost of a B2B sportsbook solution, including:
Platform and licence fees
Revenue-share payments
Gaming taxes
Payment processing
Data and odds feeds
KYC and AML services
Compliance costs
Hosting and infrastructure
Maintenance and technical support
Marketing and player acquisition
Considering these expenses together can provide a more complete view of platform economics and help operators compare pricing models based on their long-term costs.
Fixed-Fee Vs Revenue Share: How The Pricing Models Work
Two common pricing structures for sportsbook platforms are fixed-fee and revenue-share models.
A fixed-fee sportsbook platform charges an agreed monthly or annual licensing fee regardless of how much GGR the operator generates. This provides relatively predictable platform costs and can increase the operator’s upside as revenue grows.
Under a revenue-share sportsbook platform, the provider receives a percentage of a defined revenue base. Platform costs therefore increase as sportsbook revenue grows, although the model can reduce upfront financial commitments.
Pre-Tax Vs Post-Tax Revenue Share
With pre-tax revenue share, the platform fee is calculated before gaming tax:
Platform fee = Revenue × Revenue-share percentage
With post-tax revenue share, gaming tax is deducted first:
Platform fee = (Revenue − Gaming Tax) × Revenue-share percentage
The distinction becomes increasingly important when tax rates rise, as a post-tax revenue-share model reduces the provider’s fee as the operator’s tax burden increases.
What Happens When The Gaming Tax Rate Doubles?
Consider a hypothetical sportsbook generating $1m in annual GGR.
For this example, the gaming tax increases from 15% to 30%, while the revenue-share rate remains at 15% and the fixed platform fee remains at $120,000 per year.
The assumptions are:
Annual GGR: $1m
Original gaming tax rate: 15%
New gaming tax rate: 30%
Revenue-share rate: 15%
Fixed platform fee: $120,000 per year
At A 15% Gaming Tax Rate
At the original 15% tax rate, the operator pays $150,000 in gaming tax on $1m in GGR.
The amount remaining after tax is $850,000.
Under the fixed-fee model, the operator pays a $120,000 platform fee, leaving a remaining margin of $730,000.
Under pre-tax revenue share, the platform fee is $150,000, leaving $700,000.
Under post-tax revenue share, the fee is calculated as 15% of the $850,000 remaining after gaming tax, producing a platform fee of $127,500 and leaving $722,500.
At A 30% Gaming Tax Rate
When the gaming tax doubles to 30%, the operator’s tax liability increases to $300,000, leaving $700,000 after tax.
The fixed platform fee remains at $120,000, leaving a remaining margin of $580,000.
The pre-tax revenue-share fee also remains unchanged at $150,000, leaving $550,000.
Under the post-tax model, the platform fee falls to $105,000, calculated as 15% of the $700,000 remaining after gaming tax. This leaves the operator with $595,000.
Pricing Model | Tax Rate | Gaming Tax | Platform Fee | Remaining Margin |
|---|---|---|---|---|
Fixed Fee | 15% | $150,000 | $120,000 | $730,000 |
Fixed Fee | 30% | $300,000 | $120,000 | $580,000 |
Pre-Tax Revenue Share | 15% | $150,000 | $150,000 | $700,000 |
Pre-Tax Revenue Share | 30% | $300,000 | $150,000 | $550,000 |
Post-Tax Revenue Share | 15% | $150,000 | $127,500 | $722,500 |
Post-Tax Revenue Share | 30% | $300,000 | $105,000 | $595,000 |
How Each Model Responds To A Tax Increase
Under a fixed-fee model, the platform cost remains unchanged when gaming tax increases. This provides predictable platform expenditure, but the operator absorbs the additional tax burden.
In this example, doubling the tax rate from 15% to 30% reduces the operator’s remaining margin by $150,000.
With pre-tax revenue share, the provider’s fee remains tied to the original revenue base. The operator therefore absorbs the full increase in gaming tax while continuing to pay the same percentage of revenue to the platform provider.
Under post-tax revenue share, the provider’s fee decreases as gaming tax rises because the percentage is calculated on the revenue remaining after tax.
In the example, at a 30% tax rate, the post-tax model leaves $595,000 after gaming tax and platform fees, compared with $580,000 under the fixed-fee model and $550,000 under pre-tax revenue share.
How Tax Changes Alter The Platform TCO Break-Even Point
Rather than considering only which platform has the lowest headline fee, operators can assess which commercial model produces the lowest total cost after tax at their expected GGR.
The result depends on variables including annual GGR, the applicable gaming tax rate, the revenue-share percentage, the fixed platform fee and other variable platform costs.
As tax rates change, the relative cost of each pricing model can shift.
Example TCO Formulas
Operators can use the following simplified formulas as a starting point when comparing the models:
Fixed-Fee TCO = Gaming Tax + Fixed Platform Fee
Pre-Tax Revenue-Share TCO = Gaming Tax + (Revenue × Revenue-Share Percentage)
Post-Tax Revenue-Share TCO = Gaming Tax + [(Revenue − Gaming Tax) × Revenue-Share Percentage]
These calculations can help illustrate how different commercial structures respond to changes in gaming taxation and revenue.
