Leading operators rail against German turnover tax hit

Flutter Entertainment, Entain and LeoVegas have slammed Germany’s 5.3% turnover tax on online poker and slots games after reporting severe impacts to their respective operations there.

In its H1 2021 financial results, Flutter said it was “disappointed” by German authorities’ decision to impose the 5.3% tax on turnover from 1 July, which was ratified by the Bundesrat in June.

“International regulatory changes represent both a challenge and opportunity for the group,” Flutter said.

“When considered in conjunction with the product regulations announced late last year, it is increasingly clear that generating a positive contribution in Germany will now be challenging for all operators,” the firm added.

As a consequence, Flutter Entertainment has revealed it has “significantly” scaled back its online portfolio of slots games available to German players.

Speaking to EGR on the German market, Flutter CFO Jonathan Hill explained: “In terms of Germany, there are certain games, which still work, but obviously, we’ve had to reduce our library of games significantly in that market.

“It is also worth considering that within our poker ecosystem, liquidity is important, so the more players we have on there, the better it makes the experience for everybody else.

“While we might not be able to generate much positive profitability in the market of Germany itself, it’s still helpful when you’ve got a peer-to-peer product like poker.

“We still see a benefit of having the players, albeit that it doesn’t necessarily translate into much profitability from the from the German business,” Hill added.

Flutter previously estimated the impact of the taxation would make the German market “commercially unviable” for regulated operators, citing an impact to its own coffers of between £15 and £25m.

As well as the prohibitive tax, the regulations have put a €1 cap on slots spins, while players will only be able to deposit a maximum of €1,000 a month across all sites once the planned monitoring system is up and running.

Meanwhile, Entain CFO Rob Wood revealed to analysts and investors in its H1 results presentation on 12 August that its German gaming operations had been “severely impacted”, suffering a 70%-80% drop-off.

He said the tax had made some slots games with higher RTPs “unviable” in Germany and also bemoaned the fact there was currently no enforcement of non-compliant companies as the slots and poker regulator isn’t properly in place yet.

In its own financial results, Malta-headquartered operator LeoVegas reported a 13% year-on-year drop in revenue for the second quarter of 2021, a fall which the firm attributed to the “negative impact” of German taxes.

LeoVegas’ German revenue has plunged 81% from the same period in 2020, with the market’s contribution to LeoVegas total revenue slumping to just 4% compared with 18% in the same period last year.

In accompanying remarks on the Q2 results, LeoVegas CEO Gustaf Hagman said the creation of a “balanced and fair market” would take time but affirmed his confidence in the German market in the long-term.

“We believe it will take some time, I can’t say if it’s one quarter of two quarters as it depends on how the authorities are tackling the situation and the channelisation in the market,” Hagman explained.

“We’ve reported declines, something which has happened at other operators too, and all those customers have undoubtedly gone somewhere, and that’s to the unlicensed black market.

“Having said that, I think that there are some light spots in Germany in that it’s going to be the tax authorities driving enforcement rather than the gaming authorities themselves.

“Hopefully that will make a difference, and we’ll have harder enforcement, but we don’t know how long it will be before that starts to really take effect,” he added.

Despite his affirmation, Hagman confirmed that LeoVegas has shifted a proportion of its marketing budget away from the German market to other “more profitable” markets.

Elaborating on this redirection, Hagman said: “We’ve shifted our marketing budget into other European markets like Italy, Spain and Sweden, following the launch of Expekt, which has led to growth in July.

“I think that gives you some indication as to the future. Yes, we’re taking the hit in Germany in terms of numbers, but it can’t get any worse. It is what it is and we’re now focusing on other things,” he added.