Introduction

Opening a casino is a complicated and costly venture. One of the first choices that potential operators are faced with is whether to establish a traditional casino or an online platform. A lot of variables factor into this decision, such as the cost of licensing and the potential of the target market, and the deeper you dive into your business plan, the more costs you’ll find.

Article summary

  1. Introduction
  2. Costs of Offline Casinos
  3. Costs of Online Casinos
  4. Analysis and Comparison
  5. Summary

We’ve taken the time to sort out some tables of the costs incurred while jumping through the hoops necessary to open both types of casino, using a few different jurisdictions as examples.

For brick-and-mortar casinos, we’ll look at the costs of setting up shop in Georgia, Russia, and the Czech Republic. For online casinos, we’ll look at the costs of registering the platform in Malta, Kahnawake, and the Philippines.

There are some aspects that can’t be compared - the costs of operating an attached hotel and restaurant, for example, is important to consider for traditional casinos, but entirely immaterial for online ones - so for the most part we’ll focus on the definite parallels that do exist.

Costs of Offline Casinos

Expense

Georgia

Russia

Prague,
The Czech Republic

Gambling License -A gambling permit costs GEL 5 million (€ 1.5 million) a year, but there are many exceptions, as costs vary depending on location. Some areas waive the fee entirely if a large hotel is attached to the casino.
-Permit applications are free, but can be expedited with the payment of a small fee.
The initial license is RUB 30,000 (€ 411). It has no expiry. A reissue due to change of address or other circumstance is RUB 10,000 (€ 137). -Basic license fee: €200. License term – up to 6 years.
-License for gambling premises: €150
Budget funds for payment of winnings The law does not define a minimum registered capital to start a casino. -Operators are required to have a total net asset value not less than RUB 600 million (€8.2 million). -Companies must have a total equity of at least €2 million.
Taxes -Personal income tax: 20%
-Property tax - up to 1%
-Corporate income tax: 15%
-Monthly taxes are calculated based on gaming objects.
-Regions that allow gambling set their own rates within the ranges below.
-Gaming tables: RUB 25,000-125,000 (€337 - €1687)
-Example of a 50-table casino: €16,850 - €84,350
-Gaming machine: RUB 1500 - 7500 (€20-€101)
-Example of a 200-slot casino: €4000-€20,200
- MONTHLY gaming tax based on number of machines and tables: €20,850 - €104,550
-Recent legislative changes are set to double these figures.
-Gambling tax on all but technical games: 23% of GGR
-Gambling tax on technical games: 35% of GGR
-Income tax on net revenues: 19%
-Operators of technical games must pay a minimum quarterly tax, calculated by multiplying gaming points by €340
Other Fees -Quarterly fees for each slot machine range from GEL 2000 to GEL 4000 (approximately €600 to €1200)
-Example of a 200-slot casino: €120,000 to €240,000
-Quarterly fees for each casino table range from GEL 20-40,000 (approximately €6000 to €12000.)
-Example of a 50-table casino: €300,000 to €600,000
-TOTAL Quarterly fees based on machines and tables: €420,000-€840,000
  -Daily fee on Electronic Gaming Machines: czk 80, adding up to czk 2400 (€93) per machine per month
-MONTHLY EGM fees for a 200-slot casino: €18,600
-QUARTERLY EGM tax (separate from daily fee) for a 200-slot casino: €68,000
-Security deposits of €350,000 - €1.8 million depending on the number of casinos owned by the company
Total Recurring fees and flat taxes for a casino with 200 slot machines and 50 gaming tables -ANNUAL fees based on machines and tables: €1.7 - €3.36 million
-Annual Gambling license: €1.5 million
- ANNUAL gaming tax based on number of machines and tables: €250,200 - €1.26 million -ANNUAL EGM fees for a 200-slot casino: €223,200
-ANNUAL EGM tax for a 200-slot casino: €272,000

When comparing the numbers above, it’s also important to remember that Russia is very restrictive when it comes to licensing. There are only a few regions in Russia where gambling is allowed, so any potential operator will have limited locations to choose from and an already-crowded market to compete with. In Georgia, gambling is legal throughout the whole country, but the fees and costs of licensing are much lower in areas the government wants to further develop as tourist destinations.

At first glance, the bottom line for fees and flat taxes makes it look as if the Czech Republic is an ideal location to set up a casino. The reality is different. Revenues are in decline and taxes are increasing. At the moment, casinos pay a tax of 23% on all gaming revenue except for technical games (Electronic Gaming Machines, or EGMs) on which operators pay a whopping 35% tax. Tax rates across the board will increase in 2020.

Costs of Online Casinos

For this comparison, we’ll look at the costs of licensing, taxes, and other fees for registering and running an online casino in the jurisdictions of Malta, Kahnawake, and the First Cagayan Economic Zone in the Philippines.

Expense

Malta

Kahnawake

First Cagayan

License -License classes 1, 2, and 3: €25,000
-license class 4 (B2B): €10,000
-License fees are payable in advance, annually
-$10,000 annual license fee for each Client Provider Authorization -E-Casino license: $80,000
-Sports betting license: $60,000
-Combined: $140,000
Application Fees -one-time, non-refundable application fee: €5000
-one-time, non-refundable license renewal fee: €5000
-Systems audit: €2500
-Compliance audit: €3500
-Application processing fee: $40,000 (approximate), which includes due diligence investigations and the first year’s license fee
-Control systems submission review: $3500 (approximate)
-Each Key Person License: $5000
-E-casino renewal fee: $40,000
-Sports betting license renewal: $30,000
-Combined license renewal: $70,000
Tax -5% on revenues from Maltese residents.
-The Malta Gaming Authority also requires a Compliance Contribution. See Separate table
None. - 4-6 year income tax holiday
-5% gross income tax rate in lieu of local and national taxes
Other Fees Registration as a legal corporate entity in Malta: €15,000 (approximate) -$1900 to open a bank account
-$1500 to open a merchant account
-E-casino hosting fee: 2% of Gross Gaming Revenue, payable monthly
-Sports betting hosting fee: $10,000, payable monthly
Required Funds Share capital of €100,000 for licenses class 1 and 2, €40,000 for licenses 3 and 4. Not specified in official information. Recommendations are around €150,000 to €200,000. Not specified in official information. Recommendations are around €150,000 to €200,000.
Total annual recurring fees and flat taxes €25,000 annual license renewal $10,000 annual license renewal $70,000 renewal for combined e-casino and sports betting license

The below tables will give you a clear picture of Maltese Compliance Contributions, which are payable annually. The schedule of payments is a little confusing at first, but the most salient point is that tax rates are very small, and they decrease as revenues increase.

Class 1 license: Min. fee €15,000, Max fee €375,000

Rate

For every euro of the first €3,000,000 1.25%
For every euro of the next €4,500,000 1.00%
For every euro of the next €5,000,000 0.85%
For every euro of the next €7,500,000 0.70%
For every euro of the next €10,000,000 0.55%
For every euro of the remainder 0.40%

Class 2 license: Min. fee €25,000, Max fee €600,000

Rate

For every euro of the first €3,000,000 4.00%
For every euro of the next €4,500,000 3.00%
For every euro of the next €5,000,000 2.00%
For every euro of the next €7,500,000 1.00%
For every euro of the next €10,000,000 0.80%
For every euro of the next €10,000,000 0.60%
For every euro of the remainder 0.40%

Class 3 license: Min. fee €25,000, Max fee €500,000

Rate

For every euro of the first €2,000,000 4.00%
For every euro of the next €3,000,000 3.00%
For every euro of the next €5,000,000 2.00%
For every euro of the next €5,000,000 1.00%
For every euro of the next €5,000,000 0.80%
For every euro of the next €10,000,000 0.60%
For every euro of the remainder 0.40%

Class 4 license: Min. fee €5,000, Max fee €500,000

Rate

For every euro of the first €2,000,000 0.50%
For every euro of the next €3,000,000 0.75%
For every euro of the next €5,000,000 1.00%
For every euro of the next €5,000,000 1.25%
For every euro of the next €5,000,000 1.50%
For every euro of the next €10,000,000 1.75%
For every euro of the remainder 2.00%

Analysis and Comparison

Costs Compared

Of all the offline and online options, the most expensive license is the operator’s license in Tbilisi, Georgia. Online licenses are also very expensive, ranging from $10,000 for a license from the Kahnawake Gaming Commission to $140,000 for one from the Cagayan Economic Zone. By comparison, the cost of licensing in Russia and the Czech Republic is almost negligible. However, the other taxes and fees quickly add up.

Georgia, Russia, and the Czech Republic charge fees for each individual gaming machine and table. Georgia and the Czech Republic charge taxes on Gross Gaming revenue in addition to the fixed fees on gaming machines. While the costs of licensing for online casinos is higher than that of offline casinos, none of the jurisdictions for online licensing outlined above charge fees per “machine” or “gaming table”. Malta and the Philippines have dramatically lower tax rates than Georgia, Russia, or the Czech Republic. The Kahnawake Gaming Commission does not charge taxes on gaming revenues.

The initial costs of licensing for online casinos are higher than the recurring ones. The Kahnawake Gaming Commission charges $40,000 for the initial application, which includes the first year’s licensing fee, but only $10,000 a year after that. First Cagayan, the regulatory body for the Cagayan Economic Zone’s licensing process, charges $140,000 for the initial license (for a combined e-casino and online sportsbook), but only $70,000 for each year’s renewal.

While the licensing costs for online casinos are drastically higher than for offline casinos, the tax rates on gaming revenue are minuscule. For example, compare Malta’s Compliance Contribution rates with gambling taxes in the Czech Republic. Malta’s Compliance Contributions start at 4% and decrease incrementally as revenues increase. In the Czech Republic, operators pay 23% on revenue from all forms of gaming except Electronic Gaming Machines, on which operators pay a 35% tax.

Imagine your Gross Gaming Revenue in a given year was €30 million. If your online casino was registered with a class 2 license in Malta, you would pay €510,000 in tax and €25,000 for your annual license, as well as a 5% tax on all revenue from losses by Maltese gamblers. If your gross revenue was the same amount but from one or more offline casinos in the Czech Republic, you would pay €6.9 - €10.5 million in tax, before even calculating fees on individual machines and tables.

The Russian Finance Ministry calculates gambling taxes with a flat rate per slot machine or table, levying a fee of between €250,200 and €1.26 million per year for a 200-slot machine, 50-table casino. However, the Finance Ministry reportedly has plans to continue increasing tax rates.

The First Cagayan Economic Zone, on the other hand, offers new operators a 4-6 year tax holiday, after which they charge 5% of Gross Gaming Revenue. Getting licensed in the First Cagayan Economic Zone is a popular choice for operators targeting the enormous but underserved Chinese market.

Costs not included in the tables

The tables above have been limited to the costs that can be directly compared between the two types of casino. There are more costs that vary from case to case and depend on the wider economic picture of the country where the casino is located or licensed, such as employee salaries and the cost of leasing space.

The first and most obvious are the costs of all the physical requirements. Space and staff will cost exponentially more for an offline casino than for an online one. While online operators have free rein when it comes to choosing office location and size, an offline casino requires substantial amounts of space - often 4500 or more square meters - often located in a district with incredibly high property values.

Offline casinos also require the gaming equipment itself. New slot machines retail between $14,000 and $25,000. For a gaming salon with 200 machines, the cost of buying new machines would fall between $2.8 million and $5 million. Given the high cost of new slot machines, some casino owners choose to lease them instead.

Whereas offline casinos buy or lease physical slot machines, online ones “rent” gaming and operating software from providers, often paying a fee of at least $10,000 a month in addition to a percentage of the winnings.

Like all businesses, both online and offline casinos must have a substantial marketing budget. Online casinos often make use of affiliate marketing programs, choosing either a cost-per-acquisition (CPA) model or a Revenue Share model. In the CPA model, the casino pays the affiliate for every new gambler that deposits a sum and plays through it. In the Revenue Share model, the affiliate receives a percentage of a player’s lifetime losses.

Legal Landscape

Both offline and online operators are subject to legislative changes, but offline operators are more able to react flexibly to changes in legislation. They also benefit from legal gray areas.

In Russia, the gambling landscape changed overnight when all casinos except those in certain designated areas were declared illegal in 2009. Thousands of workers were suddenly unemployed and properties that had previously turned a profit now sat empty. Operators had to hope that they would be allowed to open a casino in the very limited number of legal gambling areas in the country.

In the Philippines, President Rodrigo Duterte declared a “war on online gambling”, but instead of shutting the industry down, he had it restructured to root out corruption and direct more funds towards the president’s office. However, if online gambling had been declared illegal, while it would have caused tremendous headaches for operators, it would have been much easier for them to pack up shop and change jurisdictions than for traditional brick-and-mortar casinos.

Perhaps the greatest advantage that online casinos have is the ability to register in one jurisdiction but serve another. This allows operators to take advantage one country’s labor market and another’s gambling market.

Summary

The costs of opening and running an online casino are far and away smaller than those of an offline casino.While the initial licenses and applications are more expensive in the case of online casinos, the annual fees and taxes are much smaller. The material concerns of space and labor cost far less. Online casinos also have to include software and gaming operators in their budget, while offline casinos have to purchase or lease their gaming equipment.

Both offline and online casinos will spend substantial portions of their budget on marketing, which will vary from casino to casino. Both online and offline casinos use various strategies to target and reward high rollers. Arguably, marketing for online casinos could be more effective, as affiliate marketing can pinpoint potential clients more effectively than other forms of advertising.

Perhaps the biggest difference is in the fees and taxes levied by governments and licensors. Licensors in jurisdictions like Kahnawake and Malta may charge substantial fees for operating licenses and applications, but they keep taxes on gross gaming revenue very low when compared to areas that regulate offline casinos. Governments that oversee offline casinos focus on taxes to ensure they receive a cut of the revenue, and these taxes and fees add up to be substantially higher than those charged by online licensors.

One last major concern that doesn’t fit into any of the tables above is time. Once the business plan has been developed, an online casino can be up and running in a few months, including the time it takes for providers to develop the platform and for licensors to process the application. This is worlds apart from the lengths of time required for the kind of massive construction projects necessary for a full brick-and-mortar casino, in addition to the bureaucratic headache of acquiring a building permit.

The bottom line is that while opening and running an online casino is far from cheap, it’s still far more economical than an offline casino. With global online gaming revenues gaining year after year, there’s never been a better time to go into the iGaming business.