The Obvious Response

When tax rises, margins fall. The instinct is to pass the cost to the customer. In iGaming, the mechanism is straightforward: lower the Return to Player on slots. A game that paid back 96p for every £1 wagered now pays back 92p. The operator keeps the difference. On paper, the maths works.

Across the UK market, this is exactly what is happening. Since the 40% remote gaming duty took effect on 1 April, operators have been quietly lowering RTPs from the industry standard of around 96% to 94% or 92%. Some suppliers report that 92% is now the requested maximum from UK operators. The shift is not being announced. It is being implemented through game configuration settings that most players will never check.

The question is not whether this recovers margin in the short term. It does. The question is whether it destroys competitive position in the medium term. Germany suggests the answer is yes.

What Germany Learned

Germany introduced a 5.3% turnover tax on online slots in 2021. The tax is levied on total stakes, not on gross gaming revenue, which makes it structurally more punishing than the UK's duty. To remain viable, German operators lowered RTPs to around 90% or below.

The results have been measurable and severe. The licensed online slots market shrank from approximately €800 million in annual revenue in 2022 to roughly €470 million by late 2025. Online casino tax revenues fell 16% in 2024 alone, following declines in 2023. The channelisation rate for online slots, the proportion of players using licensed operators rather than unlicensed alternatives, collapsed to below 40%.

The mechanism is straightforward: when the licensed product becomes measurably worse than the unlicensed alternative, players migrate. At 96% RTP, a player wagering £10,000 expects to lose £400. At 92%, the expected loss doubles to £800. At 90%, it is £1,000. The difference is not abstract. It translates directly into shorter play sessions, faster bankroll depletion, and a product that feels noticeably less rewarding. Players who care about value, typically the highest-spending segment, leave first.

Why This Is a Positioning Decision, Not a Pricing Decision

The framing error is treating RTP as a cost lever. It is actually a competitive positioning lever, and the distinction matters.

A cost lever is something you adjust to protect margins without changing your competitive position. Cutting internal overhead, renegotiating supplier terms, reducing marketing spend. Your customers do not see these changes. Your competitive position does not shift.

A positioning lever changes how your product compares to alternatives. When you lower RTP, you are making your product measurably worse relative to unlicensed competitors who do not face the same tax burden. You are also making it worse relative to any licensed competitor who chooses not to lower RTP. The margin recovery is real, but it comes at the cost of your value proposition.

If every operator lowers RTP simultaneously, the entire licensed market becomes less attractive relative to the unlicensed market. If some operators hold their RTP while others cut, the ones who cut lose their most value-sensitive players to the ones who hold. Either way, the operator who cuts RTP is making a positioning choice, not just a pricing adjustment.

Hollywoodbets has made this explicit, publicly advertising that it maintains maximum RTP levels and publishing comparative data showing its RTP against competitors. Whether this is genuine differentiation or marketing positioning, it demonstrates that at least one operator sees RTP as a competitive surface, not just a margin variable.

The Framework

Before passing a regulatory cost increase to your customers, ask:

Does this change how my product compares to alternatives my customers can access?

If yes, you are making a positioning decision, not a cost decision. In iGaming, the alternative is the unlicensed market. In other industries, it might be a competitor in a lower-tax jurisdiction, a substitute product, or simply choosing not to buy. If your cost pass-through pushes customers toward those alternatives, the margin recovery is self-defeating.

Is the cost pass-through visible or invisible to the customer?

Invisible cost pass-throughs (smaller bonuses, reduced promotional frequency) are less likely to trigger switching behaviour than visible ones. RTP is technically visible, published in game information, but most casual players do not check it. The risk is concentrated in the high-value segment that does. Losing that segment first is the worst possible outcome, because they represent disproportionate revenue.

What happened in the market that tried this first?

Germany is the test case for the UK. The Netherlands, which raised its online gambling tax from 29.1% to 37.8%, is showing early signs of the same pattern: declining channelisation and growing offshore activity. If the precedent market shows that cost pass-through accelerated customer migration, the same dynamic will apply to your market. The question is speed, not direction.

The operators who emerge strongest from the UK tax reset will not be the ones who recovered the most margin in the first quarter. They will be the ones who maintained a product worth choosing over the unlicensed alternative. The margin recovery that destroys the value proposition is not a fix. It is the beginning of a different problem.