Online gaming

How will the GST hike on online gambling affect ad spend, prize pools and small businesses?

A final ruling on the GST to be paid by casinos, online gaming companies and horse racing is expected to be announced on August 10, 2022.

Currently, skill-based online games are taxed at 18% GST and online games involving betting and gambling are taxed at 28%. After several rounds of deliberation, the government is expected to impose a 28% GST on gross gaming revenue for online gaming and casinos as well. spoke with gaming companies to understand the impact of the GST hike on ad spend, prize pools, and small players in the gaming industry.

Ankur Singh

Ankur Singh, CEO and Founder, Witzeal Technologiesindicates that the prize pool would decrease significantly, thus discouraging users from participating in games and leading to lower taxes to be paid over the years.

He adds that game producers, platform operators and advertisers will be most affected by the implementation of a 28% GST in online games, as a significant portion of the revenue will be used to pay the GST. “A higher tax rate will limit gaming companies’ marketing and advertising spend, which could stifle the industry and impact gamers, gaming influencers, and the broader gaming ecosystem,” explains Singh.

Gaurav Gaggar
Gaurav Gaggar

Gaurav Gaggar, Director, Poker High has a similar point of view. He says, “Certainly this will impact the spend available to gaming companies, and less marketing money will be spent across all media. India is uniquely positioned to be a global leader in skill-based gaming and that will slow its progress.

Gaggar observes that game companies guarantee prize pools to players, which will become more difficult.

Mitesh Gangar, co-founder and director of PlayerzPot
Gangar of Mitesh

Mitesh Gangar, co-founder and director of PlayerzPotbelieves that game companies will continue to invest in marketing and advertising campaigns in order to reach their target audience.

He adds, “The decision to levy a 28% tax on gross gaming revenue may affect gaming company revenues, but advertising costs will not be affected as much. Businesses will learn to balance their resources to build audience loyalty, for example by increasing the cost of their in-app advertising. »

Yash Parani
Yash Parani

Yash Pariani, Founder and CEO of House of Gamingalso believes that gaming events will not limit their advertising budgets, as a decent promotional campaign is the driving force behind any successful esports event.

Will television spending be the most affected?

“When it comes to TV spend, it will be entirely up to the brands and their reach in the market, so we can assume that companies with larger revenues will continue to spend on TV ads. However, smaller game companies may be affected as they might not be able to manage their expenses to make huge marketing expenses,” Gangar said.

Bhavesh Talreja
Bhavesh Talreja

Companies will continue to spend money to reach target audience, observes Bhavesh Talreja, Founder, Global Media. “However, its real impact on TV spending is uncertain as it is one of the fastest growing industries in India,” he adds.

Can new entrants to an already crowded space afford to spend less?

“Higher GST prices could deter new entrants as operating costs would rise, and with limited marketing budgets, it will be difficult to attract users to the platform or acquire enough buyers for them. games in development and users would have fewer options, which would in part hinder innovation and limit the industry’s ability to grow,” observes Singh.

“The Indian online gaming industry is valued at over $300 billion and attracts global investment. And yes, it is a competitive space. We believe that new entrants should focus on reaching their target audience through strategic moves without thinking too much about the expense,” Gangar said.

According to him, the coming years will see how companies find strategies to maximize revenue without compromising marketing budgets.

“As the market is captured by the few existing stalwarts with huge prize pools, it might be a bit difficult for new entrants,observes Pariani. But he adds that with strategic brand development and collaborations, they too could soon find a place on the map.

Ichan Verma
Ichan Verma

Ishan Verma, Founder and Director, Path Esports, says the ruling will not have a significant effect on new entrants, as it will create a legal and regulatory framework that all businesses will have to follow. Therefore, stimulating the growth of the industry rather than slowing it down.

On the other hand, Gaggar observes that new businesses will find it even more difficult to operate with smaller budgets. “Obviously the big companies will be able to stay afloat while the smaller ones will struggle. Small businesses need to spend on advertising and guaranteed prize pools to establish credibility and reach a critical mass of players, which will become even more difficult,” he adds.

Could this impact the stock market and therefore make it less attractive?

“Prize money isn’t always the only incentive for players. People play games because they are thrilled and engaged on many levels. Not being able to play at all could be an extremely bitter pill to swallow. The sense of community and competitiveness among the player base is what keeps them connected to the game. We believe that a lower grand prize won’t make online gaming less appealing,” Gangar said.

“A jump of 18-28% GST on online games, that too on the total amount the player deposits for a game, can drive potential players away from paying portals to illicit websites, as they would offer a considerable discount of the cash prize. available for distribution. This could certainly have an impact on the activities of these paid platforms in the long term”, said Talreja.

“This move will bite right into the prize pool and make it less appealing to players,” notes Gaggar.