When you play online slots by Evoplay, NetEnt, Play’n Go any other slot provider, sometimes you cannot help but wonder how a game or software developer earns money. One would think that they sell the games, but it is actually more than that.
Today, let us talk about how casino game developers make money. By the end of this article, you will have a better grasp of how the casino industry works. Who knows—you may even think of building your own software company.
Work for Hire
The first and most common method is via the work for hire method. In essence, the game developer makes the game from start to finish and then sells it to the highest bidder. There are many ways that a game developer earns from this model, as shown below:
- Make it first – a developer can create a game, and then their marketing department can pitch it to casinos. In this model, they can present the game in a live demo. If a prospective buyer likes it, they will negotiate a price. Once a price is reached, the developer has to hand over the assets to the buyer, including all graphic arts, code, and copyright. In this case, the developer no longer owns the game and cannot resell it.
- Shopping list – in this type of business, the game developer creates several titles and then displays them on their website. They can also showcase their games in casino shows. They can either present them in cabinet form or provide a computer where casino execs can test them. If a casino operator likes the game, they will buy all the rights to it.
- Contract-based – in this model, the casino will look for a game developer, and then call for a meeting. The casino execs will tell the development team what they want, and they will agree on a budget and deadlines.
So far, these are the three ways in which a game development company can earn. However, the work for hire model removes all the developer’s rights to the game. They may get credit for it, but they cannot in any way sell it to another group or make money from it.
In this kind of business model, it is the publisher that pays the developer royalties. For example, if a casino like VulkanVegas Canada wants a new game, the execs can talk to a developer like NetEnt, and NetEnt will develop it.
The publisher, which is the casino, pays royalties in advance, but not in full. They pay the developer in increments until the project is complete. These payments are called milestones. The developer has a set target date to complete the phases of the project.
Now, the publisher is going to sell the game on retail. If the game is purchased, the developer will still get royalties. However, the publisher has the right to sell the game at a price it wants. The developer will only get royalties in terms of percentage of sales.
It is like writing a book if you think about it. If you write a book, you get paid royalties in advance. Once the book is sold, you will get royalties again, but only if the sales royalty has already exceeded what you have been paid.
Let us say that the publisher asked you to make a slot machine and paid you $1 million in advance. Let us also say that your agreed-upon royalty is 10% for each sale, or $10. Once the game is released, the publisher will only pay you royalties again if the total 10% of the sale exceeds $1 million.
This model works for non-gambling games, but it is also used for casinos. In the casino industry, the game developer earns a percentage of the profit of the game. Let us say that the game earned a gross of $1 million. After all the payouts are done and all expenses are paid, the slot earned a profit of $300,000. If the slot developer’s share is 10%, then they get $30,000.
Game Distribution and Aggregation
The last model by which game developers earn money is similar to licensing, but they “sell” their games to many casinos. For example, the slot Gonzo’s Quest by NetEnt is not just available in one casino. What NetEnt does is to look for many casinos that would like to offer this game.
So, if there are many casinos that offer the game, NetEnt takes a percentage of the profits. NetEnt can charge the casino a fee for the license, even if the slot machine does not earn money for the casino. However, the money that the casino pays depends on the negotiation between its executives and NetEnt. In this case, it is NetEnt that runs the game. Players will access it from the casino lobby, but it is NetEnt’s servers that run it.
Another model with which this is used is through game aggregation. There are companies that run the servers—they do not make games. The aggregator gets the game from a development studio, manages it and then licenses it to casinos so that casinos can offer it on their sites.
All of the three entities now get a share from the losses of the players: the casino, the developer, and the game aggregator that runs it.
Game development is a lucrative business. However, it is also high-risk. New casino games pop out almost every month. More and more companies offer games now because they are easy to make. A game does not earn millions unless it becomes a hit—it is very similar to making movies. But if the developer hits the jackpot, they are set for life.