Revenue Share Agreement Explained
How Revenue Sharing Works in a Revenue-Sharing Agreement
Revenue share is a deal whereby two or more companies agree to share the revenue that their products or services make. They all receive a certain percentage of revenue depending on how it flows in, and therefore, no cost is incurred before any sale is made. This is a performance-based business model; what gets paid is revenue and not time or clicks.
Revenue sharing begins with an agreement between the parties involved. Every stakeholder involved in the process uses the same formula, from the affiliate to the finance department.
A typical cycle from contract to payout follows four steps.
- Both parties will sign the contract, and this contract will determine the base (net or total revenue), percentage and dates of payments.
- A tracking mechanism records each event that results in a payment – it may be a deposit, bet settlement or month-end reconciliation.
- The payee determines the revenue earned after the deductions made according to the agreement.
- This partner is paid their share of the revenue (typically once per month). No renegotiation is done since it was determined in the formula.
iGaming deals usually use net gaming revenue (NGR) as the base. NGR is gross gaming revenue after player bonuses, chargebacks and processing fees come off. The example below applies a 35% revenue share to illustrative numbers.
| Item | Amount |
|---|---|
| Gross gaming revenue (GGR) | $10,000 |
| Player bonuses | −$1,500 |
| Chargebacks | −$300 |
| Processing fees | −$200 |
| Net gaming revenue (NGR) | $8,000 |
| Partner share at 35% | $2,800 |
A 35% cut of GGR would have been $3,500. The contract has to say which base applies, because the revenue split changes with it, and all involved parties should read that clause first.
Common Types of Revenue Sharing
Revenue sharing takes several forms, depending on who splits with whom. Deals that involve sharing revenue between companies appear in iGaming and well beyond it.
Sharing Agreements Between Operators and Partners
- Affiliate marketing. This involves an operator making payment to affiliates for the players referred by the affiliates. The operator earns revenue from the players and pays out a percentage of the revenue based on their activity.
- Supplier deals. Platforms and content studios commonly take a share of the revenue their products generate for the operator.
- Joint ventures. Partners pool a business and distribute profits by ownership. BetMGM, owned by MGM Resorts and Entain, is one example.
Revenue Sharing Outside iGaming
- Professional sports leagues. The NFL splits its national income equally among its 32 teams, giving the Green Bay Packers $309.2 million for the 2020 year. Ticket sales usually stay local.
- Mobile marketplaces. Apple takes 30% commission on regular transactions and 15% for developers making less than $1 million annually. This is a type of revenue sharing with third-party developers and an internal revenue sharing model for the platform.
- Media and software. Publishers split their ad income with authors, and software partners split subscription revenues.
Difference Between Revenue Sharing and Profit Sharing
There are two distinct methods for removing costs. In revenue sharing, cost reductions are removed from income, while in profit sharing, cost reductions are removed after income. The latter method implies that every part of the profit is based on the bottom line because profit sharing always implies payment only for the positive result.
| Revenue share | Profit sharing | |
|---|---|---|
| Base | Gross revenue or NGR | Net profit |
| Costs | Deducted only if the agreement lists them | All deducted first |
| Payout | Possible while the business loses money | Only when it is profitable |
| Typical use | Affiliates, suppliers, leagues | Employee plans, investment companies |
Employee profit-sharing plans work this way, and so do funds that pass on sharing profits to investors.
Revenue Share Percentage in a Revenue-Sharing Model
Revenue Sharing Model Rates by Market
A typical NGR revenue share falls between 25% and 45%, according to Track360. GGR-based deals are less common and pay 15% to 30%. The rate moves with the market, as iRev’s figures show.
| Market | Typical revenue share |
|---|---|
| UK | 30% to 45% |
| Germany | 25% to 40% |
| Brazil | 25% to 35% |
| India | 20% to 35% |
| Nigeria | 15% to 30% |
New affiliates often start at 20% to 25%, and rates below 20% fall under the market. A 20% share of $8,000 in monthly NGR pays $1,600.
Revenue Share Versus CPA for the Operator
Cost per acquisition (CPA) pays once per player. A revenue share pays for as long as the player keeps generating revenue, which makes it recurring revenue and sustainable revenue for the partner.
“Often favored by operators focused on fast growth and performance-driven campaigns”
— Rachel Morgan, Affiliate Marketing Expert, iRev, on CPA
The cost pattern is the real difference. At a $120 CPA, 100 players cost $12,000 once. At a 35% revenue share on an average revenue of $120 in monthly NGR each, the same players cost $4,200 a month and $50,400 over a year, but only while they keep playing.
- Upside for the operator. There is no upfront cost, and the partner has a reason to bring in players who stay.
- Downside. The bill keeps coming – and grows as the program succeeds – so the numbers behind it have to be exact.
- Hybrid. A $50 to $150 CPA combined with a 15% to 25% revenue share works for a new partnership, and the terms can be reopened after 3 to 6 months of data.
Negative carryover causes a lot of arguments. Say players win $2,000 more than they lose in a month. That shortfall rolls into the next month, and the partner earns nothing until the balance is positive again. Affiliates ask for a cap on carryover or a monthly reset, so the agreement should say which one applies.
Build a Revenue-Sharing Program and Revenue Sharing Plan
What a Revenue Sharing Agreement Covers
Before launch, a revenue-sharing program needs these points settled in writing.
- The revenue base and the deductions, written out as a formula.
- Percentages by market, with tiers for volume.
- Carryover rule, cap or monthly reset.
- Payment date, currency and distribution of revenue between partners.
- Reporting access for all involved parties.
- Termination terms, including what happens to players already referred.
How to Track Revenue Sharing
Both sides need to see the same numbers, so the ledger matters. BSW’s custom platform can support the reporting behind them, and API integration can connect an affiliate tracking system. Licensing and tax duties stay with the operator.
FAQ
What is revenue share and how does it work?
Companies share revenue by formula. The payer calculates the base, deducts the agreed items and pays the partner on a schedule.
What is the difference between revenue share and profit share?
Revenue share splits income before costs. Profit share splits what remains after costs, so it pays only when the business is profitable.
What does a specific revenue share percentage, like 20%, mean?
The partner receives 20% of the agreed base. On $8,000 of NGR, that is $1,600.
What are common types or models of revenue sharing?
Affiliate programs, supplier deals, joint ventures, league pools, store commissions, and advertising or subscription splits.
What is a typical or normal revenue share percentage?
In iGaming, 25% to 45% of NGR is typical, and new affiliates often start at 20% to 25%. Rates vary by market.
How do you calculate revenue sharing?
Take gross revenue, subtract the deductions the agreement lists, then multiply the result by the partner’s revenue share percentage.
What are the benefits and risks of revenue sharing?
Benefits are no upfront cost and aligned incentives. Risks are open-ended payments, carryover disputes and the need for transparent reporting.
What types of businesses or industries use revenue sharing?
Gambling, sports leagues, app stores, media, software and franchises.
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