When taxes rise, margins fall. That much is obvious. Less obvious is how operators should respond – particularly in a mature, highly competitive market like the UK. One suggestion gaining traction in recent months is deceptively simple: reduce return to player (RTP) on slots to offset higher tax burdens.
On paper, it works. Lower RTP means higher hold per spin. But as a recent note from Regulus Partners argues, the math may be simple, but the economics are not. The firm’s analysis warns that cutting RTP is not a competitive solution in a crowded market – and may ultimately prove self-defeating.
The argument is less a coordinated industry position than an emerging consensus driven by necessity: faced with higher taxes, many operators appear to be quietly reducing RTP as one of the few immediately available margin levers. The debate is no longer theoretical. Following the UK’s latest tax changes, operators, suppliers and analysts are now grappling with whether lowering RTP is a necessary adjustment or a dangerous shortcut.
The illusion of easy margin
The appeal of RTP reduction is clear. Operators can deploy different RTP versions of the same game – typically 96%, 94% or 92% – and capture incremental margin without altering the underlying product.
As Helen Walton, co-founder of G Games, puts it: “RTP is absolutely a pricing lever. Operators are already pulling it.” In the UK, she notes: “Standard RTPs have moved from around 96% to 94%, and 92% is now the requested maximum.” That shift may appear marginal. But, as Walton stresses: “A 4% reduction in RTP materially shortens play time and reduces the likelihood of experiencing bonus features – in other words, it changes the entertainment value of the product.”
Regulus Partners makes a similar point. RTP reductions, it argues, are often framed as small percentage tweaks when in reality they represent a significant increase in the “price” of gambling. Eyal Loz of game developer RubyPlay takes this argument further, challenging what he sees as a basic misunderstanding of the simple maths involved. “People think the difference between, say, 96% and 92% RTP is ‘just 4%’. It sounds small. But it’s not 4% – it’s effectively 100%,” he says. “If a player wagers €1, and the operator takes four cents, that’s the cost. If that becomes eight cents, you’ve doubled the cost of entertainment.”
With this perspective, lowering RTP becomes equivalent to raising prices in a market where consumers are highly sensitive to value.
Do players notice when an operator cuts RTP?
A key assumption behind RTP cuts is that many players either do not understand or do not notice them. Yet industry voices are sceptical. Walton argues that while players may not calculate RTP explicitly, “they feel it in their bankroll”. She adds: “When people say ‘players don’t notice a few percentage points’, that simply doesn’t match observed behaviour.”
Loz uses a clear language: “Players aren’t stupid. They notice when their money doesn’t last as long. What used to be an hour of entertainment becomes 30 minutes.” So although players may not read paytables, they are acutely aware of session length, hit frequency and perceived fairness.
In practice, RTP reductions manifest through subtle changes in game mechanics. Loz explains that developers typically adjust the frequency of key events, such as bonus features. “In the short term, players might not notice. But over time, they experience fewer rewards, and the cost accumulates. Eventually, they feel it.” The risk, then, is not immediate backlash but gradual disengagement, he says.
Short-term gain, long-term pain
From a financial perspective, lowering RTP does produce an initial uplift. Walton describes the pattern: “At first you see a nice bump in GGR. Great.” But this is followed by a less encouraging trajectory. “Then players realise their money isn’t lasting as long. Sessions get shorter, frequency drops and the highest value players are the most likely to look elsewhere, including the black market.”
This reflects a trade-off between margin per spin and lifetime value. While lower RTP increases the former, it can erode the latter through reduced retention and engagement. Walton emphasises that operators understand this. “From a commercial perspective, the objective is usually not to maximise margin per spin, but to maximise sustainable lifetime value within a trusted environment.”
In her view, RTP cuts are not opportunistic but are necessary. “No operator that I know wants to cut RTP. They are doing it to protect their ability to operate.” That necessity, however, does not eliminate the risks. If all operators reduce RTP simultaneously, the regulated market becomes less attractive compared to unregulated alternatives.
Germany’s warning
Regulus Partners points to Germany as a cautionary tale. The country’s 5.3% turnover tax on online slots has effectively forced RTPs down to around 90% or lower – well below the natural level of approximately 95%.
The consequences have been stark. According to the firm, the licensed slots market has shrunk from around €800 million in annual revenue in 2022 to roughly €470 million in the second half of 2025, while the black market has grown to an estimated €2 billion.
“The German RTP ‘works’ in that it channels c. 25% of existing slot demand,” the note observes. “Copying Germany is not what success looks like.” Lower RTPs accelerate bankroll depletion – roughly a 50% higher loss rate when comparing 95% to 90% RTP – driving players towards offshore sites offering better returns. Channelisation has fallen below 40%, far short of targets.
Loz offers a ground-level perspective. “At 88% RTP, we at RubyPlay simply don’t make games for that market. The performance isn’t there. The data is very clear.” He describes a “cliff edge” effect: “If you lower RTP from 96% to 94%, you don’t see a huge difference. But below 94%, there’s a statistically significant drop. Around 90% and below, the drop becomes catastrophic. Players just leave.”
A mature market dilemma
The UK is not Germany. It has higher channelisation and a more competitive landscape, for now. But that competitiveness cuts both ways. Regulus Partners argues that in such a market, reducing RTP is unlikely to confer a lasting advantage. If one operator cuts RTP, others can follow. If all do, differentiation disappears while overall value declines.
This raises a key question: how sensitive is the UK player base to value? The answer varies. Casual players may be less responsive to modest shifts. More experienced or higher-value players are likely to be more price-aware. Walton suggests these players are the most at risk of leaving. In Germany, she notes: “an insane 50% of players were lost at launch,” reflecting a sharp exodus of value-sensitive users. In the UK, where switching costs are low, similar – if less extreme – dynamics could emerge.
Not all operators are embracing cutting RTP
Not all operators are embracing RTP reduction. Some see it as a chance to differentiate. Don Barker, head of operations for the UK business at Hollywoodbets describes a deliberate decision to maintain maximum RTP levels. “We’re not increasing our margins by lowering RTP just to offset the tax burden. We don’t believe that cost should be passed on to players.”
Hollywoodbets is making its position clear to players, and has created a category on its UK site directing them to the highest-RTP games in its inventory. This is alongside an analysis it carried out looking at the highest RTP games being offered by a number of competitors in the UK. The analysis breaks down the RTP being offered across a number of popular games, creating a competitive leaderboard among UK casino sites.
The company is positioning itself around value. “We want to position ourselves as the casino offering the highest average returns on slots.” This reflects a broader possibility raised by Walton: a two-tier market. “A small number of ‘hero’ or acquisition titles will be allowed to run at higher RTPs. Meanwhile, the majority of the portfolio will sit at lower RTPs in an attempt to protect margin.”, she says.
This strategy may balance acquisition and profitability, but it also adds complexity. Players may gravitate towards high-RTP titles, leading to more focused gameplay. There is also the question of sustainability. As Walton notes: “If one operator consistently signals better underlying value, players will notice. But it will come at the expense of something else.”
Is RTP a substitute for innovation?
One subtle question is whether RTP is becoming a substitute for innovation. Loz is sceptical. “RTP is simply the most straightforward lever to pull. If you need to increase revenue, adjusting RTP is the easiest way.” But this has limits. “Innovation doesn’t fundamentally change player budget. It just redistributes spending between operators.”
Better games may shift share, but they do not expand the overall pie – especially if value deteriorates, he says. If players operate within fixed budgets, raising the effective “price” through lower RTP does not increase spending; instead it shortens the experience, is his point.
A fragile equilibrium
The implications are difficult to ignore. A market where sessions shorten, frequency declines and high-value players drift away is one where growth becomes harder to sustain. Regulus Partners’ central warning is that this dynamic is particularly dangerous in a market like the UK.
If regulated products become steadily less attractive, the gap with unregulated alternatives may widen enough to shift player behaviour. In the end, the question is not whether lowering RTP can improve margins. The question is whether it can do so without eroding the foundations on which those margins depend. For now, the answer remains uncertain. But the evidence suggests that what looks like an easy fix may prove a costly one.
Original article: https://igamingbusiness.com/casino-games/slots/cutting-rtp-uk-margin-fix-market-misstep/
