B2B business model: Service-oriented approach
B2B gaming companies play a crucial role by providing a suite of solutions designed to optimise third party gaming platforms. They offer services to other market participants in several categories, including software platform licensing, game content provision and affiliate marketing.
Revenue in the B2B model is typically generated from fees charged for these services, such as software license fees, support fees and revenue-share commissions. Importantly, B2B transactions do not involve operators taking bets or positions against players. Revenue recognition is governed by IFRS 15 'Revenue from Contracts with Customers,' and requires B2B entities to assess a detailed five-step model to determine how and when revenue should be recognised. IFRS 15 tends to not have a significant effect due to the fees resetting on a monthly basis, i.e. the amount payable is known at the month end. One must pay attention to fees which extend to more than one month or set up fees, as the performance obligation is not satisfied immediately and this would have an effect on the accounting.
B2C business model: Direct player engagement
In contrast, the B2C model focuses on direct interactions with players. Gaming operators in this space either take positions against players via fixed odds wagering or facilitate player interactions, earning commissions for their services. With fixed odds wagering, operators accept bets on uncertain outcomes, essentially taking a risk
While IFRS standards do not specifically address fixed odds wagering, a 2007 IFRIC Staff Paper provided guidance by noting that such wagers typically meet the definition of financial instruments. Consequently, these transactions fall under the scope of IFRS 9 'Financial Instruments.' Paragraph 5 of IFRS 15 explicitly excludes financial instruments from its scope, which means fixed odds wagering transactions are accounted for under IFRS 9 rather than IFRS 15.
Products such as Poker, in which the Company earns a fixed commission falls within scope of IFRS 15 (the revenue the Company generates is not a position against a player).
Concluding remarks: mind the model
Whether operating within the B2B or B2C model, understanding the accounting implications in light of the intricacies of each model is crucial to determine the appropriate revenue recognition. While B2B involves structured service contracts, B2C deals with the complexities of wagering and player interaction. Each model requires careful revenue recognition and understanding of relevant IFRS guidelines.
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