Lesson 1 of 4 Math checked Facts checked against sources on 16 June 2026 12 min

How video games and betting make money

The ways games earn (buy once, free to play, subscriptions, live services), who takes a cut on the way, how betting and lotteries earn their margin, and the measures each side watches.

Industry brief, with a one-minute summary: Video games and betting

Key takeaways

Games and betting both sell entertainment through screens, both spend heavily to win each new customer, and both keep earning only if that customer comes back.
Daily and monthly active users (DAU and MAU), and their ratio, which shows how often people come back.
Retention: the share of new players still playing after 1, 7 and 30 days.
Payer conversion: the share of players who spend anything. ARPPU: average revenue per paying user.

Key idea

Games and betting both sell entertainment through screens, both spend heavily to win each new customer, and both keep earning only if that customer comes back. They differ in where the margin comes from. A game earns from players who choose to spend, after a platform or app store takes its cut. A betting company earns a small share of every amount bet (its margin), then pays a large share of that to governments in tax. In both, the key case number is the value of a customer over their life against the cost of winning them.

Video games are made by developers (studios) and usually financed, marketed and sold by publishers such as Electronic Arts, Take-Two, Tencent, Sony or Nintendo. Players reach them through platforms: consoles (PlayStation, Xbox, Nintendo Switch), PCs (stores such as Steam and the Epic Games Store) and phones (Apple's App Store and Google Play). Betting covers sportsbooks (bets on sports results at fixed odds), online casinos (slots and table games), lotteries and horse racing. This module explains how these businesses work. Gambling can cause serious harm, and many countries limit or ban it, as lesson 3 shows.

How games and betting earn money (main models; most companies mix several)

How games and betting earn money (main models; most companies mix several)
Model	Who pays and for what	The number that matters	Examples
Buy once (premium)	Players pay up front for a game on console or PC	Units sold in the first months, and the price	Nintendo's own games, big console launches
Free to play	Free to download; a few per cent of players buy items, and some games show ads	Retention, payer conversion and spending per paying player	Most mobile games, from Tencent, NetEase, Scopely and others
Live services	Players keep paying after launch for new content, passes and virtual currency	Share of revenue that repeats each year	EA's live services, such as Ultimate Team in its sports games (73 percent of EA's revenue in its year to March 2025)
Subscriptions	A monthly fee for a library of games or online play	Subscribers and churn	Xbox Game Pass, PlayStation Plus, Nintendo Switch Online
Sportsbook	Bettors stake money at fixed odds; the operator keeps what is not paid back	Handle (amount bet) times hold (share kept)	FanDuel (Flutter), DraftKings, Bet365, BetMGM
Online casino	Players bet on slots and table games with a built-in house edge	Gross gaming revenue per active player	The same operators, plus specialists
Lottery	Players buy tickets; a set share goes to prizes, the state or good causes, and the operator	Ticket sales and the share returned as prizes	Allwyn (UK National Lottery), state lotteries

So-what

Games moved from one-off sales to money that repeats: live services and in-game spending now make up most revenue at the big publishers. Betting has always been a repeat business, so both are judged on how long customers stay and spend.

The two value chains

From the creator to the player or bettor
- Games
  - Engines and toolsUnity, Unreal Engine; paid by licence or a share of revenue
  - Developer (studio)Makes the game; often owned by or paid by a publisher
  - Key: PublisherPays for development and marketing, owns most hit series
  - Platform and storeConsole makers, PC stores, app stores; keep a commission on each digital sale
  - PlayerBuys the game, items, passes or a subscription
- Betting
  - Data and odds suppliersSports data and pricing feeds, game studios for casino titles
  - Technology platformRuns the betting software, payments and checks on players
  - Key: Operator (bookmaker or lottery)Holds the licence, sets odds, pays winners, markets to players
  - GovernmentLicences, taxes on gross gaming revenue or on stakes, rules on advertising and player protection
  - BettorStakes money; most lose a little over time

Each step takes a share. In games the platform owner usually takes the biggest single cut of a digital sale; in betting the government usually does.

World games market by platform, 2025 (USD billion, Newzoo estimate as reported)(USD billion)

So-what

More than half of game spending is on phones, where the app stores sit between the publisher and the player. That is why store fees and the court cases over them matter so much to publishers' margins.

Next lesson: Games and betting economics: the store's cut, the player's value and the bettor's tax All lessons in Video games and betting: publishers, platforms, sportsbooks and lotteries

Key measures, in plain words

Daily and monthly active users (DAU and MAU), and their ratio, which shows how often people come back.
Retention: the share of new players still playing after 1, 7 and 30 days. For mobile games, GameAnalytics reported a median of about 22 percent on day 1 and under 1 percent on day 30 in 2025 data (an industry benchmark).
Payer conversion: the share of players who spend anything. ARPPU: average revenue per paying user.
Cost per install (CPI) and lifetime value (LTV): what it costs to win a new player, against what that player brings over their life.
Handle: the total amount bet. Hold: the share of handle the operator keeps after paying winners. Gross gaming revenue (GGR) is handle times hold.
Net gaming revenue (NGR): gross gaming revenue minus free bets and bonuses given to players.
Promotional intensity and marketing as a share of revenue, and tax as a share of gross gaming revenue.
For lotteries: sales, and the pence or cents of each unit of sales that go to prizes, good causes, tax, retailers and the operator.

Timed math drill

Electronic Arts had net revenue of USD 7,463 million in its year to March 2025, of which USD 5,461 million came from live services and other. What share was that, as a decimal? (Round to two decimals.)

Check your understanding

A sportsbook takes USD 100 million of bets in a month and its hold is 10 percent. What is its gross gaming revenue, and is that its profit?

Check your understanding

Why do free-to-play game publishers watch day 1 and day 30 retention so closely?

Terms in this lesson

Value chain DAU/MAU ratio ARPPU (average revenue per paying user)Payer conversion CAC (customer acquisition cost)CLV (customer lifetime value)Churn and retention Take rate Network effects

Sources for this lesson (6)

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Keep going: lesson 2 of 4

It builds on what you just read, in Video games and betting: publishers, platforms, sportsbooks and lotteries.

Next lesson: Games and betting economics: the store's cut, the player's value and the bettor's tax All lessons in Video games and betting: publishers, platforms, sportsbooks and lotteries

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