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The Australian online wagering landscape is shrinking.
A tightening web of regulations and new taxation models is reshaping the industry, creating a high-stakes environment where only the biggest can thrive.
For new entrants and mid-sized operators, these restrictions present formidable barriers, accelerating market consolidation and cementing the dominance of larger, well-resourced players.
Australia's online wagering industry has grown rapidly in recent years, reshaping sports betting and creating significant revenue opportunities for operators. However, this expansion has drawn increased attention from regulators. State and federal governments have imposed stricter regulations, raised point of consumption taxes (POCTs), and introduced more rigorous compliance requirements.
A consolidating market squeezed by thinning margins
The online wagering industry is in a period of rapid consolidation. Industry giants are leveraging their scale to absorb smaller competitors. The merger of News Corp's Betr with BlueBet in 2024 highlights the intense pressure on even well-backed ventures to consolidate to survive.
Several market forces are accelerating this trend:
Slowing user growth: Most potential customers have already shifted online, leaving a smaller, fiercely contested base of late adopters. This forces operators into aggressive promotional offers and more competitive odds, squeezing already thin margins.
Rising tax burden: As noted, escalating POCTs directly impact profitability, favouring larger operators who can absorb these costs more easily.
Increased regulatory costs: New rules, such as the June 2024 ban on using credit cards and digital currencies for deposits, add compliance costs and can impact revenue from high-value bettors.
For mid-sized operators, these financial pressures can raise serious questions about the ability to continue as a going concern, making a robust and defensible financial position paramount.
Are we moving towards a winner-takes-all market, where the cost of compliance becomes a barrier to competition?
Regulatory burdens favour large international entities over smaller local operators.
Most regulations aim to promote responsible gambling and protect consumers. These include limits around advertising, strict identity verification rules and a national self-exclusion register. However, something that gets overlooked in the conversation about gambling regulations is the way they shape the industry.
One regulation that can have an outsized impact on mid-sized operators comes up every financial reporting season: All licensed operators, regardless of size, must submit audited financial statements to regulators.
For mid-sized operators competing with giants like Sportsbet and Ladbrokes, this mandate poses major challenges. Unlike larger competitors with dedicated compliance teams, smaller firms often rely on lean finance departments juggling multiple responsibilities. Managing complex reporting standards alongside day-to-day operations can strain both resources and budgets.
Unique accounting challenges in the online wagering industry
As financial reporting season nears, it’s important to understand the complex accounting treatment applied to online wagering. The accounting treatment for revenue, liabilities, and taxes requires specialised knowledge, and inconsistent application can have severe consequences.
What’s the issue?
Unlike most businesses, betting companies don’t sell goods or traditional services. Instead, they manage bets;uncertain transactions that share financial risk with customers.
The correct standard:
AASB 9 (Financial Instruments) applies, not AASB 15 (Revenue from Contracts with Customers).
Example:
If a customer places a $100 bet, the outcome is unknown until the event finishes. This unsettled bet is treated as a ‘derivative’ and measured at fair value through profit or loss (FVTPL).
Why it matters:
Applying the wrong standard (AASB 15) could mean recognising revenue too early, overstating profits, and the financial statements being materially misstated.
Unlike traditional businesses, wagering operators must manage nuanced revenue recognition principles. The primary accounting framework, AASB 15 Revenue from Contracts with Customers, governs how you record revenue and presents unique challenges.
What’s the issue?
At any time, a betting company may have thousands of pending bets. The company must value pending bets using the latest odds and probability-weighted outcomes based on historical data.
The correct standards:
AASB 9 for measurement recognising a ‘derivate’ financial instrument which is treated as fair value through P&L.
AASB 13 for fair value disclosures (generally level 3) that must be disclosed in the financial statements (i.e, where this is material).
Example:
If new information (like a sporting injury) changes the odds, the fair value of all open bets must be updated, impacting reported profits.
Why it matters:
Valuing bets involves judgement and can create volatility in earnings. Companies must clearly disclose how they calculate these values.
Pending bets need to be treated as liabilities until the outcome is known.
Example:
If there’s $1m in pending bets at year-end, show this amount as a liability on the balance sheet, recognising the fair value of those bets at any point in time. Use a probability factor to take into account the likelihood of each bet wining or losing.
Why it matters:
Incomplete or inaccurate records can distort both liabilities and profits, which in turn canmislead stakeholders .[RD1] [AW2] Any fair value adjustments will hit the P&L and therefore will have a direct impact on the profit that is disclosed in the financial statements.
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What’s the issue?
Player deposits must be kept separate from the company’s own funds to comply with regulations and protect customers.
The correct standard:
AASB 107 (Statement of Cash Flows)
Example:
If $500,000 is held in player accounts, it must be reported as ‘restricted cash’, not mixed with operating cash.
Include player cash in the cash flow statement but disclose it separately in the note to the financial statements as ‘player cash.’
Operationally, this cash should be held in a separate bank account and it is important to have sufficient funds to settle the player cash liability.
Why it matters:
Mixing funds can breach regulations and give a false picture of the company’s liquidity.
What’s the issue?
Free bets and bonuses are common marketing tools, but they must be accounted for correctly.
The correct standard:
- AASB 9
Example:
If $10,000 in free bets are issued, record themas a promotional expense and deduct them from revenue (contra-revenue).
Why it matters:
Incorrect treatment can inflate revenue and misstate profitability.
The revenue that is disclosed in financial statements is actually ‘net revenue’ which is gross wins less promotional costs and GST.
Your reports must provide a clear and transparent view of the company’s financial health. Your financial statement must include:
Statement of profit or loss: Your primary revenue source is reported as net wagering revenue. This is presented alongside key expenses, such as product fees paid to racing and sports bodies, marketing costs, and technology overheads.
Statement of financial position (balance sheet): Customer funds held are presented as a key liability. Your assets would include cash, receivables, and intangible assets like operating licences and software development costs.
Notes to the financial statements: Significant accounting policies related to revenue recognition, liabilities, and taxation should be disclosed, along with a breakdown of revenues and expenses if material. Material non-recurring items or significant changes in revenue or expenses should also be explained.
Inconsistent application of these principles can lead to qualified audit opinions, regulatory scrutiny, or misleading financial statements that damage stakeholder trust.
For mid-sized operators, the resources required to ensure this level of detail and accuracy can be substantial, often creating a significant competitive disadvantage.
To recognise an intangible asset, AASB 138.21 requires that:
- It is probable that the expected future economic benefits attributable to the asset will flow to the entity.
- The cost of the asset can be measured reliably.
For internally generated intangible assets (such as a new betting platform), AASB 138.intangible assets 57 further requires that the asset arises from development (not research) and meets all of the following criteria (AASB 138.57(a)-(f)):
Technical feasibility of completing the intangible asset so that it will be available for use or sale.
Intention to complete the intangible asset and use or sell it.
Ability to use or sell the intangible asset.
How the intangible asset will generate probable future economic benefits (e.g., demonstrating the existence of a market or usefulness internally).
Availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
Ability to measure reliably the expenditure attributable to the intangible asset during its development.
Example: Capitalising a betting platform
Suppose a betting company spends $2m developing a new online betting platform. To capitalise these costs as an intangible asset under AASB 138, the company must:
- Demonstrate that the platform is technically feasible and will be completed (e.g., project plans, milestones).
- Show management’s intention and ability to complete and use the platform (e.g., board approval, resource allocation).
- Provide evidence that the platform will generate future economic benefits (e.g., market analysis, projected revenue).
- Ensure sufficient resources are available to finish the project.
- Track and reliably measure all development costs (e.g., payroll, software licences, direct overheads).
If all criteria are met, capitalise the costs incurred during the development phase as an intangible asset (in line with paragraph 66 below).
Costs incurred during the research phase (e.g., initial investigation, feasibility studies) must be expensed as incurred (AASB 138.54).
AASB 138.66 states, “The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management.”
Examples of directly attributable costs are: (a) costs of materials and services used or consumed in generating the intangible asset; (b) costs of employee benefits (as defined in AASB 119) arising from the generation of the intangible asset; (c) fees to register a legal right; and (d) amortisation of patents and licences that are used to generate the intangible asset. The most common costs you would expect to see capitalised by a betting company would be software developer’s time.
Ensure you maintaingood record keeping, especially around timesheets and projects for financial reporting purposes.You will need these to evidence that the projects and costs capitalised meet the criteria under AASB 138.
Subsequent measurement and impairment
- The capitalised intangible asset is amortised over its useful life. Benchmarking this against other similar compainies is a good way to ensure the amortisation is at a reasonable rate (AASB 138.97).
- The asset must be tested for impairment whenever there is an indication that it may be impaired, and at least annually if it has an indefinite useful life (AASB 136).
Why this matters
Over-capitalising costs or failing to test for impairment can materially misstate a betting company’s assets and earnings. Strict adherence to the recognition criteria in AASB 138 is essential for compliance and accurate reporting. Having clear capitalisation policies and regularly reviewing the useful economic lives of intangibles is good practice.
A consolidating market squeezed by thinning margins
Given the complexity and risks involved, betting companies must be proactive in managing their financial reporting and compliance obligations. Here are some key actions to help ensure compliance:
Implement robust systems and controls
- Use advanced accounting and risk management systems capable of tracking unsettled bets, player funds, and promotional activities in real time.
- Automate fair value calculations and ensure all assumptions and models are regularly reviewed and documented.
Maintain accurate and segregated records
- Keep detailed records of all betting transactions, unsettled bets, and player deposits.
- Segregate player funds from operational accounts and clearly report “restricted cash” in financial statements.
Regularly review and test for impairment
- Periodically assess the value of intangible assets, such as betting platforms and software, and test for impairment as required by AASB 136.
Ensure proper revenue and expense recognition
- Apply the correct accounting standards (e.g., AASB 9 for pending bets, AASB 9 for promotional costs).
- Deduct promotional expenses from revenue as contra-revenue and avoid early or incorrect revenue recognition.
Enhance disclosure transparency
- Provide clear disclosures about valuation techniques, risk management policies, and regulatory compliance in financial statements.
- Disclose fair value hierarchy levels (AASB 13) and explain key assumptions used in valuations.
Monitor regulatory developments
- Stay informed about changes in gambling regulations, anti-money laundering (AML) requirements, and player protection rules.
- Ensure compliance with all licensing conditions and be prepared for regulatory audits.
Prepare for emerging risks
- Develop policies for handling new developments such as cryptocurrency transactions and algorithmic odds setting.
- Document how these are accounted for and disclosed, even in the absence of specific guidance.
Invest in specialist expertise
- Employ or consult with accountants and auditors who have experience in the online betting sector.
- Stay up to date with changes in Australian Accounting Standards (AASB) and regulatory requirements.
How RSM can help in the online wagering industry
Success in this market demands a sophisticated approach to financial management. The combined weight of intensive regulation and punitive taxation has created a challenging environment that favours scale. Success is increasingly defined not just by product quality or customer service, but by the financial resilience to withstand regulatory and tax burdens.
As regulatory pressures intensify, RSM can provide the deep, sector-specific insights you need to turn compliance into a source of competitive strength. By working together, we can bring clarity to your unique environment and simplify the audit experience.
For those considering IPOs or merger opportunities, we can also ensure you have the financial foundations necessary for taking the next steps.
