Earnouts When Selling or Buying a Business | Complete Guide
The short answer
An earnout is part of the purchase price that the buyer pays after closing, only if the business hits agreed targets over a set period. The seller gets paid for performance the buyer was not willing to pay for up front; the buyer only pays for performance that actually happens.
Earnouts are common in iGaming because the revenue is harder to predict than in most businesses. A Google update can halve an affiliate site’s traffic. A few VIP players leaving can move a casino’s NGR by a large share. A sportsbook’s margin swings with results. And a change of owner, platform or PSP can disrupt players. When buyer and seller disagree on how durable the revenue is, an earnout lets them agree on a price anyway.
Which metric to tie it to
The metric should be one the seller’s past work genuinely drives, and one the buyer cannot easily push down after closing. The further down the P&L the metric sits, the more the buyer’s own decisions affect it.
| Metric | Best for | Advantage | Risk |
|---|---|---|---|
| NGR | Casinos and sportsbooks | Reflects player value directly, from platform data | The buyer controls bonus policy, which changes NGR. Lock the definition |
| GGR | Sportsbooks with volatile bonus cost | Simpler, less affected by bonus decisions | Ignores bonus cost, so the buyer may resist it |
| EBITDA | Larger operators with stable costs | Measures real profit | The buyer controls costs and can shift them into the earnout period |
| First-time depositors or active players | Growing operators | Easy to verify, hard to manipulate | Says nothing about player quality |
| Affiliate commission revenue | Affiliate sites | Tied to the asset’s actual output | Operator programme changes or account transfers can affect it |
| Organic traffic or rankings | Affiliate sites | Measures the asset itself | Traffic does not always convert into revenue |
For most iGaming deals, a top-line figure such as NGR or affiliate commission works better for the seller than EBITDA, because it limits how far the buyer’s own cost decisions can reduce the payout.
How earnouts are structured
Every earnout is built from the same handful of choices. Agree each one in the LOI, not later.
- Share of the price. The part of the total price at risk. The larger it is, the more of the business’s value the seller is effectively still carrying.
- Period. How long performance is measured. Periods of 6–24 months are common; longer periods make the payout depend more on the buyer’s management than on the seller’s work.
- Target. The level of the metric that earns the full payment, usually based on the trailing 12 months the price was built on.
- Threshold. The level below which nothing is paid.
- Scale. How the payout moves between threshold and target. A sliding scale pays in proportion; an all-or-nothing “cliff” pays in full or not at all, and invites disputes over small misses.
- Cap. The maximum earnout payable. Some deals add a bonus above target, but most stop at the cap.
- Payment schedule. Monthly, quarterly or at the end of the period. Shorter intervals reduce the seller’s exposure and the size of any single dispute.
- Reporting. What data the buyer shares, how often, and in what form, so the seller can check the calculation.
A cliff is the structure most likely to end in an argument. If the target is EUR 1,000,000 of NGR and the business delivers EUR 990,000, a cliff pays nothing. A sliding scale pays almost everything.
Worked example
The figures below are illustrative.
An online casino is sold for up to EUR 900,000. The buyer pays EUR 600,000 at closing. Up to EUR 300,000 more is paid as an earnout based on NGR over the 12 months after closing.
- Target: EUR 1,200,000 NGR, in line with the trailing 12 months
- Threshold: 80% of target, EUR 960,000. Below that, no earnout
- Scale: linear between threshold and target
- Cap: EUR 300,000
- Payment: quarterly, on cumulative NGR, with a final true-up at month 12
| Actual 12-month NGR (EUR) | Share of target | Earnout paid (EUR) | Total price (EUR) |
|---|---|---|---|
| 1,300,000 | 108% | 300,000 (capped) | 900,000 |
| 1,200,000 | 100% | 300,000 | 900,000 |
| 1,080,000 | 90% | 150,000 | 750,000 |
| 960,000 | 80% | 0 | 600,000 |
| 900,000 | 75% | 0 | 600,000 |
At 90% of target, the business is halfway between threshold and target, so half the earnout is paid. The seller’s guaranteed outcome is EUR 600,000; the rest depends on performance. That is why the share of price at risk matters as much as the headline number.
Protecting both sides
The seller no longer controls the business during the earnout, and the buyer does not want to pay for results it produced itself. The agreement has to deal with both.
Protections for the seller
- A fixed definition of the metric, written into the purchase agreement, including exactly how bonuses, fees and taxes are treated
- Operating commitments: the buyer keeps the brand running, keeps marketing at a reasonable level, and does not move players to another brand during the period
- Rules for integration: if the buyer migrates the platform or merges the brand, the earnout is either paid out early or calculated on an agreed basis
- Acceleration: the remaining earnout becomes payable if the buyer sells the business, stops operating it, or loses the licence through its own actions
- Regular reporting with read-only access to the platform data used for the calculation
- Limits on set-off, so the buyer cannot withhold earnout payments over unrelated claims
- Security for payment where the buyer’s credit is uncertain, such as part of the earnout held in escrow
Protections for the buyer
- A target based on normalised, verified figures from diligence
- A cap on the total payable
- No payment for revenue the buyer generates through its own new marketing or cross-selling, where that can be separated
- A transition commitment from the seller, so knowledge and relationships move across
Disputes. Name an independent accountant to settle calculation disputes, with a short deadline. It is faster and cheaper than going to court over a spreadsheet.
When an earnout is the wrong tool
An earnout bridges a disagreement about future performance. It is a poor fit when the disagreement is about something else.
- The buyer will merge the business straight away. If the brand is moved onto the buyer’s platform and its players are combined with others, the earnout metric cannot be measured cleanly.
- The buyer doubts the historic numbers. That is a diligence problem. Fix it with verification, warranties or a holdback, not with an earnout.
- The seller is leaving on day one. A seller with no role after closing has no influence over the result, so the earnout is closer to a bet than a reward.
- The amounts are small. On a small affiliate site, the legal cost and the effort of monitoring an earnout can outweigh the money at stake.
Alternatives worth comparing:
| Tool | How it works | Suits |
|---|---|---|
| Seller financing | Part of the price is paid in fixed instalments, whatever the performance | Buyers who need time to pay, where performance is not in dispute |
| Holdback or escrow retention | Part of the price is held for a period to cover warranty claims | Buyers worried about undisclosed problems rather than future performance |
| Lower price, all cash | The buyer pays less, but in full at closing | Sellers who value certainty over a higher possible total |
The right choice depends on what the two sides actually disagree about. Naming that first usually makes the structure obvious.
FAQ
What is an earnout in M&A?
A deferred part of the purchase price, paid only if the business reaches agreed targets after closing.
How common are earnouts in iGaming deals?
They come up often, because iGaming revenue is exposed to search updates, player churn, sportsbook margin and regulatory change. They are most useful when buyer and seller disagree on how durable recent results are.
What metric should an iGaming earnout use?
Usually NGR for casinos and sportsbooks, and commission revenue for affiliate sites. Both sit high in the P&L, so the buyer’s cost decisions affect them less than they affect EBITDA.
How long does an earnout last?
Commonly 6–24 months. Shorter periods keep the payout tied to what the seller built; longer ones depend more on the new owner.
Do I pay broker commission on an earnout?
On our mandates, commission on an earnout is due only when you actually receive the money, and never on amounts you do not receive. Check that any broker agreement says the same.
How is an earnout taxed?
It depends on the jurisdictions involved and on how the earnout is drafted. Take advice from a tax adviser before the structure is fixed in the LOI.
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