Quality of Earnings (QofE) for iGaming Businesses
The short answer
A quality of earnings (QofE) review tests whether a business’s profit is real, recurring and convertible into cash. It starts from the reported figures, removes anything that will not continue under a new owner, adds back anything that will not recur as a cost, and checks the result against source data. The output is a normalised earnings figure that a buyer can apply a multiple to with confidence.
In iGaming the review has more to do than in most sectors. Revenue is reported by a platform, collected by PSPs, reduced by bonuses, taxed at different rates by market, and shared with affiliates and game providers. Each of those steps can move the number, and each one needs checking.
QofE vs audit vs the seller’s own adjustments
| Statutory audit | Seller’s adjustments | QofE review | |
|---|---|---|---|
| Question answered | Do the accounts comply with accounting rules? | What would profit look like without owner-specific items? | What profit will a new owner actually earn, and is it backed by cash? |
| Prepared by | Auditor | Seller, often with the broker | Independent accountant, for the seller or the buyer |
| Period | Financial year | Usually the trailing 12 months and prior years | Monthly, usually 24–36 months |
| Focus | Compliance and presentation | Add-backs | Normalisation, revenue quality, cash conversion, working capital |
| Used for | Filing and tax | Marketing the business | Pricing and negotiating the deal |
An audit can be clean and still say little about future earnings. Smaller businesses, and most affiliate sites, are often not audited at all. A QofE fills that gap, and the seller’s own adjustments are its starting point. See our guide to adjusting financial statements for how to prepare them.
iGaming items a QofE looks at
These are the adjustments that come up most in casino, sportsbook and affiliate deals. Some increase earnings; many reduce them.
| Item | What to check | Usual direction |
|---|---|---|
| Bonus cost | Whether bonuses were cut shortly before the sale, and whether the current level is sustainable | Down, if NGR was flattered by low recent bonus spend |
| Sportsbook margin | Whether the trailing period had an unusually high or low hold; normalise to a longer-term average | Either way |
| Affiliate commissions owed | Revenue-share and CPA commissions earned but not yet invoiced or paid | Down |
| Gaming taxes | Whether all taxes due in each market are booked, including new or changed rates | Down |
| Platform and provider fees | Fee tiers that change with volume, minimum fees, and contracts ending soon | Either way |
| Chargebacks and fraud | Losses booked in the period they arose, and PSP reserves | Down |
| Owner costs | Owner salary against the cost of hiring a manager, and personal expenses run through the business | Up for excess costs; down if the owner works unpaid |
| One-off costs | Legal disputes, migrations, licence applications | Up, when genuinely non-recurring |
| Related-party charges | Services bought from or sold to companies the owner controls, at non-market prices | Either way |
| Currency and crypto | Gains or losses from exchange rates or crypto revaluation counted as operating profit | Usually removed |
| Test and internal accounts | Bets, bonuses or deposits from staff or test accounts in the revenue figures | Down |
| Shared costs | Costs shared with other brands or businesses of the same owner, allocated fairly | Either way |
Revenue quality and cash conversion
Normalised earnings are only half of a QofE. The other half asks whether the revenue will last and whether it turns into cash.
Revenue quality
- Reconciliation to source. Platform GGR and NGR tied month by month to PSP settlements and bank receipts. Unexplained gaps are the most serious finding a QofE can make.
- Concentration. Share of GGR from the top players, the top market, and for affiliates the top operator and the top pages.
- Cohorts. How each month’s new depositors behave over time. Stable or improving cohorts support the multiple; declining ones undermine it.
- Acquisition dependency. How much revenue depends on paid acquisition or one traffic source, and what it costs to replace churned players.
- Market exposure. Revenue from markets with pending regulatory change or outside the licence scope.
Cash conversion
- PSP reserves. Cash held back by payment providers, sometimes for months, which the buyer may not receive.
- Player balances. Funds owed to players are a liability, not working capital the seller can take.
- Commission and fee timing. Affiliate commissions, game provider fees and taxes often fall due after the revenue is booked.
- Working capital. The level of cash and payables the business needs to run normally, which the buyer will expect to be left in place at closing.
A business can show strong NGR and still convert little of it into cash, if reserves, liabilities and commissions absorb it. Buyers price on the cash.
Illustrative bridge to normalised EBITDA
The figures below are illustrative, for an online casino and sportsbook over the trailing 12 months.
| Line | EUR | Comment |
|---|---|---|
| Reported net profit | 420,000 | From the management accounts |
| + Interest | 10,000 | Financing cost, not operating |
| + Depreciation and amortisation | 20,000 | Non-cash |
| Reported EBITDA | 450,000 | |
| + Owner salary above market cost of a manager | 60,000 | Owner paid EUR 120,000; replacement manager costs EUR 60,000 |
| + One-off legal costs | 25,000 | Settled dispute, invoices provided |
| − Affiliate commissions earned but not booked | (30,000) | Found when reconciling programme reports |
| − Sportsbook margin normalised | (45,000) | Trailing hold above the 36-month average |
| Normalised EBITDA | 460,000 | Figure the multiple is applied to |
The seller’s own recast might have shown EUR 535,000, adding back the owner salary and legal costs but missing the commissions and the margin. The QofE figure is EUR 75,000 lower. At any multiple, that difference moves the price materially, which is why a seller who commissions the review first is better placed than one who learns about it from the buyer.
Sell-side vs buy-side QofE
Buy-side. The buyer commissions the review during diligence, after the LOI. It is the most common form, and its findings are used to renegotiate the price or the structure.
Sell-side. The seller commissions it before going to market. It costs money up front, but it lets the seller fix or explain issues on its own timetable, sets a credible earnings figure for the CIM, and often shortens the buyer’s diligence. Buyers may still run their own review, but a sell-side QofE narrows what they can dispute.
Whether a formal QofE is worth commissioning depends on deal size. For a small affiliate site, a careful reconciliation and a documented list of add-backs usually does the same job. For a licensed operator, or any deal where the price depends on a multiple of EBITDA, a formal review is often worth its cost.
To prepare, have these ready:
- Monthly management accounts for 24–36 months
- Platform exports of GGR, bonuses and NGR by month and market
- PSP settlement statements and bank statements for the same period
- Affiliate programme reports and commission statements
- Contracts with platform, game providers, PSPs and affiliates, showing fee terms
- Tax filings for each market
- Evidence for every add-back you propose
The due diligence checklist covers the wider set of documents.
FAQ
What is a quality of earnings report?
An independent review of a business’s earnings that removes non-recurring and non-operating items, tests the figures against source data, and checks how well profit converts into cash.
Is a QofE the same as an audit?
No. An audit checks that accounts follow accounting rules. A QofE asks what a new owner will actually earn, which is what a buyer pays for.
Who pays for a QofE?
Whoever commissions it. The buyer usually pays for a buy-side review; the seller pays for a sell-side review.
How long does a QofE take?
It depends on the size of the business and how organised the data is. With reconciled monthly figures ready, it moves much faster than when the accountant has to rebuild the numbers.
What are the biggest QofE issues in iGaming deals?
Revenue that does not tie to PSP and bank statements, bonus cost cut before the sale, unbooked affiliate commissions, unusual sportsbook margin in the trailing period, and missing gaming tax provisions.
Do I need a QofE to sell an affiliate site?
Usually not a formal one. A clean reconciliation of programme payouts to bank receipts and documented add-backs normally gives the buyer enough.
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