The precarious future for affiliates

The affiliate relationship with the online gambling industry is a deeply embedded and complex one. There are few major businesses that haven’t relied on affiliates for growth at some point in their lifecycle and they continue to be the major source of acquisitions in many grey markets. But their role in the more mature regulated markets is coming under increasing scrutiny.

A couple of breathlessly hyperbolic Guardian articles on the matter should be digested with a large pinch of salt, but the fact the topic is now open for mainstream discussion is significant. Affiliates are not directly regulated by the Gambling Commission and although it’s untrue to say they are entirely unregulated, they do operate with a degree of freedom that is alien to the brands they supply with new players.

A Sector in flux

The make-up of the affiliate sector is one in flux. The rise of consolidating forces such as XLMedia and Catena Media, and the rapid growth of businesses such as Team FA and bettingexpert, mean this is becoming a rather more serious business than in the past. While there may be a case for a light-touch approach to a series of small businesses run by a handful of internet entrepreneurs it’s tougher to make one for a PLC buying media on an industrial scale.

At the other end of the scale we still have the continued development and evolution of the “one man band” style affiliate that has been transformed by social media. Facebook was where many of them were born, but changes to the platform haven’t stemmed the growth of this new force and Twitter and YouTube in particular are flooded with tipsters, reviewers and other “helpful” voices looking to guide players to their carefully chosen site of choice. Frankly it’s a bit of a mess.

On the one hand we have operators tightly bounded by how they can advertise, particularly in the casino sector, and on the other hand we have affiliates operating with somewhat less of a regulatory guiding hand. And as the market gets more competitive the affiliates are becoming more aggressive and the punters are noticing. Messaging can be confusing and contradictory and it’s no surprise to see some operators censured for the actions of their affiliates and the inevitable consequence of a tightening of the reins on their affiliate networks.

Tightening the reins

Ladbrokes Coral pledged to adopt stricter oversight over its large affiliate network earlier this month, but the biggest news was that Sky Betting & Gaming (SB&G) was planning to drop its entire affiliate programme. The operator, who had also faced censure for actions its affiliates took for its Sky Bingo brand, said it was in response to “changing regulatory requirements”. It’s a bold move that places greater pressure on its gaming marketing expertise in particular, although it should be noted it will have a significant margin-enhancing impact on the firm’s existing business.

It should be noted that SB&G own one of the UK’s largest affiliates in Oddschecker (as well as SportingLife and other sports media brands) so it’s not going entirely cold turkey. And it was instructive to see SB&G said their decision would only apply to the UK market and they would still be pursuing affiliate relationships internationally as they look to scale up their Italian and German businesses. How keen affiliates will be to work with them will be another matter, but the intent was clear. Where markets are more immature and they lack market share, then affiliates still have a role.

For operators focused on gaining early life market share or those operating primarily in grey markets then the death of the affiliate sector is all but inconceivable. But in regulated mature markets where all advertising channels are open to them and there is a considerable spend on brand advertising it’s a tougher business case to make. Operators can be competing directly with affiliates in SEO and PPC on their own brand, and even when working with affiliate brands directly it can still be an expensive way of buying in third-party expertise.

A regulatory catalyst

The addition of regulatory oversight may be a catalyst that forces the hand of other operators into taking similar actions to SB&G. The consequences of a “rogue” affiliate can be dire, with large fines now commonplace in the UK and even the possibility of a licence suspension or revocation for continued infractions. And if the Gambling Commission remains reluctant to regulate the affiliates directly and continues to pass the responsibility back through the chain to the operators themselves it’s not a great position to be in long-term.

And this is a key point for affiliates. Operators are eternally keen to work with affiliates in the early part of their lifecycle but as they grow and long-term affiliate deals become just another downward pressure on margin it’s easy for executives to make the case for ditching the programme altogether. Executives we’ve spoken to at both start-up and tier 1 level have expressed caution on being too reliant on affiliates and in some quarters they are viewed more as a short-term solution than a long-term business partner.

This is not a universal truth, however, and many businesses still see affiliates as integral to their success. Affiliates can, and still do, have a vital role to play in the future of the sector. They have innovated around acquisition and CRM marketing in the past and will continue to push boundaries and develop new solutions for the sector around media buying, SEO and content marketing. What they need to do, however, is reimagine their relationship to both the consumer and the operator for a modern regulated mainstream gambling sector.

The push for regulation

There is an argument the affiliate sector itself should be pushing for regulation. It’s a sector that is increasingly dominated by large-scale groups both public and private that operate with high standards and would benefit hugely from distancing themselves from the more murky side of the industry. Regulation would inevitably add a layer of costs, but these are business that currently operate on large margins and the additional benefit of making life harder for smaller firms to operate would be a clear benefit from any regulation.

Regulation of the affiliate sector is not without precedent. The New Jersey regulated market in the US requires it and the regulators there have shown it’s not simply a form filling exercise and have acted to restrict the actions of those serving the market to prevent them from advertising black market sites. As online gambling continues to grow in scale and visibility in the UK and other parts of Europe it seems an untenable position to allow such a large and integral part of the sector to remain broadly free of oversight by the gambling regulator.

The affiliate sector is long overdue for regulation and operators and mainstream affiliates alike should be calling for it. Regulation would benefit both consumers and the industry, while the alternative is an increasingly messy operating environment where the fate of affiliates is increasingly taken out of their hands. The affiliate sector has come a long way since its early days, but it needs to prepare itself for its next big leap forward or risk falling flat on its face.