The beginning of the end for affiliation as we know it?

If affiliation is going to survive it needs much more give and take by both operators and affiliates, plus deeper commitment from each side, says Peter Marcus

In the last few months a major betting operator closed its affiliate programme, another has placed affiliates on “final warning” and still more are reviewing their deals.

The UK tax rate (GGR) has gone up, countries have closed, and operators have been fined many millions because of breaches regarding responsible gaming and advertising. Is this the beginning of the end for affiliation? The online gaming industry is going through a big change. It’s true that it changes constantly, depending on the regulatory and competitive climate, but this change is different, and we have started to see the impact on affiliation and operators.

Affiliates are merging and becoming more like media houses than old-school affiliates. Meanwhile, operators are changing too — speak to any operator nowadays and regulation, taxation, compliance and corporate mergers will be the main topic of conversation. Compared with five years ago, we are a far more regulated industry. The UK, Spain, France, Italy, Denmark, Romania, USA and Australia all have specific regulations and licences which come with gaming, technology challenges, regulatory pressures (especially as each territory is different) and taxes.

Even in some dot.eu markets, merely to operate one must pay VAT at around 19% or a gaming tax (eg in Austria) at circa 40%. Over and above the tax rise, the UK is “leading the way” in enhanced regulation. Don’t get me wrong: I believe that the vast majority of the industry want to see responsible gaming, a safe environment for players to be entertained, where criminal activity is excluded, but where honest marketing is incorporated.

However, over time, these ambitions have morphed into a challenging set of vague rules that decrease genuine player revenue and impact operators and affiliates alike. Let’s look at some examples:

• Source of funds checking - these are the checks on large players to ascertain where their money comes from, not just from which bank but the exact source (eg salary, inheritance, etc). If we can’t determine them or the player will not disclose them, we must close the player’s account
• Proactive responsible gaming - apart from making it easy to self-exclude, there is an obligation to proactively review player accounts by inspecting how much money the player has and assessing if they can afford what they are gambling. If not, we consult the player and close their account
• Self-exclusion group wide - if a player self-excludes with one brand they must be self-excluded on all brands owned by that operator. Often the customer does not even realise this is the case. When operators merge, the self-exclusion must be extended to the new operator’s interests as well

Then there are the new marketing and advertising rules in the UK which the UKGC/ASA will vigorously enforce, issuing fines for infractions:

• Key terms - on banners, websites, emails and affiliate pages, an operator must cover all the key terms on the first page the player sees – and the full terms after one click
• Clear advertising - ensure that all marketing is clear and accurate. This means that if there is a 100% bonus to £100 for slots only that must be made clear on every advertisement
• Appealing to children - any advertising or games that could appeal to children as well as adults cannot be shown before login. This includes showing cartoon-style games or pictures
• Limit bonus - wagering requirements (coming soon) An operator can’t enact wagering requirements on bonus-associated deposits or winnings, only from the bonus itself and any wins from that bonus

Add to that the 15% tax on GGR for sports and gaming, plus the racing levy and responsible gaming fund, 19% VAT in Germany — and even more in France. In summary, costs are rising, taxes are rising and there are more controls on high rollers. So, how can operators continue to pay life time high revenue shares and CPAs and with no negative rollover fees? Let’s take a basic example of a player P&L on a 50% revenue share deal.

• Take 1 player at £100 GGR
  15% POC tax (£15)
  30% bonus cost (£30)
  NGR = £55
• 15% software costs (£15)
  15% staff costs + fixed costs (£15)
  2% processing fees (£2)
  Revenue = £23
• 50% affiliate costs of NGR (£27.50)
  Operator profit = - £4.50 (minus)
  No negative carryover, plus revenue guarantees, plus TV advertising makes this loss even bigger!

So, how can an operator do this? Somehow the numbers you are seeing can’t be real and if they are it’s not lifetime! CPAs are the same.

To conclude: if affiliates want to avoid other operators closing programmes or stopping affiliation — and if operators want to continue to benefit from the skills that affiliates provide the industry —they are going to have to change and become true long-term partners.

Revenue shares and CPAs are going to have to reflect the new reality and drop.

If a country closes, both operator and affiliate will be affected, and operators will have to work closely with affiliates on the marketing message. After all, they could lose their licence just because of one affiliate’s marketing.

If this happens, affiliation in my view is very much alive and for the long-term.

Peter Marcus is a 15-year veteran of the online gaming industry, was the former COO for William Hill Online and UK Managing Director for Betfair. He has run a successful e-gaming consulting business since 2013 consulting to some of the largest operators in the industry.

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