US iGaming Affiliate Licensing Light: Published Article in Gambling Insider Magazine, July 2015
21 September 2015 - 10:26, by , in US iGaming Regulation, No comments

Google. Facebook. Ebay. Amazon.

Affiliates one and all. They drive traffic to incur a sale. I’d personally love to see Mark Zuckerberg hand over his finger prints to the DGE alongside an Ancillary License application that probably made his first stab at coding Facebook look like the ten times table.

Who am I kidding? I think the lengths at which websites owners have to go to to even get close to the revenue sharing party in New Jersey are preposterous. Giving your toddler’s saving account information just to drive traffic to Caesars is going to put most seasoned affiliates off.

And it’s those seasoned affiliates who, for this writer, hold the ability to deliver the most powerful punches to the elephant, the retiring donkey and the beach dwellers in the room. For the retiring donkey, read outgoing Senate minority leader, Nevada’s Democrat Senator Harry Reid, whose about turn on online gambling more than warrants a performance at Sheldon Adelson’s elephant circus.

RAWA (Restoration of America’s Wire Act) supporters cling to online gambling’s ties with illegal, offshore gambling – and crime. In 2014, over $5 billion was wagered with casinos, sportsbooks and poker rooms serving up iGaming to American citizens from Costa Rican beaches and doing so without the regulatory recipe of product limitation, payment processing charges and geolocation. Upwards of 75% of this windfall is driven by the efforts of affiliate marketers. To pinpoint the scale of this figure, it amounts to the equivalent of over 1% of the United States’ administration’s entire budget deficit.

One cannot, as a result, blame the DGE for their viewpoint on affiliates and their all-too-simplistic replication of junket licensing. As far as State lawmakers are concerned, they’re dealing with lowlife chancers who, alongside the Calvin Ayres of the world, have played the system and been winning for all too long. In many respects, the trepidation of welcoming affiliates in to the fold is also present in the upper echelons of land based casino corporations – not least because they don’t expect to share much more than a junket might receive – in the region of 5%–10% of gross gaming yield from customers referred.

However, the market in New Jersey, which is where the focus of this article lies, purely because of market size and the presence of online casino, is struggling to take off. Not only is it falling well short of State administration revenue forecasts, it is the sheer lack of penetration that the industry has been able to make in the 18 months since the market opened. For all the billboard and television advertising, New Jersey residents are simply not switched on to the idea of gambling online. Those that are – well, they know where best to play, even with the likes of Bovada withdrawing the option for New Jersey players to register. No geolocation messing around, a better gaming experience and, critically, a better RTP, as the operators they’re dealing with don’t have burden of tax to factor in to margins.

And here’s where affiliates come in. In this age of consumer hunger for information, coupled with reduced take home pay, the parting of ways with even ten of Washington’s dollar bills tends to spark even the least inquisitive mind to conduct a spot of research.

Take hypothetical Daphne, a 59 year old bi-annual frequenter of Atlantic City’s boardwalk. Previously comped at the Trump properties, her attention was drawn to the nearby Caesars as her beloved Taj Mahal entered bankruptcy. Her first visit saw her leave with a flyer for Caesars Online as she cashed out and on her drive back north to Toms River saw her pass a billboard ad carrying a similar message. Back at home a few days later, she’s watching her favourite soap opera when the Caesars television commercial rolls during a commercial break. She’s almost sold…

“Now how do I go about this online gambling?”. She types in “Caesars Online Casino Review” to Google – her evening classes on Computing paying dividends. What does she see?

Her attention is grabbed by a wily affiliate, who has poor Daphne encapsulated by the wonder of advice, promotions and, critically, strong calls to action. Only the calls to action are for unregulated casino brands.

The DGE has cracked down on vendor registered affiliates driving players to regulated sites alongside offshore operations. All that has down is see the “live in the moment” affiliate see short term commercial sense and drop licensed operations like a stone.

In this respect, those naughty affiliates are doing nothing to endear themselves to the regulatory headmasters.

Here’s where the curriculum has to be written. The regulatory masters need to understand the ecological importance of affiliates. At present, alongside the possibly deserved association they carry with offshore gaming, affiliates are viewed purely as traffic drivers – another marketing channel. Whilst that’s true from a purely objective commercial partnership perspective, it is the subjective influence that traditional affiliates have to play, which needs to be recognised.

Affiliates are advocates for casino and poker operators. Not only do they represent the principle information source for potential players not taken in by pure branding, they are also the collective that do most to drive product and operational improvement with operators – ergo innovation, both of which the New Jersey iGaming market is crying out for.

The principle barrier to success of State-by-State regulation is liquidity. Operators, regulators and politicians alike simply cannot afford to continue to see revenue lost to offshore operations. It’s the biggest turn off out there, unless…

… the real money gaming industry in the United States openly embraces the key proponents of this offshore market. Obama and Castro it may not be, but there’s evidently a socio-commercial blockade that is currently preventing this handshake to occur. But occur it must, if iGaming is going to truly lift off in the United States and whip the Adelson:Reid hounds back to their Vegas mansions with their tails between their legs.

The big question remains how this can be accomplish. On one hand you have a regulator, so worn down by legal wranglings just to get iGaming on the political table, yet alone through the complex network of lobbying and voting to become law. Compromises, promises, assurances and restrictions have placed the activity of affiliates either beyond the realms of possibility or desirability. The regulator must come clean on this. Do they appreciate the role affiliates play in keeping illegal gambling afloat? Do they appreciate the player’s journey to deposit, and how that inevitably touches affiliates. Can they, under any circumstance, make the revenue sharing process less of a headache for affiliates? If they can, how can we as an industry overcome the circumstances? Would they consider dancing with the devil, producing incentives for affiliates to refocus solely on the regulated US market?

It’s a general consensus that licensing of affiliates is going to be a requirement in each state. I’m all in favour of regulation-light when it comes to affiliates of all shapes and sizes, and all deal types – for me there is NO DIFFERENCE in the Philadelphia 76ers receiving millions of dollars from bwin.party to NJ.com running paid advertising, to Facebook permitting New Jersey regulated online casinos from running ads, to Joe Bloggs behind his computer running his players forum and earning a revenue share. Every marketing deal is based on return on investment and the proponents should be treated equally.

As such, regulation-light looks like this:

1) Affiliates must obtain vendor registration approval to do business with each operator, a-la New Jersey.

2) Affiliates must sign up to a State Code of Conduct, which legally prohibits them to advertise offshore gaming brands across any form of market that they or associated businesses run.

3) This Code of Conduct covers every NECESSARY legal requirement behind advertising. This will involve the regulator and the lawmakers sitting down and reevaluated their stance on affiliates.

4) If an affiliate breaches the advertising code of conduct, there is a 2 strike policy before a fine is handed out and a 3 strike policy before license is revoked.

5) The State incentivises the affiliate to operate, offering favourable corporate tax conditions for affiliates opting to register and operate businesses out of the State, where they can keep a closer eye on their activity as well as profit from it.

6) Legal fees are covered by the State and repaid through affiliate commission (or after 6 months).

7) Any affiliate business turning over $500,000 per annum must undertake the full Ancillary License process, which, upon success, carries additional tax relief.

8) An affiliate body, potentially SiGMA, is given interstate authority and power to lobby on affiliates’ behalf.

Pie in the sky thinking perhaps, but there’s a framework to be constructed to allow regulators, operators and the industry’s traditional influencers to sit down and map out a path that will set iGaming revenues back up towards forecasted levels.

This article appeared in Gambling Insider Magazine’s Affiliate Focus issue, July 2015 https://www.gamblinginsider.com/Magazine/AffiliateFocus8/?Mid=45

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