They are iGaming’s greatest entrepreneurs and 2016 has already seen many of them getting paid their dues. It seems that the M&A market has firmly hit affiliate land, with the likes of Askgamblers.com, Magenti Media and Delta Markets all being the beneficiaries of growth plans by competitors or other industry stakeholders in the past quarter. With single site affiliates achieving 6x multiples on EBITDA, there is clearly a strong appetite for consolidation in the affiliate space and right now is almost certainly the optimal time for affiliates to cash in on their hard work.
Given the initial rise in prominence of XL Media, formerly an Israeli marketing agency, now a UK publicly listed company and the sale of the Mandalay Media to the Canadian-based Intertain group both occurred some 2 years ago, the most interesting development of this sudden splurge on affiliate portfolios is the fact that it is emanating on the whole from the Scandinavian enclave in Malta, with Catena Media and the Gaming Innovation Group spearheading the activity. The growth of this predominantly Swedish cohort can be attributed to the value of players in the region and the importance affiliates play in these grey markets – indeed most of the M&A at play to date has seen a focus on affiliates successfully cracking grey market activity. However, the Askgamblers deal is the one that stands out as the most intriguing of all given the global nature of its traffic – and the fact that the seller was so reliant on a single domain. A €15m investment on a single website should be raising eyebrows in risk departments, no matter the scale and loyalty of its database of users and the lifetime value in its previously referred customers.
Does the Askgamblers deal signify a high point in a boom for affiliates looking to exit or are we simply in a moment within a growing bubble poised to pop with either a Google pin prick or the clap of a finance minister’s hands? Similarly, is consolidation a good thing for the affiliate industry and those left behind?
One has just got to appreciate both the implications and the near miss of the recent UK Government budget to understand the cost/benefit analysis Catena must have examined with vast scrutiny when parting with so much money for Askgamblers. The tax on free play turnover will be painful for operators and will not just be passed on to affiliates to hold against their profits, but will also see an affiliate’s historically prime bait to pull traffic to their sites greatly diminished in presence. There are very few affiliates – even those with the greatest impulse to tread away from basing reviews on free bet comparison, who do not mention bonuses on site and this will unquestionably effect their bottom line. Askgamblers, to their credit, had already reprioritised away from bonus-led features to position themselves more as player advocate and dispute resolver and to great success. The overriding shockwave of the UK budget will be for CMOs to assess the way they differentiate their brand and it will be essential for affiliates to cotton on to this change and react to the way the brands they promote have shifted their marketing focus, way in advance of 1st August 2017, when the tax hits.
As much as the free bet tax is a game changer, if you ask many an affiliate, they will tell you that they expected the UK government to inflict duty on online advertising spend by gambling operators, based on UK point of consumption, which would have impacted any affiliates globally – as virtually no .com affiliate is ignoring the largest regulated market on the planet. Whether this tax, as and when it comes in, will impact revenue sharing deals remains to be seen. It is certain to come in as some stage – spend through digital marketing now tops 1% of UK GDP and that is too much for the government to turn a blind eye to for much longer and the lucrative iGaming market is spearheading that even in the face of POCT.
Increased regulation and its inevitable taxation impact does point to consolidation as the obvious growth strategy for affiliates with big pockets. Adding performing websites with solid referred player bases ought to offer stable income in the event of dramatic changes to Google operating policy or further unexpected tax hikes. Variety of site ought to be a focus too, so fully expect the acquisitions to keep on flowing through 2016.
Gaming Innovation Group’s strategy is also intriguing. It is reminiscent to the good ol’ days of Red Interactive/ForwardSlash when you saw an operator controlling a considerable portion of traffic they receive through websites they own, with earnings off the back of it from other operators driving traffic from the sites. Besides the efficiency of driving traffic in this manner, the learnings that this concept ought to bring to GIG are huge and it will allow them to deliver better product of their own as a result. Good news for them, but the concept of an operator (although, to be fair, they were affiliate initially) buying out affiliate portals does pose a threat to the affiliate/operator ecosystem which is threatened by downright operator skulduggery at the best of times.
Bilateral consolidation (affiliate buying affiliate) offers an easier route to market for affiliate managers who manage to gain access to growing networks early on. This is becoming increasingly relevant for those Scandinavian affiliate managers holed up in one of the ports on the east coast of Malta, in a melting pot scenario very reminiscent to Tel Aviv five years ago. In many respects, it is the consolidation of affiliate operations and networks they gained early traction with that is driving the sustained growth of businesses such as LeoVegas, Casumo and, naturally, Guts (GIG’s preeminent casino offering).
The big questions remain – how long can this continue and at what point is there too much consolidation for the affiliate space to retain its relevance as an opportunity for both an operator looking at viable verticals from which to drive traffic or a wannabe entrepreneur looking to make it big?
Gaining access to traffic from a growing network is becoming increasingly prohibitive for operators, or at the very least, engenders increased risk. Whilst the ease of doing a deal with one person for 20+ sites is lovely, this often comes at a premium – and understandably so as the purchaser is unsurprisingly hell bent on maximising returns on his/her investment and PLC’s have shareholders to report back to with plans for growth. Said premium also receives an organic boost by the very fact that there are now fewer affiliates in the market – fewer people to talk to get targeted traffic. At some point in time, the ROI benchmarks for purchasing affiliates will not add up to what operators can afford to pay for their traffic and we’re left with the ultimate irony of the affiliate failing to achieve returns rather than the operator.
2016 has, at least in my opinion, seen the buyout of more traffic opportunities than there has been the birth of new ones and I foresee this continuing through to 2017. This indicator alone tells me that the affiliate ecosystem is likely to approach a critical impasse in the next 18 months and affiliates looking to cash in on their work ought to be looking at doing so whilst there is an appetite from investors and the operators they seek to garner the return from. First step – get your business fit for sale.
This article featured in iNTERGAMINGi magazine’s Issue 2, 2016