Blood on the tracks: How affiliates have been impacted by the US' explosive growth

It is stating the obvious to say the widespread regulation of sports betting in the US happened at a speed few would have thought possible when the US Supreme Court overturned PASPA in 2018.

When New Jersey regulated sports betting shortly after the ruling, Pennsylvania, Rhode Island and West Virginia followed not long after. However, after that initial spree, it’s worth remembering that for some time those jurisdictions were the only ones to have regulated online sports betting (and casino in West Virginia, New Jersey and Philadelphia) – until the Covid-19 pandemic.

Forcing all businesses to close and exerting financial pressures that no state had ever experienced before, many viewed regulating digital and land-based sports betting as a way to generate tax revenue, bring in licensing fees and create jobs. That aim has been achieved, broadly speaking. But as with most things done at high speed, important details such as tracking systems and expertise building have also been sidelined as the industry has focused on growth and state launches.

To a large extent, this is what has happened to US affiliates and one of the reasons why tracking remains a key challenge. (For the purposes of this article, EGR will focus on online sports betting as the most broadly regulated vertical.)

Tracking handicaps

Speaking to executives in the space, it’s clear that tracking issues are ingrained currently within the operator-affiliate relationship. As Chris Grove, partner at Acies Investment, says: “Tracking remains a major issue for affiliates in the US market, and it’s not clear that operators at this point have a major incentive to improve the status quo.”

This is because poor tracking may cause some issues for operators, but “it almost always plays in their favour”, Grove says, which in real terms translates as lost revenue for affiliates. Michael Daly, CEO of Catena Media, echoes this point. “Tracking in North America is very nascent compared to what we see in Europe”, and from an operational perspective “it will improve when operators have time to optimise their businesses, but preparations for new states (such as Maryland) trump these”.

If commercial imperatives are currently taking precedence over establishing strong tracking platforms, Darragh Toolan, COO and co-founder of affiliate and media platform Fortuna Edge Media, says that while the problems are well known, stakeholders should pay closer attention to where value generation fits into the picture.

This is because “the lifetime value (LTV) of a customer boils down to investing in relationships with current and future customers” and operators “need information systems capable of revealing the performance of their brand and conversion costs”, says Toolan.

And with most data relationships between affiliates and operators currently stopping at the front door, it means that past a conversion event most operators don’t pass back any data to the affiliate.

This lack of bi-directional data flow causes an information deficit and has the unintended effect that many operators do not completely understand why customers are converting with them in the first place. “The ramifications for this are quite significant. Without this data it makes it almost impossible for them to protect their customer relationships and defend against churn,” Toolan remarks.

Allan Petrilli, VP of sales at the tracking platform provider Intelitics, says the lack of efficient tracking and reporting technology across many US operators makes it very difficult for affiliates to optimise traffic.

These issues have broader implications because tracking problems don’t only affect current affiliates’ ability to operate efficiently, “they also handicap the market in terms of new affiliates being interested in joining or being able to efficiently manage and scale campaigns”.

And with operators focusing on profitability, Petrilli believes it is key for affiliates to have access to granular data so they can optimise campaigns for quality.

Fast moving

Along with the speed at which the US market has developed, the fact that each state regulates individually means “the platform requirements each state imposes on operators in this area does not get much attention”, says Daly.

As a result, Daly notes there is a possibility that “regulators in new states don’t have much awareness or exposure to affiliation as a part of the ecosystem so it is neglected in regulations, thus deprecated in importance for operators to have robust setups”.

Pointing to the speed at which the market has grown since 2018, Erica Anderson, VP of marketing at Income Access, says: “Against the backdrop of the rapidly growing market, some operators have looked to manual or in-house tracking solutions in their speed to market, and tracking issues can arise as a result.”

In many ways, the rise of digital betting and gaming in the US has been sudden and Anderson says the dominance of mobile, especially for sports betting, has brought with it a particular challenge. “Close to 90% of traffic driven by affiliates in the US online sports betting market is mobile, according to our data. As a result, mobile app tracking and server-to-server (S2S) tracking are essential considerations for effective affiliate campaigns in the US market, and, if neglected, tracking issues can result,” Anderson comments.

For Karl Pugh, chief commercial officer at Better Collective US, tracking and analytics quality has been a recurring theme across sportsbooks since PASPA’s repeal and many still use manual systems to confirm associated conversion and revenue metrics.

“However, there is positive momentum across many sportsbooks to address these matters because they are fully aware that more granular and frequent reporting can only positively assist campaign optimisation. There is still work and collaboration to be done but things are gradually catching up to European standards,” Pugh adds.

Untenable model

The US market has so far been focused on growth, and in that regard cost per acquisition (CPA) is better suited as an acquisition model, but that is also one of the key factors behind sub-standard tracking being such an important issue for affiliates.

In terms of models, Grove says poor tracking makes revenue-share deals even less tenable than they already are for affiliates. “Missing a CPA or two can be absorbed, but the revenue-share model relies on capturing a small number of high-value players. Without high-fidelity tracking, the already shaky economics of revenue share become patently unjustifiable for affiliates.”

Petrilli points out that with CPA prices coming down due to the pressure on operators to reach profitability, you might see affiliates that know they can drive quality at scale demanding access to more data or looking to switch to revenue share or brands starting to focus on this more. And for that to happen, “they need proper tracking and reporting for transparency with their partners”.

Regulations also play an important part in CPA being the prevalent model currently. Income Access’ Anderson gives the example of New Jersey, where “a Division of Gaming Enforcement licence to promote on a CPA basis is free, while a licence for revenue-share promotion costs $2,000 and is a much more complicated applica­tion process”.

US versus mature markets

The line that the US is behind most mature markets when it comes to affiliate tracking has been heard across the gaming industry for some time. Petrilli confirms this and points out that it isn’t helpful, whether for US or European stakeholders. “It is important to note that native affiliates are used to having some of these features internationally – so not having the same standard in the US market is frustrating.”

Reflecting on how this also impacts beyond affiliation’s earliest iterations, Petrilli adds that affiliates are no longer just SEO sites. “Many buy paid media, and without granular sub-ID reporting, they themselves don’t know how to optimise their spend for conversion and ROI. This doesn’t just affect their ability to send quality traffic to operators, it also affects their ability to be profitable.”

For Grove, tracking will improve as the US market settles and matures. “Resources will free up for operators and the shift from initial acquisition to retention and reactivation will create a competitive advantage for operators who offer high-fidelity tracking.”

Better Collective’s Pugh says the need to keep up with the number of state launches is one aspect that the industry has to contend with, but there has been “positive directional movement industry-wide and we anticipate (and need) this to further accelerate”.

That way, operators will gain a better understanding of the role marketing partners play in the value chain and how performance marketing “is the most tangible way of acquiring new customers who will be contributing positively to their business”, remarks Pugh.

But whether affiliates opt for CPA or revenue-share deals, operators’ focus on profitability could help them in that the prevalence of TV or radio advertising could reduce as brands look to maximise their marketing ROI.

As Gambling.com CEO Charles Gillespie commented during the group’s most recent results, a focus on marketing ROI “will, dare I say, move in a more European direction. Everyone’s bottom lines will improve and the attractiveness of the entire endeavour will improve”.

Gillespie added that affiliates that can drive traffic at scale will also be able to have “pushier conversations about what we want to charge them per new depositing customer (NDC). That scale is very important from a pricing perspective”.

Growing pains

However, the correlation between industry growth and state launches also leads to questions about how much traffic can be driven to operators as states mature. This is even more relevant when bearing in mind that Maryland in the past few weeks and Ohio (set to go live in January) are the only two sizeable jurisdictions to have regulated sports betting in 2022. California, meanwhile, will not happen until at least 2024 and the situation is equally unclear and subject to legal challenges in Florida and Texas.

But for all the questions around growth, the slowdown in state launches, in theory at least, should be beneficial to operators and affiliates. The former will be able to reduce marketing spend and focus on retention, which should help affiliates wanting to develop revenue-share models.

For Pugh, the topic of revenue share truly heightens “the importance of accurate and reliable tracking from our partnering sportsbooks, given the more comprehensive and granular data metrics we receive in such a commercial transition/transaction”.

A similar point is made by Toolan, who says the lack of access to valuable acquisition data is why so many affiliates continue to opt for CPA. More data visibility would assist operators to develop new value propositions, build out their data infrastructure and rework innovation processes to create value. “The situation is improving and revenue-share models will hopefully start to become more reliable over the next 12 months,” he shares.

While industry experts are quite confident affiliate tracking will improve and lead to jointly shared success for both sides, affiliates will continue to push through the growth pains and aim for better visibility.