Opportunity knocks: How affiliates are preparing for US sports betting

There can be no doubting the head of steam being built up in the US right now by states eyeing up the chance to launch regulated sports betting regimes in the wake of a potentially positive decision in the New Jersey PASPA case.

The ruling could potentially topple a black market with annual turnover of £60bn, per Eilers & Krejcik Gaming. An illegal market doesn’t reach the size that it has in the US all by itself, so it is fair to assume that those that have been working the channels have to date done a decent job.

Now, however, with the potential of legal sports betting being waved in front of the online gambling industry, the community of affiliates faces a stark choice. Opt to go legit and wave goodbye to any earnings from offshore, or stay on the margins and potentially watch your traffic go elsewhere.

For the biggest affiliates, the choice is no choice at all. “We view both requirements as a positive,” says Åsa Hillsten, head of communications at Catena Media. “We are confident in our ability to secure the required licences and have no exposure to offshore gambling operators that target the US market.”

“For small affiliates, they will do well to just target a handful of states where they think they can take market share” – Charles Gillespie, Gambling.com Group

The company established its bridgehead in the US when it bought out the PlayNJ assets in December 2016 for an upfront $15m plus an earnout, and followed it up by buying PokerScout in November of last year for $350,000.

In its year-end results, then chief executive Henrik Persson Ekdahl spoke about Catena’s current US positioning, working in New Jersey, Nevada and (very soon) in Pennsylvania. A key point in the presentation is that all Catena’s revenues from New Jersey are generated from CPA deals and under the state’s regulations this means they have to be licensed.

Gambling.com Group recently launched a US-facing offering that, for now, specifically excludes sports betting. Chief executive Charles Gillespie points out that such regulations are designed to automatically exclude any affiliate site that promotes unregulated business. “Clean affiliates that can operate in the US can only do CPA deals unless they want to submit themselves to the very thorough licensing process,” he says. “The biggest indicator we have for how other states will regulate is New Jersey and given the experience in New Jersey, the restrictions are meaningful.”

This means any affiliates with a history of working with black market operators “will not be allowed in”. “This already has excluded a number of large affiliates who are known to promote unregulated US-facing operators,” Gillespie claims.

“Licensing requirements [like those in New Jersey] will certainly force some affiliates to submit to background checks,” says Daniel Kustelski, chief executive and founder at Chalkline Sports. “Many states, like California with poker regulation, may include bad actor provisions. In short, regulations are initially going to be a moving target for operators and for affiliates.”

Regulatory capture

Those New Jersey rules might have come as a shock to the affiliate world when they were first introduced. Any affiliate that works under any kind of revenue share must apply for an ancillary casino service industry enterprises licence, while those working off cost-per-click or other forms of revenue must apply for a less challenging vendor licence.

It’s all a far cry from dot.com operations. “I think New Jersey will more or less be the template for states that follow,” says Chris Grove who heads up Catena Media’s US business. “Affiliates will have to get some level of licensure and will have to cut off promoting offshore sites.”

It’s a good model, suggests Ed Andrewes, who is a consultant to the Resorts Group in New Jersey. “I think a lot can be learned from the online market in New Jersey, not least from the DGE’s approach to regulation, which has been both sensible and pragmatic,” he says.

“The regulatory environment has ensured that online gaming has been kept safe, fair and crime free, while also allowing operators to run their businesses as commercially viable entities. I also think that operators will be mindful to tailor their marketing budgets according to the realistic opportunity within the specific state.”

“Each state will have a pretty unique identity and landscape, […] you’ll want sites developed specifically for those markets” – Chris Grove, Catena Media

The opportunity for affiliates in some of the smaller markets that are proposing to follow the lead taken by New Jersey – West Virginia, for instance, or Maryland – are where some believe the smaller affiliates might be better placed to take advantage.

“Each state will be like its own independent country,” says Gillespie. “For small affiliates, they will do well to just target a handful of states where they think they can take market share.”

This focus on local markets comes with its own challenges, says Grove. “You’re dealing with micro-markets,” he says. “So some of the bigger swings you might take in the global market where you can survive on long tail aren’t going to work in the state-based market. And you’ll also run into challenges with content and features that would work in a broader market, but don’t fly in a more limited market. Affiliates used to years of thinking big will need to retrain themselves to think small.”

There will also be competition from the larger affiliate concerns. Gillespie at Gambling.com points out that for larger affiliates such as his own company there will be no option but to enter “most if not all markets to realise the full potential of their assets.”

This is also the view of Catena. Hillsten says: “We already have assets prepared for the next dozen states we believe are in line to enter the regulated US market. Our success in New Jersey will provide a useful roadmap on a number of fronts: product, content, SEO, regulatory and relationships with key operator partners.”

First and 10

All are agreed that US markets – regardless of which state – are not ones where success will be achieved remotely. Boots on the ground is the strategy which has been shown to work already in New Jersey and is likely to be needed elsewhere. Grove says he believes it is important to have a presence in any given target market.

“We’ve developed an extensive network of state-specific sites, like PlayNJ.com and PlayPennsylvania.com, in addition to our sites with a broader focus like Poker-Scout,” he says. “Each state will have a pretty unique identity and landscape, and it’s our belief that you’ll want sites developed specifically for those markets, powered by people who get those markets.”

“Having people on the ground to develop relationships with those operators makes a big difference,” says Hillsten, who suggests localisation brings with it an edge with regard to content and understanding the consumer. “To us, it’s a simple question: would you rather have a team in Canada working to win the UK affiliate market, or a team in the UK? We think the same holds true for individual states in the US market.”

The sense of dislocation for any affiliate experienced in working in the European market doesn’t just extend to matter of geography. There are also cultural issues around the nature of US sports wagering that will also have to be negotiated and understood.

“The environment around sports wagering is fundamentally different in the US and affiliates will need to adjust their content and overall approach to accommodate those differences,” says Grove.

Hillsten expands on this topic. First, she suggests, the product will be different. “We’re unlikely to see the kind of robust, diverse product in the US market – at least in the early stages of the market – that we see in the European market when it comes to advanced features like cash-out bets or sophisticated in-play markets,” she says.

Daniel Kustelski from Chalkline Sports says regulations are going to be ‘a moving target’

Then there is the culture. The recent success of daily fantasy sports (DFS) – at least in terms of consumer uptake – is a good pointer. Hillsten says: “We expect more fantasy-based products, more mass-market contest-style products, and other verticals that don’t have much of a foothold in Europe to play a significant role in the US regulated sports betting market.”

While everyone is aware of the major leagues and their importance to the sports scene, there are also key elements that have no comparable counterpart in Europe, says Gillespie.

“The consumers also need to be educated. After years of back and forth, and scary stories from bad overseas operators, the consumers are sceptical. They need to be reassured that this is actually legal now and being offered by reputable companies on American soil.”

In part, this is because although there has been a long enough history of grey market activity in the US, it has not made the leap into mass-market territory. Hence, says Kustelski from Chalkline, while in Europe there is a high degree of “sports betting literacy”, in the US the education job is still a work in progress.

“Affiliates who keep it simple will be best placed to convert NDCs from the mass market,” he says. “Sports affiliate engagement will not happen in a vacuum. Customers are being served mobile-first, interactive and gamified experiences across multiple sectors. As a new market, the US has the opportunity to integrate these engagement approaches on day one.”

That day is fast approaching, at least according to the communications from various watchers of the goings-on at the Supreme Court who suggest a verdict on Christie v NCAA is set to be delivered soon. The time for strategising might soon be over.