It's A Dead Man's Party
It's A Dead Man's Party
The US online gambling affiliate sector needs to take a good look in the mirror.
US online gambling affiliates are having a rough go.
In the last ten or so days:
XL Media sold off its remaining US assets to Sportradar.
Catena Media, the former final boss of the US online gambling affiliate sector, went through another round of layoffs, a $40 million write-down, and appears ready to send even more established sites into mothball (as it did with Online Poker Report in 2022).
Better Collective (the new #1) saw its stock price plummet after it lowered its FY 2024 guidance by more than 10%, along with an announced $50 million reduction in costs by streamlining its operation — the company announced a round of layoffs on Tuesday, reportedly letting as many as 100 individuals go.
SPONSOR’S MESSAGE - Sporttrade was borne out of the belief that the golden age of sports betting has yet to come. Combining proprietary technology, thoughtful design, and capital markets expertise, our platform endeavors to modernize sports betting for a more equitable, responsible, and accessible future.
“Sporttrade is now live in Arizona on Android and iOS!”
When we zoom out and look at 2024, the situation seems even more dire:
Operators are patting themselves on the back for becoming less reliant on affiliates as new state launches grow scarcer.
A May 5th Google update upended the sector, turning affiliate-legacy news arrangements into zombie deals.
There is increasing regulatory interest, with North Carolina considering but ultimately rejecting a ban on affiliate marketers and first-of-its-kind language in Ohio’s online casino bill that would limit the number of affiliate licenses available. That’s in addition to revenue-sharing bans in MA and NY.
Depending on how the sweepstakes battle ends, affiliates might find themselves further revising their guidance, as they have become increasingly reliant on sweepstakes CPAs — In August, Catena CEO Manuel Stan said sweepstakes represent 1/3 of its casino revenue.
Affiliates are also leaning into AI, which could lead to another Google reckoning — more on this in a moment.
Existing structural issues that have gone unaddressed for far too long underpin everything listed above: They fell in love with the easy growth the PASPA repeal brought about.
Rather than viewing it as an outlier opportunity, the industry assumed the growth would continue, and once they ran out of online sports betting states, the conversation would have already shifted to online casinos. With that mindset, it made a critical error; it put all its eggs into the new market basket.
In real-time, it was seen as the obvious decision: Why wouldn’t you go all-in on something producing record-setting quarters following the repeal of PASPA in May 2018?
The answer is simple: at some point, the gravy train runs out of fuel. And the industry didn’t make a contingency plan for that potential outcome. As Mike McDermott said in Rounders [emphasis mine]:
“I had an picture in my head of me sitting at the big table Doyle sitting to my left Amarillo Slim to my right, playing in The World Series Of Poker and I let that vision blind me at the table against KGB now the closest I get to Vegas is West New York, driving down this lousy route from Knish to rounders who forgot the cardinal fucking rule: always leave yourself out.”
Unlike the operators they promote, affiliates never use the word sustainable. They created unsustainable results and expectations.
In my experience, ideas that produce immediate results are rewarded and prioritized. Ideas with long-term goals and a longer runway get shot down. The mindset was just to mimic someone else’s successful idea.
For example, I've proposed a substack newsletter to every affiliate company I’ve worked at and have received the same response every time: interesting idea but no interest. And the newsletter isn’t the only idea I’ve put forth over the years.
But those ideas require patience, which is at odds with most public companies' attitude of maximizing the present and to hell with the future.
The Problem With Public (Affiliate) Companies
I’ve made this point before, but one of the biggest problems for the modern gambling industry is the predominance of publicly traded companies.
When a company’s primary goal is growth, and quarterly growth at that, something like the 2018 PASPA ruling is a godsend. But like in Genesis, where several years of plenty were followed by several years of drought, online gambling legalization has stalled out. There are very few sports betting candidate states left, and the rapid rollout has left many locales with a mobile betting hangover and loathe to consider online casinos, which was already a far more difficult lift.
However, unlike the Egyptian Pharaoh, the affiliate industry didn’t heed Joseph’s advice. It has proven itself unprepared for the drought.
As Adam Small, who has founded and operated several successful affiliate sites, said on LinkedIn in the wake of the XL Media news:
“I'm sure some people will dispute this, but the inherently difficult thing about this type of business is that shareholders appear to have a very binary view of the future. Either you're growing, and that means you can grow a lot more, or you're not growing and that means you're dying.
”I thought XL made some solid acquisitions in North America, but they were likely sunk by things that happened before they ever came over to this side of the pond. They had a nice run for a while in the media partnerships space, but that's a tough thing to hold onto long term, as margins keep shrinking and you're ever more dependent on search engines continuing to let you get away with publishing promotional content on sites you don't own.
”The companies surviving in this space are the ones building diverse portfolios and widening their reach, not just deepening it. That's a really hard thing to do, especially if finances are tight.”
There’s a lot of gold in Small’s three-paragraph post.
First and foremost is the reliance on growth. For gambling affiliates in the post-PASPA US, everything was built around new state launches, the lowest of the low-hanging fruit.
But growth has a ceiling, and when new market launches dry up, growth is accomplished by cuts, as we’ve seen at Catena Media and now Better Collective.
In one of the great ironies, it’s often the wheat, not the chaff, that gets tossed aside. Both in terms of people and ideas.
I Like Your Hustle; That’s Why It Was So Hard to Cut You
The first areas trimmed back are the ones that aren’t producing visible results. That’s where these companies go entirely sideways.
They cut the player who is the glue in the locker room in favor of someone who runs up their stat sheet during garbage time. Every championship team has a player(s) who does all the intangible things that don’t show up on the stat sheet (diving for the loose ball, hustling on special teams to down the ball at the 1-yard line). These players make their teammates better, but exactly how is unquantifiable. Not recognizing their value is a sin.
I would also argue that it’s hard to stop once you start cutting. When employees start using the word “survived,” as in “I survived this round of layoffs,” you’ve dramatically altered the culture in your workplace. The best remaining talent will start putting out some feelers in search of greener pastures.
Another area that often gets cut is the creative department, even if the company doesn’t officially have a creative department. These are the people who think outside the box and plan for the future, not the next quarter. Once again, their value is hard to quantify, so when the rubber meets the road, they get pink slips.
As Small alluded, building and widening your reach when finances are tightening is difficult because companies lose sight of anything but the bottom line. Any long-term strategies are chucked aside to deal with the short-term issues, which are deep-rooted and often unfixable.
Affiliates are doubling down on the strategies that got them into this mess, thinking they can cut their way out of it or ride it out until iCasino bails them out. I have my doubts.
From Bad to Good to Bad
What put these affiliates on the map was terrific content.
Without going too far down the rabbit hole, let’s just say that for most of their existence (back to the late 1990s), many, but not all, gambling affiliates used every trick in the book. Rose-tinted reviews, buying and selling links, shoddily rewritten stories, and invented authors were just some of the tactics deployed.
That improved (emphasis on improved) following the launch of legal online poker and casino games in the US in 2013.
Cheap writers couldn’t cover the intricacies of laws and regulations. By 2014, affiliates had gone from, for lack of a better word, “shills” to journalists, covering every step of the journey from legalization to launch and beyond. The industry suddenly became a soft landing spot for journalists from major newspapers and mainstream media sites that would have laughed at an offer to write for some industry “blog” just a few years prior.
Good, knowledgeable reporting was suddenly in high demand. The content farms still existed, but powerhouse affiliates built strong reputations as credible news and information sources.
Despite few new market launches, that lasted for nearly a decade, thanks to daily fantasy sports becoming a major story in 2015, followed by PASPA in 2018 and COVID in 2020.
It felt like there was always something to talk about.
But now that things are settling down and legalization prospects are dwindling, the content farm version of affiliate marketing is returning — with a new AI twist.
What made the industry explode in 2013 and how it currently acts are diverging more and more by the day.
Content Is King
There is still top talent in the space, but outside of a few sites, that content is not the entrée. It’s either discouraged or has been cut entirely by some affiliates who will complain to the writers that their columns are outperforming the company’s “core” pages.
You can’t use certain keywords, and need to stop covering certain stories. And then, guess what happens? The author’s stories get less traffic, and the site complains that nobody is reading their articles, and presto, some non-content producer in an office somewhere determines we are overpaying that now expendable person.
Clicks and direct revenue can’t measure the value of that content, as it’s not the news pages but the associated “money” pages that drive new signups. Still, the news pages elevate the site’s brand and reputation.
But anyone coming in from the outside will question why they should pay a writer getting two signups a month more than an evergreen content producer generating 100 signups a month. I know why, but a bean counter doesn’t.
The short answer is that the latter doesn’t exist without the former. Yes, if you’re an established site, you can get rid of the former, but you will eventually revert to your former self: a site lacking a brand identity or reputation.
A Shortcut to Ruin Victory?
Another way affiliates have found growth is through what I’ll deem shortcuts.
These shortcuts seem like reasonable ways to bridge the gap between launches but also present existential threats.
Consider the partnership deals that were so in vogue just a couple of years ago. Affiliates were trumpeting their deals with legacy media brands during media calls, but those once lucrative deals have now become massive liabilities.
As Crossing Broad founder Kyle Scott Laskowski wrote on LinkedIn, “The European companies (+ Gambling[dot]com, traded on the Nasdaq) that gobbled up US sites for the purpose of referring readers to sportsbooks, have seen much of their revenue in recent years come not from the sites they own, but from partnerships with other, larger media brands.”
Those partnerships were disrupted by a Google update earlier this year, and as Laskowski put it, “My take: These companies [gambling affiliates] have artfully spun their growth stories and downplayed the importance of rented revenue from partner sites they don't own.”
AI is another shortcut affiliates are playing around with. It’s also a looming threat.
The sweepstakes rug potentially being pulled out from beneath affiliates is yet another anxiety-inducing outcome — particularly for a company like Catena Media, which, as I noted in the opening, now claims 1/3 of its revenue is coming from sweepstakes operators.
As I wrote in May, affiliates painted themselves into this corner by leaning into the idea that growth comes from new market launches:
“And it’s likely to get worse… With new markets off the table, affiliates need to find ways to grow revenues, and one way to do that is by trimming costs; as such, they’ve let go of talented but higher-priced writers and turned to AI and the aforementioned parasite content.”
Or, as Small put it, “The companies surviving in this space are the ones building diverse portfolios and widening their reach, not just deepening it.”
TL;DR
When a company becomes too focused on the bottom line, it loses its identity. Its strategies no longer align with its stated goals, and it becomes a rudderless ship, dependent on a well-timed gust of wind from Lady Luck to deliver it to shore. And unless Lady Luck (massive online casino expansion) shows up, affiliates are in for a rough few years.