March 1, 2023 10:00 AM
Jake Pollard, CDC Gaming Reports
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Affiliates play an important role in the betting ecosystem and changing strategies from leading firms in the space reflect how the industry is evolving stateside.
As reported two weeks ago, the inexorable rise of single game parlays has been one striking aspect of the changes that have taken place in the online sports betting space in the U.S. since the wave of regulation that spread across the country following the PASPA repeal of 2018.
This week I’ll be taking a closer look at how the sports betting affiliate space has evolved over the past five years and, more specifically, the place the two leading affiliate groups in the space, Better Collective and Catena Media, now occupy within it.
Affiliates matter
In the first instance, however, it’s useful to remind ourselves why affiliates matter. They have always played an important role in driving large numbers of players to digital sportsbooks and casinos, but speaking to many of them over the years, one observation (or complaint) that is often heard from them is that they very much feel like the fifth wheel of the carriage.
Unloved and, in their view, mistreated by operators who will change the terms of their agreements unilaterally and without notice, affiliates will often comment that they are viewed as annoying at best and an outright irritant at worst. And unlike operators, they don’t have trade bodies to represent their commercial or regulatory interests, whether that is with operators or lawmakers.
When it comes to the operator-affiliate relationship, it’s also notable that the situation has barely changed over the years. The larger affiliates – among which we can include the two groups mentioned at the start of the article and the likes of Gambling.com, XL Media, Gaming Innovation Group and privately-held companies such as Oddschecker (Bruins Capital) or iTech Media – can ‘hold their own’ in commercial dealings.
However, many smaller ones will not have legal teams to fall back on and, if targeting unregulated markets, are very much left to their own devices should anything go wrong with the operators they drive traffic to.
In the U.S., the situation is made worse by the poor tracking systems that are still prevalent in many operators’ affiliate tech stacks and lead to serious failings in transparency related to player spend, volumes and conversion data. Having written about this topic (p21) at the end of last year, the copious feedback I received from affiliates showed how important the issue is to them.
Despite all this, and regardless of the many complaints affiliates might have, there is also no doubt that some affiliates are highly valued by operators and they play a vital role in the sports betting ecosystem.
Tale of two affiliates
With regard to Better Collective and Catena Media, their respective fourth quarter results illustrate the evolution of the U.S. sports betting sector and how companies have adapted to the situation.
Catena’s U.S. assets include Legal Sports Report and Lineups.com, while Better Collective runs Action Network and RotoGrinders. In May 2022, Catena announced that it was selling its non-U.S. affiliate assets to redirect all its focus on North America. It sold its paid media division to Acroud for €5m in October and its casino affiliate site Ask Gamblers to Gaming Innovation Group for €45m in December. Better Collective also recently acquired an 8.5% stake in Catena.
Catena said the sale of the paid media division was done to refocus on organic search and the higher margins that model produces. But that also contrasts with Better Collective, which acquired paid media specialist Atemi for €44m in 2020, announcing a 94% year-on-year growth in paid media to €27m
Catena CEO Michael Daly told CDC Gaming that the group has an “extremely strong organic SEO business” but it “did not have a global paid media division as hence this divestment was not a sale of such”. Meanwhile a spokesperson for Better Collective said paid media provides “flexibility and scalability when we have new state launches or geos (markets) and provides deep insights into keyword ranking”.
They added: “Having invested in moving paid media from cost per acquisition (CPA) to revenue share, we have built an expanding snowball of recurring revenue share income, which was short-term dampening in 2021, but has now created more fuel to invest further in this business.”
Rev share shift
Better Collective’s move towards revenue share agreements is telling and another key component in the discussion. The group started shifting from largely CPA-based affiliate agreements with operators to revenue share around two years ago.
Quick explainer:
With CPA, operators pay one-off payments to affiliates for every account opening. They are useful because they provide funds and cash flow and in some cases reached up to $800 per player around 2020-21.
With revenue share, affiliates receive payments for every bet over the lifetime of a player. These represent a steady stream of revenue and can be consequential over the long term. However, they take time to develop and as a result many affiliates focus on CPA.
During Better Collective’s fourth quarter results , CEO Jesper Sogaard said six of its partners were now on revenue share agreements compared with four the previous year, while its data showed that 78%, or 452,000, of its new depositing customers (NDCs) were sent to operators on revenue share contracts during the quarter.
Catena CEO Michael Daly commented: “We have started to do some acceptable revenue share in North America. However, for us, acceptable deals are truly lifetime revenue share deals. We currently see a higher value with CPA versus the net present value of a few years of revenue share. In the short-term we still see CPA as our primary model going forward.”
Despite the tracking issues, many U.S. affiliates have reported, Better Collective’s move to a revenue share model is indicative of a maturing industry stateside. However, it also drives enough traffic to operators to be able to implement the shift with confidence that it will be paid for it, even if there isn’t full visibility on the data.
The different outlooks illustrate how Better Collective has adapted to the situation over the past few years, while its 8.5% stake in Catena Media gives it an important vantage point through which it can monitor any M&A goings-on at its nearest U.S. rival; and it would not be a big surprise to see Better Collective bid for the whole of the group in the medium term.
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