U.S.-facing affiliates are learning to work with regulators and small markets

When it comes to customer acquisition, affiliates are an extremely important cog in the online gaming machine. In smaller, ring-fenced markets like New Jersey, they play an even more vital role, which is why it’s not surprising to find online operators increasingly turning to affiliate marketing in lieu of traditional advertising channels.

But this wasn’t always the case.

In the lead-up to New Jersey’s synchronized launch in November 2013, most of the online gaming sites decided to mimic the successful European approach to their marketing initiatives. Yes, they teamed up with affiliates, but they also spent countless dollars plastering their wares on billboards and sporting events, and filled the radio and TV airwaves with commercials.

One would think that reaching every potential customer in such a small market would be an easy task, but online gaming operators learned a hard truth during this period. Customer awareness was incredibly low, and in order to reach all 9 million people in New Jersey, they would have to advertise in the ultra-expensive New York and Philadelphia markets.

It wasn’t long before operators tightened their purse strings and reassessed their marketing spends.

What ended up happening in New Jersey was the early blitz of marketing by operators was followed by smaller, less visible campaigns. And with that, the focus shifted to affiliates.

Affiliate Marketing in New Jersey

Affiliates offer online gaming sites a way to market without the up-front cost, creating a relationship not unlike “friends with benefits.”

As Mattias Stetz, COO of Rush Street Interactive, which operates the PlaySugarHouse.com online casino in New Jersey, says, “As the affiliate business is a pure performance-based business model, there are few drawbacks for us doing marketing through affiliates.”

In addition to the no-strings relationship, “affiliates are usually very good at SEO (search engine optimization),” Stetz notes. “So, this forces us to continuously improve our SEO efforts to stay ahead and secure top ranking for our own brand.

“It’s a very important aspect of online gaming, and how to attract new players to your site. The affiliate channel is a great way for us to educate our players about all of our games, promotions and loyalty rewards.”

Thomas Winter, vice president of online gaming at Golden Nugget Atlantic City, also is positive about the affiliate situation in New Jersey, but indicates it still has room to grow, provided the situation on the ground improves—i.e., more states legalize online gaming.

Even though affiliates are a decent part of Golden Nugget’s acquisition numbers, Winter says, “the number of top affiliates remains low when compared to other, more mature markets.”

Winter goes on to say that the lack of top-end affiliates—according to Winter, there are only a handful of significant online casino affiliates in New Jersey—“explains why affiliates probably weight three times less in that state than they typically do in more mature markets.”

There are a number of reasons for this discrepancy, and for affiliates eschewing New Jersey, including but not limited to the multi-year absence of online gambling sites and the coexistence of licensed and unlicensed sites, and regulatory burdens placed on affiliates that didn’t previously exist.

All of these things created a difficult situation for affiliates, operators and regulators.

Is This Legal?

In New Jersey, differentiating between licensed and unlicensed online gaming websites has been difficult for the average person, particularly when you consider the multi-year absence of online poker and gaming advertisements across mainstream channels, along with the fact that online gambling remains illegal in other states.

A big reason for this confusion and lack of awareness was the marketing efforts by the newly licensed sites. The ads looked familiar to the old marketing campaigns of Full Tilt Poker and PokerStars from a few years back, and despite the money spent, the understanding among the populace—largely due to the April 15, 2011 crackdown by the Department of Justice—was online gambling was illegal, and legality wasn’t a big enough focus early on.

As PocketFives.com co-founder Adam Small says, “I think the education campaign hasn’t yet been as effective as it needs to be. There are still way too many people in New Jersey who think this is an illegal industry.”

Furthermore, black-market sites still operating in the New Jersey market, along with affiliates advertising these sites, were happy to further muddy the waters. To this day, affiliate websites representing unlicensed operators like to tout the legalization of online gaming in New Jersey, while failing to differentiate between black-market sites and the licensed and regulated industry.

The reason so many affiliates continue to advertise offshore sites is simple.

Regulations Lead to a Tough Decision for Affiliates

For the first time, New Jersey required U.S. affiliates to abide by strict regulations. To continue to operate as they were accustomed to, affiliates would have to apply for a license.

In New Jersey, affiliates were required to apply for an ACSIE license, or they could choose to fill out some basic paperwork, but would be limited to working on a CPA basis rather than the more lucrative revenue-share model—the licensing process for affiliates is less restrictive in Nevada, but the small size of the Nevada’s poker-only market is what keeps most affiliates from devoting resources to it.

Furthermore, the New Jersey Division of Gaming Enforcement required affiliates working with licensed online gaming sites in New Jersey to stop advertising offshore sites, even if they only advertised these sites outside of New Jersey, in other states. The decision affiliates had to make was a difficult one that required weighing current earnings against future potential.

Many affiliates came to the realization that the immediate money was in marketing the offshore sites that continued to serve most of the United States. After all, it’s much easier for an affiliate to market a black-market site that is aimed at 365 million U.S. residents instead of a completely legal and regulated site limited to New Jersey’s 9 million residents.

This all came to a head in July 2015, when the DGE forced affiliates to make a choice—drop all offshore online gaming websites or forego New Jersey (and ostensibly be prohibited from working in a state that legalizes online gaming down the road) in perpetuity.

Most chose the immediate returns of the black market over the uncertain future of legal online gaming in the United States.

For some affiliates, this was a decision that was already made for them. As was the case with the operators, many affiliates found the size of the market too restrictive, and the pay cut they would have to take, including potentially operating in the red until other states legalized online gaming, wasn’t an option.

As Income Access CEO Nicky Senyard said at the time, “Affiliates have to decide what business they’re in. You need to decide what the end goal of your business is. Is your end goal to make a nice living for the rest of your life? Is your end goal to sell this asset? And I think that’s the conversation affiliates are pragmatically having with themselves.”

It’s impossible to talk affiliates without mentioning Income Access, and like many New Jersey online gaming sites—Betfair US, Caesars Casino, Harrah’s Casino, Tropicana, and Virgin US—Golden Nugget’s and SugarHouse’s online affiliate programs are set up on the Income Access platform.

Income Access, now a subsidiary of PaySafe, is one of the least-known but most integral parts of the online gaming industry. The company offers affiliate management programs linking operators and affiliates, and providing a streamlined and proven management system. As Stetz notes, “All of our ad-serving and tracking is provided by Income Access.”

Regulations Serve Their Purpose

Winter makes it clear: The size of the New Jersey market is the biggest blocker to affiliates.

“Affiliates need to work harder to make sure they don’t waste their energy or money in non-regulated states,” Winter explains.

But in the grand scheme of things, the regulatory burdens have their merits, and the benefits outweigh the burdens.

“Regulations are balanced, in our opinion,” Winter says. “Licensing conditions may be seen as too heavy for affiliates looking for a revenue-share model, but I am not sure it’s been that big a blocker so far.”

Small, a licensed affiliate in New Jersey, agrees.

“My experience is very positive,” he says. “Things happen slowly sometimes—I had to wait two months on one occasion to get approval for a basic affiliate deal—but there are wonderful, highly experienced and well-prepared people working there.

“That makes it a pleasure, and I love being a positive part of a state that’s doing things the right way, bringing this industry where it needs to be in the U.S.”

The Recipe for a Successful Relationship

Doing things the right way is a two-way street, and requires long-term commitment from operators and the affiliates they’re working with.

“The affiliates that we currently have on board are seeing incredible success thus far with us in large part due to not only being new to the market, but also due to the fact that we are a top-converting brand,” Stetz says.

Stetz goes on to lay out the perfect operator/affiliate relationship:

“Offering a unique brand that players love is first and foremost. We need to do the heavy lifting and make sure we offer a product that players love, which from what our players have been telling us, is certainly the case at PlaySugarHouse.com.

“Next, we need to track all referred players, no matter what channel affiliates have utilized to refer them, and pay out generously and on time.

“Lastly, it’s important to be in continuous communication with affiliates so they are aware of our promotions, are up to date on what we have to offer our players and make sure that any affiliate’s player queries are answered in a timely manner.”

Stetz notes that PlaySugarHouse.com has started thinking outside the box when it comes to affiliate marketing, going so far as to partner with offline affiliates to promote the company’s online gaming brand.

“We do have several affiliates that engage in offline affiliate promotions, including one who has his own storefront in Atlantic City,” Stetz explains. “We are always looking to welcome or reach out to any affiliate that either has online traffic or can get the word out offline, as we also have bonus code tracking capabilities for offline campaigns.”

The Future of Affiliates in the U.S.

The affiliates that made the difficult choice to stick it out in the legal, regulated U.S. markets are banking on being rewarded when more states legalize online gaming.

“For poker at least, it’s important to see more states and/or countries share the player pool,” Small indicates. “Otherwise, it will never grow beyond what it is today.”

Asked how important it was for his business to see further legalization in the U.S., Small doesn’t mince words: “On a scale of 1-10, it’s a 12.”

Stetz also points out how the early bonds formed in New Jersey will pay off for affiliates down the road. “We offer affiliates the chance to grow their business in the United States,” he says. “It might just be New Jersey today, but because our company owns casinos in several large-population states (Pennsylvania, New York and Illinois), in addition to owning our own proven iGaming platform, affiliates will have the opportunity to grow with us as more states legalize online gaming.”

Author: Steve Ruddock

Steve Ruddock is a freelance writer covering nearly every angle of the iGaming industry for multiple outlets, including Bluff magazine and Online Poker Report. His primary focus is the developing legal and legislative picture for regulated U.S. online poker and gambling.