The American Dream for affiliates
The US Supreme Court’s repeal of PASPA probably left gambling’s biggest affiliate firms feeling like they had struck gold, but is that potential treasure easily accessible or buried deep?
It is just over four and a half years since regulated egaming first launched in New Jersey. And since November 2013, online casino and poker have generated almost $840m in GGR to date, according to the Garden State’s Division of Gaming Enforcement (DGE). So when the Supreme Court paved the way for individual states to introduce their own legislation on that other key vertical – sports betting – it would be fair to assume that the industry’s biggest affiliates collectively punched the air. The jackpot was hit.
Catena Media’s CEO at that time was Henrik Persson Ekdahl. As he put it on the day of the ruling: “When we found out the decision went nationwide, we were like, ‘wow’. It felt like winning the
lottery in many ways.” It has now been two months since that watershed moment, and while land-based operators and sportsbook suppliers continue to ink deals at a rapid rate, the monetisation of the US online sports betting market may prove a trickier nut to crack for gambling affiliates.
Although New Jersey will again take centre stage, this purgatory between the PASPA repeal and each state implementing its own tailored sports betting legislation is likely to be a time of confusion. For affiliates, the present time feels like the pot of gold at the end of the rainbow. They know it’s there, but how do they get to it?
Market watch
The size of a fully legalised US sports betting market is still up for debate. The American Gaming Association (AGA) said the illegal market was worth $150bn in 2016, while analysts Eilers & Krejcik Gaming have calculated a more conservative figure of $60bn. After the federal ban was overturned, Raketech CEO Michael Holmberg told EGR Marketing: “We have seen some impressive predictions from analysts that the market value could grow to $6bn in five years’ time and we will hopefully witness something even bigger than the poker boom in the mid-2000s.”
Other gambling execs are less optimistic, including XLMedia’s Ory Weihs. Admittedly, the super affiliate is in a slightly different situation to most prospective US affiliates as its tried-and-tested affiliate model is already up and running in the country, with 20% of its stateside business being in financial verticals and cyber security. “XL has a plan for making money in the US when there is money to be made there,” says Weihs. “From this point to putting out bullish revenue forecasts, we are still not there, and I don’t really anticipate any real change in addressable markets in the next year or two. I think in the next three to five years we will have some kind of market that might be interesting, but definitely not the size of the European market.
“In five to 10 years it might be a lot more interesting, but that is quite a long way to go. There are still so many question marks around it as to which states will open when, the tax rates, the products, whether there will be shared liquidity and whether foreign operators will be able to use their brands at all. What will be required from affiliates? I’m very hopeful but we’re not moving any forecasts or anything like that,” he adds.
With retail sports betting already up and running in New Jersey at racetrack Monmouth Park, Catena Media’s Ekdahl believes the transition to online and mobile betting will happen quickly once operators understand the full potential of the market. This inevitable digital transition will obviously provide even more opportunities for sports betting affiliates, but with each state deliberating over its own online legislation, this too could prove to be a waiting game.
“I think the online transition will happen very quickly, particularly for the online casino groups that are already up and running in some of these states,” Ekdahl says. “They can begin online sports betting with no problems because they understand the potential market size.”
Financial forecasts
Catena has been extremely vocal regarding its ambitious EBITDA target of €100m by 2020, and that figure shows no sign of dipping under the strategic leadership of the firm’s newly appointed CEO Per Hellberg. When asked if the legalisation of US sports betting could potentially accelerate or alter Catena’s EBITDA forecast, Ekdahl was reluctant to make a concrete prediction, which reinforces the uncertainty that currently surrounds America’s embryonic sports betting market.
“We don’t know if the growth will be explosive, and there will be added costs for sure,” says Ekdahl. “I want to see it go live before we make any financial adjustments as nobody knows what is going to happen. New Jersey is bigger than Sweden in terms of population. Everybody knows that sports betting has always been huge in the US in the grey and black markets, but now you can actually start to market the product, so it will be so interesting to see how big the market can become.”
Better Collective is one affiliate willing to invest in the US in spite of the uncertainty. The Danish business unveiled its first US sports betting affiliate portal, US-bookies.com, just two days after the Supreme Court’s decision. The new site will reportedly serve the US horseracing community, which was dwindling significantly before PASPA’s repeal.
It will include bookmaker reviews of operators that go live in the US over the coming weeks and months, as well as educational content for Americans new to horserace betting. The information portal will expand beyond horseracing in the future and a highlight of the offering is an interactive map of the country breaking down gambling legislation in every state.
Better Collective CEO Jesper Søgaard says the site is just the beginning of a much wider plan to target the US market but he expects little or no impact on revenues in the short term, with the website’s primary purpose to serve as a presence stateside. “My hope is that Better Collective will establish a stronger presence in the US to help give the proper tools to new punters navigating the egaming space for the first time,” says Søgaard. “In the short term, it is not going to have a big impact on revenues, but we are seeing a big new market which will undoubtedly become interesting in the long term.
“It might still be years before we see a big substantial market in the US in terms of sports betting,” he adds. “We want to invest now to establish a presence and have a product there, but we don’t expect a lot of revenue to be coming in this year, for instance. It could take 10 years before we see the real potential of the US market, but you have to have patience, and starting the work today means that we will be ready for that.”
With New Jersey being the trailblazer, the likes of Connecticut, Illinois, Pennsylvania and Rhode Island will spend the near future poring over their own proposed gambling regulations. This legislation is also likely to impose limits on affiliates, with no guarantee of similar procedures that makes gambling affiliation so lucrative in Europe’s regulated markets.
Affiliates may well require licences from each state’s gaming regulators, just as Catena does in New Jersey, and will probably have to cease promotion of profitable sites that are illegally offering online gambling to US residents. Will they be prepared to do that? Like most questions posed of the US’s newly liberalised sports betting industry, we must wait to find out the answer.