Super affiliates Better Collective and Catena Media’s first quarter results published this month confirmed their leadership positions in the U.S. igaming market.
Better Collective dominated the headlines with its $240m buy out of Action Network, while Catena Media re-entered the M&A field after a two-year hiatus with its acquisition of Lineups.com for $39.6m.
Both deals are eye-catching, even if Better Collective’s buyout is much larger. One of the obvious points to make with regard to Action Network is that it isn’t a traditional affiliate in the way Europeans might think of them: an odds comparison or betting tips and reviews website that directs traffic to online sportsbooks.
More of a sports media publisher like theScore, it has a heavy slant on odds and data to help bettors make their picks; and although less focused on tips, it has some similarities to Better Collective’s European-focused flagship brand BettingExpert.com. Lineups.com meanwhile focuses on team selections and player performance statistics to help bettors make their picks.
These media formats are widespread in the U.S. and the acquisitions also show off the variety of platforms and formats both affiliates and operators have at their disposal to reach players. Whether they are focused on social media, land-based brands’ loyalty programs (MGM, Penn, Wynn, etc.), TV and broadcasting (i.e. DraftKings’ VSiN) or other channels, igaming companies have a broad palette of publishing and advertising options to choose from when it comes to customer acquisition (and retention).
CPA vs. rev share
On the business side of things, U.S. operators are focused on signing cost per acquisition (CPA) deals with their affiliates rather than revenue share (rev share) agreements. This is because CPA deals enable them to pay one-off fees for players which they can then monetize over time. Such arrangements also mean they are not leaving themselves open to player lifetime payments that can prove costly over the long run.
It was therefore interesting to note Better Collective CEO Jesper Søgaard’s comments about developing more revenue share activity from its paid media division during the group’s video summary of its first quarter activities. From BC’s standpoint this is not surprising; those types of agreements provide long-term revenue over the lifetime value of players and in turn enable affiliates to consolidate longer-term relationships with operators.
This applies to both sports betting and casino verticals, although the former obviously lends itself to the recurrent sports and betting content that attracts readers on a regular basis. Better Collective was not available to comment on these issues for this article, but Michael Daly, CEO of Catena Media, told CDC Gaming that the group currently focuses on CPA with operators because that is what they want.
In addition, “a CPA model has advantages, not just the perceived shortcomings,” Daly adds, because it allows “virtual ‘cash in pocket’ early so we can then reinvest in market development to better support the operators and consumers. A CPA model (also) provides protections concerning market changes, like consolidations, which often are not beneficial to revenue-share deals.”
Daly says that Catena is “all CPA currently but we continue to explore rev-share opportunities with operators across (all regulated) states.” There is also an expectation that states will mature to rev-share over time and the issue will revolve around whether “it will go state by state or if a revenue-share relationship with an operator will change to all states, current and future, at the same time,” Daly adds.
Martin Calvert, spokesperson for SEO agency ICS-Digital, says he expects operators to be drawn towards rev-share models eventually. At the moment, however, “brands are still in the ‘feeling out’ stage in the U.S. market: between operators and affiliates, between players and brands, and between brands and government/regulators. For mature affiliates who understand the value of their audiences, revenue share deals will almost always be preferable.”
New states and model impacts
The impact of entering newly-regulated states and shifting from CPA to rev-share models can also be seen in both Catena Media and Better Collective’s financial updates.
The latter separated paid media from its publishing division in its first quarter announcement: publishing reported revenue margins of 51%, while paid media’s margins were down at 7%, due to the switch from a pure CPA model to a CPA/rev-share hybrid in line with the group’s preference for rev-share. Had there been no change to the model, paid media margins would have reached 19%.
Catena Media said the impact of new state launches could be seen by the rising CPA percentage of revenues, “but it also means that post-that influx” of new players, “there is a higher run rate” of signups and volumes. These activity levels will need to be analyzed once the NFL season restarts in September to evaluate player trends over a longer period of time, Daly added.
The reason there is so much uncertainty about how these trends will play out is because the market is still so young. This is also reflected in the CPA costs operators say they are aiming for. DraftKings and BetMGM openly talk about paying $250 or less in CPAs. This can be taken as messaging to affiliates not to get their hopes up too much and that the market leaders will drive a hard bargain and have the brand awareness to back it up.
On the other side of the coin are rumours of smaller operators having to agree to $500-$700 CPAs as they try to compete with the big-name brands. In return, affiliates will have to drive player value because “operators are not shy about cutting affiliates off,” Calvert says, but those are still massive CPAs by anyone’s standards.
In the end, affiliates wanting to build long-term relationships with operators will drive much of the business in the U.S. In addition, one of the key differences with the U.S. industry currently when compared to the early days of the European scene is that affiliates have honed their skills for many years, are much organized, and excel at planning and execution of their strategies.
As much as the deals they agree with operators, those qualities are what will decide how well the likes of Better Collective and Catena Media, along with all the other affiliates, perform in the U.S. in the next few years.
