Affiliate market to become more black and white

When the White Paper on gambling reform was released last April, many were relieved it stopped short of recommending a licensing regime for GB affiliates, as had been called for by some. But the latest round of consultations related to the market’s gambling reform makes clear the affiliate world will certainly still be impacted by the changes being proposed.

The Gambling Commission consultation launched at the end of November includes proposals to ban or at least limit wagering requirements and end the practice of mixing product types within promotional offers. These changes will obviously switch things up in terms of the bonuses and other promotions that gambling companies, and therefore affiliates, are able to offer in the future.

But more generally, I believe these and the other proposals that are part of the wider gambling reform are likely to lead to a clearer division between black and white market affiliates.

Increasing scrutiny

Even before the White Paper came out, the compliance demands on operators were increasing and this was causing them to be choosier about which affiliates they went into business with. In recent years, the trend has been for UK operators to reduce the sizes of their affiliate programmes so they have more control over what the partners they are ultimately responsible for are doing. A number of Tier 1 companies have effectively whittled their affiliates down to a preferred supplier list of low double digits, whereas they might once have worked with hundreds.

This is understandable because there are all sorts of KYC, advertising and safer gambling requirements these days and with compliance taking up such huge portions of operators’ budgets, the last thing they want to do is get into business with an affiliate that causes them to fall foul of the regulators.

As the head of a company that’s been in the affiliate business for 10 years now, I’ve certainly noticed the affiliate onboarding process has become much more rigorous recently. In particular, we’ve seen operators become increasingly discerning about the ownership of their affiliate partners, and many now shy away from offshore companies that can’t adequately describe their ownership structures.

I took the decision early in the company’s history to only affiliate in regulated markets, primarily the UK, but also more recently the US, where we’ve obtained licences in various states.

While it might have seemed an unusual decision back in the early days, I was never convinced that we’d make enough money affiliating in grey or black markets to compensate for the risks of doing so. Having exposure to an unregulated market that shuts down or suddenly and dramatically changes shape, as has happened in both the German and Dutch markets, didn’t seem a good way of building a stable business with good governance that could provide job security for its staff.

Long-tail impact

For us then, the move towards greater compliance is not much of a burden and for the industry more widely it is also likely a good thing. However, it seems fair to assume it will push some smaller affiliates towards the grey and even black markets and this is probably not such a good thing.

The White Paper quoted industry body Responsible Affiliates in Gambling (RAiG) estimates and said: “There are tens of thousands of gambling affiliates working in the GB market, the majority of which are individuals or very small businesses.”

If the tightening of regulations drives many of these individuals or smaller businesses out of operators’ affiliate programmes, the question then is where will they focus their efforts?

Many – especially those in the racing world – have argued the affordability checks proposed will drive punters to the black market. I suspect they may also make black market operators seem more attractive to affiliates, especially those that are being dropped from other programmes.

RAiG estimated that affiliates were driving up to 40% of remote operators’ customer acquisitions. If even 5% of these new players are directed to black market sites instead of towards regulated operators in future, this could be very worrying from a consumer protection standpoint. White market affiliates are contractually bound to act in line with the regulations that apply to their operator partners, black and grey market affiliates are not, so there’s little protection for players.