What Is An Affiliate Program And How Does It Work?
While there are many different industries and niches that offer affiliate programs, this article will focus on one of the most lucrative. That being, the online gambling market. With billions of dollars in revenue globally many people are wondering how they can get a piece of the pie.
The world of online gambling is vast and incredibly competitive for operators. We know that because in some regions of the world, there are hundreds of licensed online casinos and sportsbooks competing for each and every new online gambler who wants to enter the fray.
What makes it difficult for online gambling operators to compete in big markets is the restrictions they face on marketing efforts. That is especially true in the UK and now the U.S. where regulators prohibit certain types of marketing. Regulators typically deem these restrictions necessary for the protection of vulnerable groups like minors and compulsive gamblers.
Faced with prohibitive restrictions, online gambling operators are always looking for ways to get help with their marketing efforts. A favorite and valuable resource of this help comes from affiliate programs.
What is an Affiliate Program?
An affiliate program is a formal program that allows companies inside and outside the gambling industry to strike a “partnership” or affiliation with a licensed online gambling operator. Affiliate programs can be created by online casino operators, bingo sites, lottery sites, horse race gambling sites, poker rooms, and sportsbooks.
It should be noted that regulators like the UK Gambling Commission and the Malta Gaming Authority allow affiliations as long as the affiliates follow prescribed laws. It’s also worth noting that affiliate programs are far more prevalent in Europe than in the U.S. With that said, U.S. online gambling operators might be looking for more affiliations, particularly media affiliates, in the future.
How Do Affiliate Programs Work
Before beginning this discussion, it needs to be stated that affiliate programs can come in various forms. Regulators do allow a lot of latitude in how online operators construct their affiliate programs. Keeping that in mind, the following information is going to focus on the basics of the affiliate program concept.
Imagine for a moment that you are allowing merchants and service providers to advertise on your website. For that privilege or right, you get paid for clicks and the merchant or service provider gets access to more business. The affiliate program concept is very similar.
The primary difference between a “click for pay” process and an affiliate program is most affiliate programs are contractual between the online gambling operator and the affiliate. The exact terms are memorialized in a contract or agreement.
Once an affiliate contract is in place, the affiliate can start referring “customers” to their affiliated gambling sites. For the referral, the affiliate will be entitled to compensation in the form of a fee or commission.
Let’s cover the four (4) primary affiliate compensation structures that could be dictated by an affiliate contract.
1. Cost per Acquisition (CPA) – With this compensation structure, the affiliate is paid a flat fee by the operator based on the conversion of a referred lead to an actual online gambling customer. That customer usually has to make deposits and meet certain gambling requirements.
2. Cost Per Lead (CPL) – With this compensation structure, the affiliate is paid a flat fee by the operator based on each lead they receive. In this case, payments are made if the referred lead makes it through the registration process whether they make subsequent deposits and wagers or not.
3. Revenue Sharing (commission) – With this compensation structure, the affiliate is paid a share of the net revenue earned by the online gambling operator from a referred lead who becomes a gambling customer. Typically, net revenue-sharing commissions are paid monthly, though quarterly and annual contracts are also used.
Example: Affiliate No Deposit Bonuses refers gambler A to a popular online casino. During the month, the sportsbook earns net revenue of $5,000 from referred gambler A. The affiliate agreement calls for the affiliate to get 20% of that net revenue or $1,000, which is paid as outlined in the affiliate agreement.
Note: Net revenue is defined as the net profit an online gambling operator makes prior to any expenses and taxes. If there is a net loss, the affiliate gets $0.
4. Hybrid Program – This compensation structure is preferred by affiliates that want to accept but limit the risk associated with a revenue-sharing deal. Instead, they take a small flat fee for a CPA or CPL with the rest of their potential compensation coming from net revenue sharing.
Gambling Operator Preference
Affiliate programs are necessary in a highly competitive online gambling market. Just the same, top brand name online gambling operators are cautious about their affiliations. When they create affiliate contracts, they tend to favor the net revenue-sharing compensation structure. Why?
It’s very simple. They only have to pay affiliates when referred gamblers become customers and lose money. In other words, they only have to pay when they make money. They are good with that because the net revenue that comes from referred gamblers was net revenue they likely would not have earned without the referral. In the end, everyone wins but the gambler.