Could Legalized Poker in the US Kill the Affiliate Business Model?
In the past I’ve written about the future of online poker but a rather well-known affiliate sent me an email recently and in my response I threw out a scenario that would not be very good for poker affiliates. I mentioned in the email that I might elaborate on the thought on my blog so . . . here we go.
I think when we look at the future of online poker in the US in a legalized environment it’s best to view it through Mitch Garber’s eyes. First, as the head of Harrah’s online division he’s got a huge stake in legalized poker in the US. Second, he used to run PartyGaming so he knows the market very well.
I worked with Mitch for a little over a year so I can’t say I know his deepest darkest secrets but I do know he’s not the kind of guy who is going to give up anything if he doesn’t have to. He’s a savvy business guy and knows his way around the business so it’s going to be difficult for anyone to get a edge on him. In the poker world, I’d call him a TAG (tight/aggressive).
So, I sort of try to think about how a tough business competitor who runs the online portion one of the largest gaming companies in the world and already contributes huge amounts to US political campaigns would go about trying to shape online gaming. That’s where I come up with a lot of my ideas on the overall predictions about online poker. I just think about how I would hold off the competition while stacking the deck in my favor.
And when it comes to affiliates, they’re a huge marketing expense. The large percentage payouts and such are a leftover from the online poker industry’s startup days when it was willing to finance customer acquisition with lifetime MGR payments rather than spend huge amounts on media buying and branding. Affiliates were willing to role the dice and take chances doing all sorts of things and you only had to pay them when they hit. If they missed and went bankrupt then you paid nothing.
The downside, of course, was that if they did hit you weren’t just paying for the customer once. You paid for the customer for as long as that customer generated revenue. In some cases that means paying thousands or tens of thousands for a customer.
But someone like Harrah’s doesn’t need to build a brand. They are a brand. And on top of that they own one of the biggest brands in poker, the WSOP. They don’t need to pay large MGR percentages because they don’t need affiliates as much.
But, how would I stack the deck in my favor? Well, those affiliates are a nasty bunch. They lie. They spam. They deceive players with deceptive advertising. Wouldn’t it be in the consumer’s best interests if advertisers were prohibited from being compensated on a percentage of their revenue or for signing up for an account? That would remove all incentive for unscrupulous advertisers to tell lies to induce people to sign up to gamble online. Much better that the online poker sites who are licensed and regulated take all of the legal risk.
Of course, that’s not my personal opinion. But if I was running a well-known gaming brand and I wanted to make as much money as I can, that’s one way I would keep affiliates out of the market. If nobody is competing for the key phrase “Harrah’s Poker bonus code” it’s fairly easy to rank in the top spot.
When online poker becomes legalized and regulated it will be easy for well-recognized corporate brands to sell the public and regulators on very restrictive rules. Everybody has received more than their fair share of spam so when Harrah’s and other gaming companies talk about the need to keep affiliates from using illegitimate means to send them players even the most Luddite regulator will be easily convinced that keeping these bad influences out of the market is the best solution for consumers.
Of course, that isn’t true for most affiliates but the market if fragmented, highly competitive, and unlikely to come together quick enough to make a convincing argument before they’re shut out. For affiliates it will be like the UIGEA was for poker rooms. They’ll need to fight to get back in. In the process they’ll have to prove how they can be regulated and keep the black-hat elements out.
So just like I keep warning players (and even some poker rooms), if you’re an affiliate, be careful what you ask for. You just might get it.