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IN-DEPTH 2 March 2016
Branching out in a crowded market: eSports, Bitcoin & DFS
Traditional verticals like sports betting and casino are heavily congested territories, so Julian Rogers examines three emerging niches that affiliates should consider targeting in a bid to swim against the tide
By Julian Rogers

ESPORTS BETTING
Competitive video gaming’s roots can be traced back to 1980, when Atari staged the inaugural Space Invaders Championship in the US, which attracted over 10,000 eager button bashers. Nowadays, eSports, as it’s known, is a multimillion-dollar global industry with professional ‘athletes’ idolised by besotted fans like sports superstars in sell-out arenas. One of the most popular games, League of Legends, attracts some 27 million daily players, while other online gaming megahits like StarCraft II, Dota 2, and Counter-Strike Global Offensive (CSGO) also draw millions of players around the clock.

Where there’s competition, betting is bound to follow. As well as dedicated eSports betting sites like Unikrn, a slew of bookmakers now price up pro matches, which has triggered the emergence of ? eSports affiliates. The affiliate programmes are often a mixture of CPA and revenue share, roughly the same percentage as sports betting, says Mark McGuinness, co-founder of betting portal eSportsbet.com. “There hasn’t been a distinct CPA level or revenue share for eSports traffic as of yet, simply because the KPI’s for the operator in terms of the lifetime value are still evolving,” he says. “Through time, I fully expect this to change as more betting operators start to offer more betting markets on eSports.”

The catalysts for the growth in eSports betting were partly ‘skin betting’ sites DotaLounge.com and CSGOLounge.com – where users gamble in-game items that have real-world monetary value – and live gaming streaming service Twitch. Indeed, Eilers Research has predicted that $23.5bn will be wagered on eSports by 2020, up from an estimated $250m in 2015. Meanwhile, Pinnacle Sports – a trailblazer for eSports wagering – reached a million eSports bets in 2014. Betway, which has built an eSports microsite, says it’s regularly in its top 10 markets for turnover on a daily basis. “Viewing figures for eSports are increasing at an incredible rate and the betting interest is growing rapidly,” says spokesman Alan Alger. “It’s only natural that operators will want to grab a slice of the action.” The largest wager Betway has accepted is €4,000, while most bets tend to come from customers in northern Europe.

eSports has the potential to reach millions of new customers for mainstream online gaming operators” Mark McGuinness, co-founder of betting portal eSportsbet.com
Former semi-professional gamer and ex-Paddy Power employee Luke Cotton recently launched CSGObetting.com, which is purely a resource for gambling on CSGO. The site, which includes detailed bookmaker reviews and match previews, naturally ranks well on CSGO betting searches, and he plans to roll out a network of affiliate sites for the most popular games. Cotton says affiliates need to be cognisant of the fact that players like different games. A StarCraft fan might not be interested in CSGO and vice versa. “That’s like saying because I like football, I like tennis,” says Cotton. “It might be true for some people but it’s definitely not true for all.”

The world of eSports may seem esoteric to outsiders, but affiliates shouldn’t belittle audiences, Cotton warns. They also need to be au fait with the intricacies of the different games. “eSports fans are very unforgiving of people who are trying to take advantage of them and their industry,” he says. However, they tend to be in their early twenties and don’t tend to be traditional sports bettors or casino players, so they often won’t have betting accounts. “We see them as different,” says Cotton. “We don’t necessarily see them as people who have accounts with Bet365, William Hill or Paddy Power, or who are betting on sport elsewhere.”

History has shown us that eSports is more than a short-lived craze, and live streaming of games to huge audiences has helped to spread its appeal to an even wider audience. “eSports is more than just a fad as some industry observers have mooted,” says McGuinness. “It’s both digital entertainment and a gambling opportunity, and it has the potential to reach millions of new customers for mainstream online gaming operators.” So, game on rather than the dreaded game over for this burgeoning betting product.

BITCOIN GAMBLING
An oft-quoted stat is that approximately half of all bitcoin transactions globally are for the purposes of gambling. The accuracy of this percentage is open to debate, but there’s no escaping the fact that hundreds of online gambling operators specialising in bitcoin and other crypto-currencies, or Altcoins, have sprung up over the past few years. For the player, gambling with a digital currency like bitcoin has a number of benefits over fiat currencies. First off, players can sign upwith just an email address. Also, transactions are anonymous, which means no onerous KYC checks, deposits and withdrawals are almost instantaneous, and the games on offer are provably fair.

Bitcoin gambling – be it casino, dice or sports – has been attracting a steady stream of affiliates, though it’s still a hugely underserved segment compared to fiat currency wagering. Due to the fact that bitcoin transactions are anonymous, affiliates could repeatedly perform spurious referrals, which means CPA deals are non-existent. Instead, revenue share based on a player’s betting turnover is the preferred arrangement. “Although it [anonymity and no KYC] removes the possibility of CPA, it takes away a large amount of friction in the conversion process, which causes such high dropout rates with government currency operators,” says James Canning, a bitcoin gambling consultant and founder of bitcoin betting resource bitedge.co. Also, affiliate commission payments are made in real time, eschewing the need to wait until the end of the month.

That said, Canning bemoans the fact that the quality of affiliate programmes often leaves a lot to be desired. “These are new operators and there is no standard affiliate software like Income Access or NetRefer, so the operators have hacked together their own inferior affiliate programmes as afterthoughts. However, this is improving fast and soon enough Income Access and NetRefer will add bitcoin support, making it a moot point.”

Besides fears that wallets could be hacked and bitcoin stolen, as well as links to illicit transactions on the dark web, such as the now-defunct online narcotics bazaar Silk Road, price volatility continues to stymie its mainstream adoption. Bitcoin’s price graph in late 2013 resembled a white-knuckle rollercoaster ride; it rocketed to ??$1200 before crashing to $250. It was stable, between $200 and $300, for much of 2015, before experiencing a sudden surge and slump in the autumn. Purchasing bitcoin is a gamble in itself.

One advocate of crypto-currency gambling is self-confessed libertarian Nick Garner, founder of SEO agency 90 Digital and former head of search at Unibet, who recently launched his own Softswiss-built bitcoin casino, Oshi.io. He suggests bitcoin and betting make natural bedfellows, adding: “Gamblers know that what are doing is not that accepted by polite society, so it’s a bit like a drug addiction. They want privacy and bitcoin can deliver that.” He says users, who he describes as “very savvy” and “amazingly knowledgeable”, often frequent bitcoin gambling forums and Reddit, rather than relying upon Google rankings and affiliate review sites to tell them where to bet, unlike your average fiat currency gambler.

Furthermore, the frictionless nature of bitcoin gambling (apart from first converting fiat currencies to bitcoin) means money can slosh around very easily. Garner says people will road test numerous gambling sites and stick with the one – or the few – they prefer. “This means that you will see a very small number of sites ruling bitcoin. For affiliates, it means there are probably only going to be three or four casinos worth them pimping out. It is then winner takes all, which you always get in frictionless ecosystems.” Nevertheless, he says bitcoin has a bright future. “It has got past the stage where it could have been made extinct. The most fragile time for anything is in its first period of growth,” he says.

As for Canning, he describes becoming a bitcoin gambling affiliate as the best career decision he’s ever made.

Season-long blogs with a good audience are in a great position to become successful affiliates for daily fantasy sites” Viktor Enoksen, co-founder of FantasyBet
DAILY FANTASY SPORTS
The rise of daily fantasy sports in the US has been rapid and stratospheric, creating a hard-to-miss industry offering one-day and week-long game formats that have been described by some as the crack cocaine of fantasy sports. Although this fledgling industry has encountered significant headwinds of late around its legality in many states, DFS firms have begun springing up in Europe, raising the prospect of these fast-paced contests taking hold. In the UK alone there are around 5 million season-long fantasy football players, with 3.5 million of these participating in the free-to-play official Premier League competition. Quite clearly, there’s an appetite.

Fantasy football’s popularity has given rise to numerous websites and blogs dedicated to team selection advice, injury news and transfer gossip. Some already display bookmaker banner adds, so promoting DFS operators could provide an additional revenue stream. “Season-long blogs with a good audience are in a great position to become successful affiliates for daily fantasy sites,” says Viktor Enoksen, co-founder of DFS startup FantasyBet. “Even more, they have a vital part to play in building trust among punters in daily fantasy, and getting established season-long fantasy blogs involved can only increase the speed of which daily fantasy becomes mainstream in the UK.”

US market leader DraftKings is due to launch in the UK after obtaining a remote pool and gambling software licence, while main rival FanDuel has stated its intention to apply for a software licence. FanDuel CEO Nigel Eccles has said that 10 years from now it’s possible that just 40% of revenues will be derived from the US. Yet one conspicuous issue facing those operators yet to throw their hats into the ring is that betting on sports is legal and widespread in UK. It’s a heavily saturated market.

It’s partly this problem that leads David Clifton, director of Clifton Davies Consultancy, to doubt whether DFS can make a meaningful impact. “The main reason is because, unlike in the US, the UK has a very long-established and well serviced sports-betting market that can now provide an even more immediate experience for consumers. For example, by placing bets directly on in-game features. No ‘substitute’ is needed for sports betting in the way that it is in the US. Why bet on something virtual when you can bet on something real?”

It’s a fair point, but if deep-pocketed operators like DraftKings can flex their marketing muscle and convert a chunk of traditional fantasy football players, as well as attract sports bettors, they could carve out a decent market share and help to grow this nascent industry. It could potentially snowball – possibly into other sports like rugby and cricket – and create greater opportunities for DFS affiliates. “DFS is a social game,” Enoksen explains. “And it becomes more fun if you get friends to play, enabling social growth. This is not the case for most other forms of online betting. But I don’t think daily fantasy in the UK will follow the exact same path as daily fantasy in the States, and it is up to us operators to carve the way in the UK.” So while there’s opportunity for DFS affiliates, the jury is still out as to whether it will become the next big thing or just a damp squib.
DISCUSS THIS ARTICLE
IN-DEPTH 16 August 2019
Roundtable: David vs Goliath – Can startups really disrupt the industry?

(AL) Alexander Levchenko – CEO, Evoplay Entertainment

Alexander Levchenko is CEO of innovative game development studio Evoplay Entertainment. He has overseen the rapid expansion of the company since it was founded in early 2017 with the vision of revolutionising the player experience.

(RL) Ruben Loeches – CMO, R Franco

Rubén Loeches is CMO at R. Franco Group, Spain’s most established multinational gaming supplier and solutions provider. With over 10 years working in the gambling, betting and online gaming industries, he is skilled in operations management and marketing strategy.

(JB) Julian Buhagiar – Co-Founder, RB Capital:

Julian Buhagiar is an investor, CEO & board director to multiple ventures in gaming, fintech & media markets. He has lead investments, M & As and exits to date in excess of $370m.

(DM) Dominic Mansour – CEO, Bragg Gaming Group:

Dominic Mansour has an extensive background of nearly 20 years in the gaming and lottery industry. He has a deep understanding of the lottery secto,r having been CEO at the UK-based Health Lottery, as well as building bingos.com from scratch, which he sold to NetPlay TV plc.

What does it take for a startup to make waves in gaming?

DM: On the one hand, it’s a bit like brand marketing; you build an identity, a reputation and a strategy. When you know what you stand for, you then do your best to get heard. That doesn’t necessarily require a TV commercial but ensuring whatever you do stands out from the crowd. Then you have to get out there and talk to people about it. 

AL: Being better than the competition is no longer enough; if you’re small, new and want to make a difference – you have to turn the industry on its head. Those looking to make waves need to come up with a new concept or a ground-breaking solution. Take Elon Musk, he didn’t found Tesla to improve the existing electric cars on the market, he founded it to create the industry’s first mass-market electric sports car. It’s the same for online gaming; if you want to make waves as a startup, you have to bring something revolutionary to the table.

JB: Unique IP is key, particularly in emerging (non-EU) markets. As does the ability to release products on time, with minimal downtime and/or turnaround time when issues inevitably occur. A good salesforce capable of rapidly striking partnerships with the right players is vital, as is not getting bogged down too early on in legal, operational and admin red tape.

How easy it for startups to bring their ideas to life? How do they attract capital?

AL: It depends on the people and ideas behind the startup. Of course – the wave of ‘unicorns’ is not what it used to be. Some time ago the hype was a lot greater in terms of investing in startups, but that’s changed now. Investors now want more detail – and even more importantly, to evaluate whether the startup has the capacity (as well as the vision) to solve the problem it set out to address. That’s not to say investors are no longer interested in startups – they certainly are – but now more than ever, it’s important for startups to understand their audience as well as dreaming big.

JB: To get to market quickly, you need a great but small, team. If slots or sportsbook, the mathematical engine and UX/UI are crucial. Having a lean, agile dev team that can rapidly turn wire framing and mathematical logic into product is essential. Paying more for the right team is sometimes necessary, especially when good resources are scarce (here’s looking at you, Malta and Gibraltar).

Building capital is a different beast altogether. You won’t be able to secure any funding until you have a working proof of concept and, even then, capital is likely to be drip fed. Be prepared to get a family and friends round early on to deliver a ‘kick-ass’ demo, then start looking at early-stage VCs that specialise in growth-stage assets.

How do you react when you see startups coming in with their plan for disruption?

RL: We welcome the innovation and fresh thinking startups bring. This is particularly the case in Latin America, with a market still in its infancy. One area we’d especially like to see startups making waves is in the slot development sector. Latin America is a young market that needs local innovation suited to its unique conditions – especially in regard to mobile gaming.

Operators eyeing the market have Europe‐focused core products, which creates a struggle to work to the requirements of players and regulators. To succeed there, it has become more important than ever to work with those with a knowhow of the local area to adapt products and games to besuitable from the off; we welcome the chance for local talent to develop and grow.

Do you think it’s easier for established companies to innovate and establish new ideas? 

AL: From a financial perspective, yes. It is without a doubt easier for incumbent companies to establish a pipeline of innovation via their R & D departments, as well as having the tools to hand for data gathering and analysis.

But it stops there. Startups hold court in every other way. Not only are they flexible, they can easily switch from one idea to another, change strategy instantly as the market demands and easily move team members around. Established companies know this – and this is why we’re seeing an emerging trend for established companies to acquire small, innovative online gaming start-ups. They have the right resources and unique ideas, as well as the ability to bring a fresh approach to businesses’ thinking.

RL: For me, it’s always going to be established companies. Only with the resources, industry experience and know‐how can a company apply technology and services that truly make a difference. Of course there are exceptions. But when it comes to providing a platform that can be approved by regulators across multiple markets – as well as suiting an operators’ multiple jurisdictions – it is simply impossible for a couple of young bright minds with a few million behind them to get this done.

DM: I actually think it’s harder for established companies. It’s key to differentiate between having a good idea and executing one. That’s where the big corporates struggle most. They’re full of amazing people with all sorts of great ideas but getting them through systems and processes is nearly impossible.

Is it essential to patent-protect innovative products?

AL: It’s a very interesting subject. If we take IT for example – patents can actually become a block to the evolutionary process within the industry. Of course, getting a patent future proofs yourself from the competition copying your concept but, having said that, if you’re looking to protect yourself from someone more creative, smarter and agile, you’ve probably lost the battle already!

In our industry everything is moving faster and research takes less time than the development itself. No matter how good you are at copy pasting, you can’t copy Google or Netflix. The most important thing is not the tech itself but rather its ‘use-case’ – or in other words, does it solve what it’s meant to solve? Competition is healthy and the key to innovation. If you spend your whole time looking behind you, you’ll never be able move forwards.

JB: Tricky question, and one that depends on what and where you launch this IP. It can be difficult to patent mathematical engines and logic, mostly because they’re re-treading prior art. Branding, artwork and UX is more important and can easily be copied, but the territories you launch will determine how protectable your IP will be once patented. US/EU/Japan is easy but expensive to protect in. But China/South East Asia is a nightmare to cover adequately. Specialised patent lawyers with experience in software, and ideally gaming, can help you better.

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