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Time to appreciate DFS again

| By Joanne Christie | Reading Time: 5 minutes
The relationship between daily fantasy sports and affiliates is going through a rocky patch, but James Pope of Fanto Gaming sees potential for a reconciliation

The relationship between daily fantasy sports and affiliates is going through a rocky patch, says James Pope of Fanto Gaming, but there could be huge rewards for those backing a reconciliation.

Eyes meet across a crowded room. There is a spark and a moment. I imagine this is how it all started in the early noughties with online poker and affiliates: a match made in heaven, expected to stand the test of time. After all, aren’t poker sites and affiliates perfect bedfellows, only ever going from strength to strength?

Sadly, not all relationships are quite so Hollywood. Just as in some marriages, there are bumps in the road, some divorces and many issues to work on to find common ground.

Daily fantasy sports (DFS) and affiliates are most certainly currently in marriage counselling. They are wondering if they ever actually liked each other in the first place.

For the time being DFS cannot even get itself a Tinder date: it doesn’t even register on any affiliate’s radar. Outside of the two big US operators you would struggle to find an example of any DFS programmes and affiliates working together with any level of significance.

I recently attended the affiliates’ conference in Amsterdam and not a single talk was offered for DFS. Is fantasy sports as a concept really that bad a proposition? For me the answer is a resounding no. For the time being it is just a bit of an ugly duckling — and we all know how that turns out! 

Without much further ado, let’s take the three biggest concerns/complaints/untruths that affiliates have with DFS. Then let’s challenge them and see if some bridges can start to be built.

Affiliate concern 1: not in vogue
DFS has had a rough time of it recently. Only 18 months ago US$400m (£300m) of venture capitalist money was being pumped into the market. Was this another gold rush? You would think so with the number of new products entering the market.

Sadly, the bubble burst following some dubious activities and storm clouds have been growing ever since. No one wants to go on holiday where it rains.

And why does bad press matter? Let’s share the story of Toyota recalling 5.2m cars in January 2010 as a precautionary measure after an increased number of accidents. It turned out that the cars were no less safe than any other, just plagued by an unfortunate number of bad drivers creating a statistical anomaly. It didn’t stop the public associating risks with Toyota cars and they are still recovering from this misunderstanding.

DFS is still reeling from uncertainty created by the big two. Affiliates and igaming are wary because of all the bad press, but does this mean there is a lack of good companies with a solid strategy to be worked with out there? Scratch the surface and you will find some nice little gems with a unique proposition in both the mass market and niche areas.

Affiliate concern 2: volume and scale
An affiliate’s dream is volume and scale. A rising tide lifts all ships: a concept in high demand makes converting incoming traffic simple for the operators — and like shooting fish in a barrel for affiliates.
Sadly, ‘build it and they will come’ has not yet really happened and instead DFS is more like A Tale of Two Cities (“It is the best of times and the worst of times”).

The US market speaks for itself and as a proxy gambling option in the US DFS affords significant opportunities. Outside the US the market is still finding its feet. But how long will it remain like that? Independent analysis from Juniper Research shows that in the UK alone demand is expected to hit 890,000 active users by 2022.

The classic ‘Nike tick’ demand graph suggests that those DFS operators which have decided to ride out some of the tougher weather may be well placed to see a resurgence in fortunes. If the research is accurate then it is a trend that is forecasted to be repeated across mainland and eastern Europe.

If the crystal ball is proved correct you can bet your bottom dollar that affiliates and DFS will be very viable partners.

Affiliate concern 3: lack of transparency for clear revenue streams
This is the biggest and most obvious issue to date. The more conversations I have with affiliates, the more often I hear there is a lack of clarity to the perspective revenue stream when breaking down DFS partnerships.

The simple, and fairest, question is: how on earth do we make money from DFS? Traffic and inventory are finite supplies for affiliates so they will be sent to operators which generate the largest ROI, which DFS, up to this point, has failed to prove is them. Ah, the basics of economics.

DFS has mostly adopted the sportsbook payment model. Does this conflict with common sense? Splitting the share of NGR on sportsbooks where earnings can fluctuate wildly, offering large earning potential for traffic, is not available to DFS.

Instead, the DFS business model is based on pool betting and trying to formulate an NGR approach looks like a square peg being forced into a round hole. This is because returns on pools are only ever on margin, creating less chance of bumper months for affiliates, especially if coupled with an absence of volume and activity.

The obvious solution would be to revert to a CPA model and let the DFS operator enjoy the fruits of any excessive activities. The elephant in the room is that DFS simply cannot agree any CPA models because there is no indication to the LTV of the traffic. It would take a very brave DFS operator to underwrite the risk of a CPA on a scale that would grab the attention of the entire igaming affiliate market.

So, where does this leave DFS? The one model closest to the nature of DFS is a revenue share on the ‘rake’. In some ways very similar in nature to an NGR, because it is based on the activity of the referred customer, it actually offers a lot more transparency to the affiliate.

If the DFS operator can agree a ‘rake’ per competition, it should afford affiliates the ability to model their expected revenue for the traffic they send the DFS firms and be able to compare that to other potential igaming verticals.

Of course, this is looking only at how other igaming verticals conclude affiliate partnerships. In addition to the standard approaches, there should be a call to arms for innovation and for a leader to emerge. While DFS establishes itself, creative solutions should be found to grease the wheels.

An idea I once had was ‘win what they win’. The premise is simple: the affiliate will be paid a commission equal to any winnings of any referred customer! This could then be scaled down as time goes on, freeing the DFS operator to monetise the referred customer over the longer period, while still rewarding the affiliate for the higher quality of traffic.

It also ensures that the affiliates are paid at the beginning of the customer’s life cycle, making it a more attractive proposition.

As with most things in life we should look at the affiliate and DFS partnerships as a scale. Does it offer the rewards of lucrative poker traffic? No.

But does it offer the opportunity to participate in a growing market, the chance to diversify revenues (you need only to read about the many stories following Sky Bet’s announcement and how it hit affiliates hard — as much as 70% of revenues for some people) as well as afford you the freedom to shape a new standard of agreement in an innovative way that works for both parties? Yes it does.

DFS needs to take responsibility and start proving to the igaming world its ability to retain customers for a prolonged period (free of just incentivising gamers with a free roll approach). If DFS demonstrates this then it is likely it will be accepted as a viable vertical.

But in order to achieve this DFS needs affiliates to participate with operators to provide a steady stream of traffic allowing it to prove that the right concepts will work.

A new and diversified vertical is highly desirable and can be added to the affiliate’s repertoire if both sides come to the table. If the market takes off like many have predicted then it will be the early birds who benefit the most.

James Pope is CEO and founder of Fanto Gaming Ltd, Fantasy Sports International Ltd and Wild Time Marketing. His 10 years of experience in the City of London created a solid platform for driving forward disruptive and innovative firms.

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