Online gambling business valuation

[mgaming]

I am curious how would you estimate a value of online affiliate business.
Of course, there are several important factors like market and product, players database, know how and deals.
Do you agree with pricing based on yearly revenues generated by the firm?

[TheGooner]

I am curious how would you estimate a value of online affiliate business.
Of course, there are several important factors like market and product, players database, know how and deals.
Do you agree with pricing based on yearly revenues generated by the firm?

What follows is one affiliates opinion on real valuations that a business is likely to achieve - on a willing buyer/willing seller basis.
It's based on real world methodology for negotiating and assuming that you do NOT have something unique or outstanding to sell.

PREAMBLE :
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Most affiliate sites / business are not unique - they lack a USP - or potential exponential growth.
So the best way to value them is like most small business in the real world (restaurant / shops) specifically via tangible financials.

For small businesses that are owner operated, the valuation price tends to be a small multiple of actual profits - perhaps 2-3 x annual profits.

That's actual profits after expenses not revenues. and it should also factor in the time taken to do this as if it was paid.
After all the new owner doesn't want to have to work on the business and will employ someone to do that work

A final factor is size - the bigger your operation and the more diverse the income stream then the more stable the revenue is. If you have thousands of depositors at 20 sites then you have a real income stream - and it is more valuable than a site with 100 players at 1 site.

A COUPLE OF EXAMPLES :
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So if you are small and generating 5K per month in revenue, and spending nothing but taking 100 hours to do that - that's still about 100 x $20 = $2K in costs. Then a potential value is $3K profits x 24 months = $76K valuation

IF you are larger site generating 20K revenue per month, with costs of 2K in content and 5K in salary / wages then that's $13K profit per month x 36 months = $468K valuation.

SUMMARY :
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Given the uncertainty and risks currently in the website affiliate industry (country legislation, poor mobile tracking, deposit and payment issues, apps taking traffic) it's not really a time when there will be sky high valuations. A great site might achieve more than 2-3x annual profits - but an average site will be in this range IMO.

There is usually a large gap between casual buyer and casual seller when discussing this area. For instance despite my 2-3x estimate of value - if I was to sell my site I'd want 6x annual profits at a minimum (and I'd try for more) - but if I wanted to sell / need to sell then I would need to be more realistic and meet the market.

[RacingJim]

Great value post again provided there by Gooner. Respect to that man.

[affy]

Agree with TheGooner but I'd like to add two points:

- assets

It depends also on what domains you have for sale. E.G. if both "onlinecasino.co.uk" and "play-casino-games-here.co.uk" would generate an equal amount of traffic and revenue the owner of the first one mentioned should be able to negotiate a much higher price

- potential growth

Let's say you rank number one for a prime keyword with one site and generate tons of traffic. Now a competitor ranks on number two, three and four with the same keyword but with three different sites. Again both generating an equal amount of traffic, revenue and of course all "healthy" SEO sites. If I would want to close a deal I'd go for the one that has potential to grow. If you buy a network/site you need to take in consideration that with buying the one ranking on number one already the risk of dropping is higher and the chances of growth are less.


Furthermore you need to ask yourself what it efforts it would take to generate the same amount of money as the offer you have received. Let's say you will not touch your network (or do only the absolute minimum) for two years. Assuming it is solid built and you have a healthy player-base you might still be able to generate 50/60% of the price that is offered, without hardly any work. After those two years you still own your network and assets


Oh and one thing I disagree, "it's not really a time when there will be sky high valuations." if we take in considerations some of the take overs lately prices can be simply ridiculous so aim high if you are selling!

[TheGooner]

Reasonable points AFFY - and worth discussing.

1/ ASSETS
Most business sales do also include a factor for "stock" and assets - a factor which I left out - but things a super domain name, or great custom CMS, or valuable contractor connections / agreements could add further to the list.

However - most affiliate businesses do not have much like this. In the cases above it's reasonable to assume the small business has zero assets - and the medium business may have an extra 20-50K worth of intangibles or business structure.

2 / EXCEPTIONAL SALES
There have indeed been some exception sales prices recently for large affiliate sites, but I do wonder whether some of this has been pushed by venture capital injected and keen to make a difference to the bottom line. I don't see them as typical or sustainable.

You can certainly AIM HIGH if someone approaches you specifically, that would be sensible, but if you have not been shoulder-tapped or picked as an exceptional site then those sort of valuation multiples are NOT achievable. In fact most affiliate businesses simply fold or discontinue.

[mgaming]

Great posts TheGooner - in recent weeks I saw much news about affiliates business being acquired for the large sum of money. VC probably had big impact in their valuations.

[PROFRBcom]

For small sites, 12 months is about all I can stomach. Anything more than that is just too risky. We're very online poker biased though and I think that market is even more finicky than casino/sports.