Truth on Term Changes

[mojo]

With all the terms changes, particularly some Microgaming programs, I am struggling with conflicting info.

Casinos that make these changes indicate they are struggling in these hard times. That may be true. The reality is that it is then passed on to the ones who have been supporting them in partnership, the affiliate.

However, I constantly read news reports that online gambling is a multi-billion dollar industry and growing all the time. Future projections are astronomical.

So is it really a matter of hard times for Casino Owners or is it more not being able to upgrade to that 2010 Lexus?

What's the truth?

[casinojack]

With all the terms changes, particularly some Microgaming programs, I am struggling with conflicting info.

Casinos that make these changes indicate they are struggling in these hard times. That may be true. The reality is that it is then passed on to the ones who have been supporting them in partnership, the affiliate.

However, I constantly read news reports that online gambling is a multi-billion dollar industry and growing all the time. Future projections are astronomical.

So is it really a matter of hard times for Casino Owners or is it more not being able to upgrade to that 2010 Lexus?

What's the truth?

Maybe some better than others? Maybe some affiliates sent them to many lucky players, and the no carryover hurt them? Some are scumbags? Hard to ever know the truth, but is a good point.

[Louis - Income Access]

Hi Mojo,

As an affiliate manager, dealing with both sides of the gambit, I can tell you that a lot of operators are feeling the pressure to improve the overall profitability of their affiliate programs. This may be partly because the industry as a whole has been indirectly affected by the economic decline, as many companies are in fact reporting lower profits than previous quarters (keep in mind a growing industry doesn't necessarily mean more profits.. with more competitors and more being given to attract players.. acquiring becomes more expensive).

I think a more realistic reason may be that the tightening budgets are causing companies (even growing, profitable ones) to take a closer look at the overall return from their affiliate programs, and are discovering that they are losing money. In an optimistic economy, this type of loss is acceptable, since it also means growth. In a recession economy however, CEOs see these type of losses as risky and detrimental. Thus the sudden push from all sorts of operators to tighten their belts.

Considering the dark history of affiliate abuse in this industry, I think affiliates have good right to be suspicious when they see companies making drastic changes to their T&Cs. However, as someone who has been in this industry for several years, I can tell you that there is a very real shift in thinking going on at the top levels of many operators regarding profitability, and that many programs actually are at risk if they can't improve their balance sheets.

[mojo]

Hi Mojo,

I think a more realistic reason may be that the tightening budgets are causing companies (even growing, profitable ones) to take a closer look at the overall return from their affiliate programs, and are discovering that they are losing money. In an optimistic economy, this type of loss is acceptable, since it also means growth. In a recession economy however, CEOs see these type of losses as risky and detrimental. Thus the sudden push from all sorts of operators to tighten their belts.

Excellent post Louis. Thank you for the reply.

Could you expand a little on how affiliate programs are losing money? What scenerios make an affiliate program problematic and lose money?

[Louis - Income Access]

Hi Mojo,

Here are some scenarios where a Casino affiliate program might lose money:

1) Poor bonus allocation system ==> Players play the minimum hands and take their bonus and leave (not the affiliates' fault, but unfortunately affects the affiliate relationship)

2) CPAs not backing out - OK this one is obvious, and doesn't really come into play that much considering the current dialogue about negative rollover and high roller policies. But as you can imagine, a lot of affiliate managers set up CPAs hoping for big traffic but the players don't stay at the casino and thus the CPA is a loss.

3) High rollers - This one is important, and really at the core of the current debate. If a player is spending $10,000+ a month at a casino, chances are they probably win a fair amount. Thus the net revenue from that player month to month might fluctuate violently, for example between -$5000 and +$5000. If the negative is wiped out, and the casino pays 40% commissions when the revenue is positive, they can lose money in the long term, even if the net revenue is overall positive.

Example (40% commission)

Month Net Revenue Commission Casino Profit
1 +$5000 $2000 $3000
2 - $5000 $0 -$5000
3 +$5000 $2000 $3000
4 - $5000 $0 -$5000
5 +$5000 $2000 $3000
TOTAL +$5000 $6000 -$1000


This is why a lot of programs are trying to build in high roller policies at the moment.

Aside from this, there are all sorts of operating costs that exist outside of the net revenue calculation that affect overall program profitability:
1) Affiliate manager salaries (meager though they are) and other HR costs
2) Tracking software
3) Creative design and image hosting
4) Affiliate promos and other program marketing costs


Hope this adds a little transparency..

Cheers

[Louis - Income Access]

darn, that table with revenue and commission looked a lot better when I was typing it.. really should have previewed it before posting.. hope it's still clear.

[Dominique]

What also irks me, is that the very programs that are making retroactive changes to affiliate contracts are rolling out expensive new affiliate sites... which usually are just an annoyance to me since they offer nothing better and make it harder to get around since nothing is where it used to be, book marks don't work anymore, statsremote doesn't work anymore etc.

What's the point of spending money on this?

[mojo]

The table is fine. Tables never come over right on posts for me either.

Great stuff Louis and helps a great deal with transparency.

Why do you think some programs can handle the high rollers and some cannot? Wouldn't a casinos overall yearly bottom line include allowances for variables such as wins? The casino is in a much better position to deal with high rollers than the average affiliate with not a fraction of the player base a casino has. Sometimes these term changes can make or break an affiliate.

Is implementing a HR term the only solution? Could affiliates help in other was such as hosting their own images? Perhaps help come up with something that will help with bonuses and marketing?

[mojo]

If the negative is wiped out, and the casino pays 40% commissions when the revenue is positive, they can lose money in the long term, even if the net revenue is overall positive.

Just a quick note. This can work both ways. Without the HR term, if a player wins big, it wipes out the rest of the players earnings as well. The big player plays it back the next month but the casino still keeps the rest of the other players earnings from the previous month. So there is potential there for the casino to make a tidy sum as well. The loss is not as great.

[Nandakishore]

Whatever reasons there may be for revenue downturn of casinos, there is no justification for any retroactive change of T&Cs.

[matted]

With all the retroactive changes to T&C I wonder why we have them anymore. Clearly they are not legally enforceable anywhere...

But the bigger topic is a good one. Casinos are in the black... and squeezing their marketing arm (the affiliates). I am a fan of a complete overhaul to the affiliate commission structure which pays affiliates based on individual player performance (each player is a mini account). This limits revenue from CPA abusers and rewards affs appropriately for high rollers. Just another protection needed to buy out players should a relationship be dissolved.

[jarvi]

Thank you Louis for replying here and not trying to cover things up with marketing spin. Can't say I agree with everything you said, (bonus abuse definitely shouldn't be something that affects affiliate program profitability), however, I appreciate you taking the time to give a perspective from the other side.

In the case of the affiliate manager salaries it's the old cliche about paying peanuts and you get monkeys. There's more than a few programs that should move their offices to the zoo.

It's now nearing three years since the UEIGA legislation and I am sick of still hearing about this being the reason for so many problems. Casinos and programs have had enough to time come up with alternative plans and instead many seem to keep bitching about this problem and not offering any solutions. Granted the global financial crisis (yes, sick of that one as well...) hasn't helped but the worst thing the industry can do is stop spending as the expense of their long term partners. We have very good memories and if some of us fail to remember, there's always others that are around to remind us. Perhaps they sat around doing nothing in the hope it would have been repealed by now and as it hasn't happened, they are close of folding.

Dom is spot on with the roll outs of 'improved' stats. Waste of money most of the time and we don't care for most of the new bits when it causes so much grief during the change over.

[Puma]

What is the big deal? an affiliate program pays affiliates based on how many deposits that affiliate sends them. The programs are simply changing terms to make a buck at the expense of the affiliate. Im not sure why any program thinks its ok to change terms after a binding contract was agreed upon when the affiliate originally signed up.

[mojo]

But the bigger topic is a good one. Casinos are in the black... and squeezing their marketing arm (the affiliates).

It seems to be mostly micros. To give credit where credit is due, we have not had any of this with Rivals. I can't think of any with RTG's. If RTG's have a neg carryover we already know about it and can decide from the get go if we want to promote that. I don't see any changing the terms on us, unless it's for the better.

Perhaps it is because they are still usa friendly and have no need.

Are micros really in that bad shape financially where they are willing to create anomosity with affiliates?

Or do they just resent the money going out to affs and are looking for ways to increase an already hefty bottom line?

[Dominique]

With all the retroactive changes to T&C I wonder why we have them anymore. Clearly they are not legally enforceable anywhere...

I beg to differ. I have started to look into this and they are clearly enforceable in most of the jurisdictions that host offshore gambling establishments.

Class action suits are very much a possibility.

[jarvi]

I think Matt was probably speaking from a feasibility point of view rather than whether or not the changes are enforceable. That is, it just isn't viable for the average affiliate to even think about going after a program the lawyers in tow.