Sports Betting Affiliates Become M&A Targets as Land Grab Heats Up
Back on May 3, it was reported that Better Collective had reached an agreement to purchase the Action Network for $240 million. Just one day later, Catena Media announced the acquisition of Lineups.com, agreeing to pay $39.6 million. The two deals are the latest in a series of mergers and acquisitions for sports betting affiliates—a run that’s seen VSiN (DraftKings), VegasInsider.com (Better Collective), PlayUSA media (Catena Media), RotoGrinders (Better Collective), Sports Betting Dime (XLMedia), CrossingBroad (XLMedia) and American Gambler (Raketech) all been gobbled up over the last 18 months. BettorView CEO Javier Vargas attributes the ongoing M&A boom to the “hypercompetitive, very aggressive land grab for new customers. Any affiliate in a position to scale user acquisition and help the sportsbooks drive down customer acquisition costs [is going to be a takeover target in the current environment].”
Our Take: The Action Network does not think of itself as an affiliate site. Chief content officer Chad Millman described the company as a “media and product business focused on sports betting.” It’s likely several of the other aforementioned companies would also reject the characterization. But as Chris Grove (partner, Eilers & Krejcik Gaming) explained, “Affiliate marketing is a business model, [not a content strategy]. It’s performance-based marketing. [The affiliate] sends [the operator] traffic. If that traffic converts into paying customers, [the operator] pays [the affiliate] money. There are lots of sites that monetize using the affiliate model that you would not necessarily think of as affiliate sites.” For what it’s worth, Millman noted that affiliation is just one of the company’s revenue streams—”as are subscriptions to our tools and data, as well sponsorship of our content (i.e. live shows, original videos and podcasts).”
Affiliates play a meaningful role within the sports betting ecosystem. Vargas estimated that 10-20% of a given sportsbook’s user base likely originated through an affiliate relationship. (It could be as high as 50% if the operator is light on media buys/partnerships.) But because the companies involved often lack household name recognition, he said, “It gets talked about zero percent of the time.”
Affiliates may not be frequently discussed, but they are widely used among sports betting operators (in part because there is little downside to doing so). “If there is no success, then there is no cost,” Grove said.
Betting Hero co-founder Jai Maw—whose company sends sports bettors to BetMGM, FanDuel and Barstool, among others—suggested “almost every” operator contracts affiliates in the hopes of getting “new customers as opposed to the operator down the street.” For informational purposes, the cost-per-acquisition of sports betting customers can range anywhere from $100 to $400, based on the quantity and quality of users the affiliate brings in (CPAs on casino customers can be higher).
The barrier for entry is low, which explains how hundreds of affiliate sites can exist. But as Betting Hero’s other co-founder Jeremy Jakari explained: “There are only about a dozen impactful affiliates. It’s kind of the 80/20 rule—80% of activations are coming from 20% of the affiliates.”
With the Action Network and at least seven other affiliate sites now off the proverbial board, Grove suggested SportsGrid (think: a younger VSiN) is the largest remaining independent potential acquisition target.
Vargas expects other affiliate sites to be picked off in the next 12 months as more and more states add sports betting legislation. But he said there is likely to be a lull in new transactions over the next 120 days (with no football or college basketball). “This [point in the calendar] is when the least amount of new user acquisition happens. So, none of the sports betting affiliates still out there are going to make much noise in the next 3-4 months. But then in September, that is when the most new users are acquired. I would expect the next wave of [consolidation] to occur after September and October [as the next set of top performing affiliates distinguish themselves].”
Maw agreed that most of the remaining singularly operated affiliates would be consolidated within the next year or two, citing the record valuations companies are commanding. He said valuations in the traditional affiliate space are higher now (think: 5-7x revenues) than they ever were and should remain that way through early 2023. For what it’s worth, the Action Network (seen as an exception because of its stickiness with bettors) sold for about 16x 2020 revenues.
Naturally, with so many recent exits, there are a plethora of startups now chasing the affiliate opportunity. But Grove (an investor in and adviser to Betting Hero) believes another quarter of a billion dollar exit is unlikely. “The reason why Action was able to sell for what it sold for had a lot to do with its scarcity as a legitimate gambling media brand focused on the U.S. market,” he said. “They also built a loyal audience to a scale that was unmatched by other competitors.”
The most successful affiliates focus on education and engagement. “What makes a good affiliate is [content] that can inform the customer so they feel comfortable making more and more wagers,” Jakari said. The more engaged a customer is, the more valuable they remain to a sportsbook long-term.
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