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CEO Letter to the Illinois Gaming Board

Published: September 27th, 2019, 12:56pm CEST

Chairman Schmadeke, Administrator Fruchter and members of the Illinois Gaming Board,

On behalf of Group Plc, we would like to commend you for your efforts to regulate online sports betting in Illinois. As an American-born entrepreneur having spent more than 10 years building a regulated business in the online gambling industry in Europe, I am uniquely positioned to provide insight into the future of online sports betting in Illinois. Group is what is known in the global online gambling industry as an affiliate. The group is not an online gambling company itself, but rather a media company that publishes a series of websites to inform online gamblers and enable them to conduct comparison shopping of online gambling sites as they would do for other services available online like home loans or car insurance. Affiliate marketing is also known as performance marketing due to the nature of the commercial model used to compensate the affiliates.

Typically, an affiliate invests its own money in building an audience and sending traffic to its advertising partners and only gets paid when it creates value for those partners. In the case of online gambling, the affiliates’ advertising partners are the online gambling firms that actually operate an online gambling service (known within the trade as the operators). The operators pay the affiliates on a performance basis, meaning based on the quality and performance of the traffic actually sent to the operator. This is usually a flat fee per new depositing customer (NDC) known as a cost per action (CPA). Alternatively, or in combination with a CPA, the advertisers may compensate the affiliate with a portion of the gross or net gaming revenue generated by the players referred by that affiliate.

The importance of affiliates within the online gambling ecosystem cannot be overstated. In mature, regulated markets like the United Kingdom, we estimate that upwards of 40% of the NDCs for online casino operators come via the affiliate channel. For sports betting operators the portion tends to be less, but still in excess of 25%. Of course, the percentages differ by operator but virtually every active operator works with affiliates. In certain cases, affiliates can be responsible for more than 90% of the customer database of operators who rely heavily on the affiliate channel for customer acquisition. Historically some gaming regulators tackling online gambling for the first time have made the mistake of confusing affiliates with junket operators. Affiliates are not junket operators, and in most cases have little or no contact with the individual gamblers as they traverse their way through an affiliate’s website on their way to an operator.

The American online gambling market is unique as it is the world’s most vibrant and successful black market for online gambling, entirely supplied by offshore operators until the advent of regulated, American online gambling spearheaded by New Jersey in 2013. Even six years later in 2019, relatively few states are up and running with regulated online gambling, meaning the offshore market remains the only option for most Americans. The offshore market may seem like a distant concern, but this is a thriving and successful multi-billion dollar market that supplies polished products and services to millions of American consumers. It is a confusing state of affairs made worse by the fact that major news outlets and noteworthy journalists regularly confuse offshore operators with regulated ones. American affiliates therefore have a unique, additional responsibility which is not a part of the normal life of being an affiliate in other markets like the United Kingdom. U.S.-focused affiliates must drive their visitors toward the regulated operators instead of the offshore operators that do not operate in compliance with state or federal law. The affiliate channel is the key channel in the marketing mix where the consumer is educated and directed toward the regulated, onshore market. This challenge is exclusive to the United States as the prevalence of a variety of high quality, regulated operators in Europe created a marketplace where there was no meaningful consumer demand for offshore operators.

To ensure that online gambling thrives in Illinois and meaningfully recaptures action from the offshore market, the gaming board needs to embrace regulated affiliate marketing. We therefore recommend that the gaming board:

1) speak firsthand with the large affiliate organizations to inform themselves adequately about the key role affiliates play in the marketplace;

2) require all affiliates doing business with operators licensed in Illinois to seek a registration or basic license from the gaming board; and

3) explicitly forbid all affiliates licensed by the gaming board from cooperating or working with any offshore operators illegally supplying the U.S. market.

I would like to bring your attention to relevant enforcement actions taken by the New Jersey Division of Gaming Enforcement in this regard. On June 4, 2015, the division issued an advisory bulletin stating that online affiliates could be prosecuted for offering or promoting unlicensed gaming websites, and that those affiliates could face fines, criminal prosecution and risk ineligibility for future licensing and registration in the state. With the recent proliferation of online sports betting in New Jersey, the division again took decisive action against a non-compliant affiliate. On Feb. 6, 2019, upon learning that popular gaming website Oddsshark was advertising on behalf of regulated New Jersey gaming operators as well as illegal offshore operators, the division issued a cease and desist and threatened further legal action for failure to comply. I believe this framework, and the types of actions taken by the division are not only appropriate, but necessary to bring the action back onshore where it can be monitored and taxed.

Last but certainly not least, I’d like to mention that efforts to reduce gambling related harm are far more effective when the activity is onshore and able to be monitored. Any such efforts are made nearly impossible when the action is occurring offshore. Bringing the action back onshore will be fantastic for the Illinois economy and an overdue gift for local sports fans. But most importantly, by bringing the action back onshore, the gaming board and other groups working to reduce gambling related harm will have better access to player information and activity reports to intervene early and meaningfully to act in order to protect local gamblers at risk.

A healthy affiliate market with sensible regulation will facilitate the development of Illinois’ legal online gaming market by increasing the proportion of consumers who choose a regulated option over offshore. If requested by the board, I would be pleased to provide additional information on these issues or the role of affiliates.

Thank you for your consideration of these important issues,

Charles Gillespie
Chief Executive Group