North Carolina Welcomes Digital Marketing Affiliates

By: Sara Dalsheim

In June 2023 the North Carolina legislature passed an act to legalize sports wagering and issue appropriate implementing regulations for the new regulated industry. In the fall of 2023, the Sports Betting Committee of the North Carolina Lottery Commission (“Commission”) issued their first package rules. Those rules included language that would have made it infeasible for marketing affiliates to enter into agreements and participate in the North Carolina sports betting market. Luckily, through the educational efforts of numerous industry stakeholders this language was completely struck from the rules that went into effect on January 8, 2024. Marketing affiliates, upon the launch of online wagering, will be able to promote regulated North Carolina sports betting platforms, regardless of the method of compensation, and without the need for licensing or registration. In doing so, North Carolina brought this aspect of their regulations in line with the majority of other regulated sports betting states.

The Original Rule Language

The language that was within the original rules was that “[n]o Operator may enter into an agreement with a third party to conduct advertising, marketing, or branding on behalf of, or to the benefit of, such Operator when compensation for such service is dependent on, or related to, the volume of Players, Wagers placed or the outcome of Wagers.” To those unfamiliar with marketing affiliates and the sports wagering industry this language may seem harmless and beneficial. However, it would have had detrimental consequences for the North Carolina sports betting market by banning all performance-based compensation to marketing affiliates. The only feasible means of affiliate compensation is performance-based compensation, specifically the revenue-share and cost per acquisition (“CPA”) compensation models.[1] Performance-based compensation provides predictability and ensured results for the operators that outsource marketing efforts. Therefore, if this rule was in effect, there would not be a viable market for affiliates in the North Carolina sports wagering industry.

The Benefits of Digital Advertising Affiliates

Marketing affiliates have a significant impact on the success and strength of the sports wagering industry. Marketing affiliates’ content is found by consumers that are proactively searching the Internet for related content; their content is found organically by individuals who have questions or concerns on where to place a wager. Marketing affiliates only promote licensed operators, and thereby drive consumers to the regulated market. When consumers proactively come across marketing affiliate content the affiliate provides a wide variety of information on how and where they can legally wager, along with responsible gambling resources.

Marketing affiliates help to combat the entrenched offshore illegal sportsbooks that have been and continue to be available and promoted in all 50 states. These offshore operators, despite the best efforts of the industry, frequently appear in search engine results for “North Carolina sports betting” and the like. It is difficult for novice customers to be able to differentiate which platforms are licensed and legal in a market when they try to rely only on search engine results. As result, without the assistance of informative affiliate content and reviews, customers can accidentally end up on illegal websites. The diversion of consumers from the regulated market decreases legitimacy and reduces taxes for the state. The illegal platforms do not adhere to the state’s regulatory requirements and vital consumer protection measures.

Marketing affiliates also facilitate and provide a competitive sports betting market. Limiting the ways in which operators can compensate marketing affiliates impacts which operators are able to elicit the assistance of the affiliates to promote their platform. In a CPA model, operators pay a one-time, higher dollar, payment for each customer that “clicks-through” from the affiliate content to the operator’s platform irrespective of the customer’s spend on the operator’s site. Alternatively, the revenue-share model provides the option for paying affiliates overtime for the true value of the customers brought to the platform. Because of the larger upfront costs required in the CPA compensation model, restricting the compensation basis ensures that only the largest sportsbooks with the largest marketing budgets will be successful. For instance, some operators are unable to work with affiliates in Illinois, which prohibits revenue share, because their marketing spending abilities do not enable them to pay affiliates a CPA. Marketing budgets vary greatly between operators, and revenue-share affiliate compensation provides operators a cost-efficient way to compete and not leave them at a distinct disadvantage when acquiring new customers. Therefore, a sports wagering market that permits all forms of compensation allows all operators to have their offers and platforms promoted equally; and does not allow only the largest operators to be able to afford the benefits of marketing affiliate content/promotions.

In a regulated sports wagering ecosystem, if it is infeasible to work with affiliates because of compensation restrictions sports wagering operators will not cease their marketing efforts. Instead, operators will be more likely to pursue and push out other kinds of marketing like tv, radio and billboards ads – resulting in over saturation of these ads which reaches a wide array of consumers, some of whom are more likely to be underage or vulnerable. Mass marketing efforts are disseminated across all age demographics, do not exclude problem gamblers, and do not provide the same breadth of responsible gaming resources and content as those provided by marketing affiliates.

Restricting Affiliate Compensation Hurts Industry Growth

Given the above, one may wonder why regulators would want to suggest a market without affiliates or limit their means of compensation in any way. The likely answer is a lack of education, misconceptions about affiliates intent/impact without any evidence, and/or a push for a less flourishing market.

Some states have expressed the wrongful ideology that marketing affiliates, particularly those that obtain revenue-share compensation, produce more target marketing and push sports wagering on the vulnerable, resulting in more problem gambling. This is not only wrong but also not feasible. First, affiliates are not engaged in the business of direct marketing. Further, there is zero correlation between marketing affiliates compensation and problem gambling. Any claims suggesting otherwise are not supported by evidence and ignore the mechanics of the affiliate marketing model. Regardless of the compensation model, marketing affiliates are not capable of knowing who the individuals they bring onto a sports wagering platform are and targeting them with any further content. Only the operators know the identity and wagering behavior of these customers. Moreover, in connection with all affiliate compensation models, operators only provide marketing affiliates with randomized identification numbers for their customers and the associated compensation figures tied to those customers. No other information is provided to affiliates from operators.

Additionally, larger operators may want to limit the involvement of affiliates as an indirect method of hindering their competition. Without affiliates, all operators would have to rely on their own marketing efforts to promote their offers and platforms. Alternatively, if only a CPA compensation model is permitted, only operators with higher marketing budgets can afford to elicit the assistance of marketing affiliate promotions.  However, a healthy sport wagering market would promote competition between platforms and options for consumers – a philosophy marketing affiliates support and promote.

Revenue Share Agreements are Common Across the Internet

One of the more baffling things about the affiliate compensation restrictions in the originally contemplated North Carolina rules[2] was that the compensation restrictions were only set in place for marketing affiliates. However, revenue share agreements are common practice throughout the sports wagering ecosystem by all suppliers and partners. The rules did nothing to prohibit those other arrangements.

North Carolina legislation requires sports betting operators to partner with sports teams and venues, as the license right holders. This arrangement requires operators to enter into market access agreements with the license holders, and these agreements provide license holders with a share in the operator’s revenue. Currently, Bet365 has signed a deal with the Charlotte Hornets NBA team, BetMGM is partnered with the Charlotte Motor Speedway, DraftKings has a deal with NASCAR, ESPN Bet has a deal with Quail Hollow Club and the PGA’s Wells Fargo Championship, Fanatics has a deal with the Carolina Hurricanes NHL team, and FanDuel has a deal with the PGA Tour in North Carolina. The sports teams and venues will be engaged in direct marketing to consumers via posted advertisements through the venue, emailing promotions to ticket holders, and other special event promotions. However, the proposed compensation restrictions would not have applied to these entities and facilities.

Restrictions on how affiliate marketers are compensated represent undue interference in how companies engage with their customers and do business. Fortunately, the North Carolina Sports Betting Committee was duly informed of all the above prior to the promulgation of the final adopted rules. These final rules completely struck the above-mentioned prohibition and North Carolina will soon join the majority of other states with successful and blossoming sports wagering markets without an increase in problem gambling. Hopefully North Carolina’s change can serve as an example as other state’s legalize sports wagering and adopt rules.

North Carolina Will Go Live on March 11, 2024

Governor, Roy Cooper, requested that the state be ready to launch in time for the NCAA basketball’s March Madness tournament. The NC Lottery Commission proposed and approved that online sports betting will go live in North Carolina on March 11, 2024, at noon. Seven online platforms have applied for licenses with the NC Lottery Commission. The official list of approved licensees remains under review.

Marketing affiliates are vital and beneficial for a new industry. It is a mistake to think that a sports wagering ecosystem without marketing affiliates is able to be competitive and flourish. Luckily, the North Carolina sports wagering market will not suffer the unintended consequences of being devoid of affiliates.

[1] This is the case regardless of the industry the marketing affiliate is supporting.

[2] This same paradox is seen in the few other states that have banned compensation forms for affiliates.