Episode 55: How To Save Affiliates

[Music] Hello and welcome to episode 55 of Zero Laincy in the podcast from Iles and Crouchic. Gaming Arm, your host Brad Allen and we are proudly presented today by radar, the new geolocation solution for the online gambling industry. My guest today is Adam Small, super affiliate, you may know him from Rotorgrinders, Pocket Vs and now third planet affiliates. So we're going to talk today about affiliates, obviously, given what's happened to a few of the companies in that sector. What went wrong, what can be done going forward and things of that nature. So thank you for joining me, Adam. It's great to be here. A long time listener, excited to be on the pod for the first time. I'm going to try and do a quick recap of what's happened to affiliates. So better collective, your former company or former employer that bought your company. They've announced, they reduced their FY24 loan, it's by 10%, they laid off as many as 100 staff recently, which was trying to save 50 million dollars to share prices down about 50% this year, kind of similar over at Katina Media, layoffs, 40 million dollar right down in the value of their US business. They've closed sites, online poker report, a couple of years back now. And then XL media, they sold off their US assets to sport radar for 30 million dollars of those assets, included Saturday, Downsale, Crossing Broad, sites like that. So Adam, should we have all seen this kind of downturn coming? I mean, I would say I saw a lot of it coming. I don't want to say that I was a total no-stered Thomas here. And I certainly haven't been like moving my money around in and out of these things. So I don't want to overstate how predictable any of this was, markets are usually on top of what's going on and investors are paying attention. So I don't think everyone was just asleep at the wheel. I do think that there tends to be a general reckoning after a lot of exuberance sometimes in certain spaces. And there was a lot of exuberance. There's been a lot of money put into M&A. I would argue that strategically a couple of these companies, particularly in my opinion, Katina Media and XL media just didn't have a strategy that was going to work out well long-term and that this has been something that is pretty clear on the surface for a while. Because they've just been trying to get more and more search positions, get to number one for as many charms as possible, buy other companies to either hold onto their number one rankings or to sort of like fortify them. But they weren't ever increasing their overall reach from where I'm sitting. Better collectors are very different case. They have been making big acquisitions into areas where they can get in front of a new audience, play Maker HQ. It was a really interesting one that has a bunch of big audience podcasts, action network. They're just, they're getting in front of customers that you can't just get in front of a BS search and attacking other sort of lanes. But they've been making kind of these bigger and riskier bets. And I think that when the market starts to look more negatively at a sector and sees all this money that's been laid out and that it hasn't been paid back yet, I think investors are getting a little nervous. And I still think that the the jury is very much out on how that all plays out for a company like that. Whereas I think for Katina and XL, XL is basically not existing now. Katina in my opinion probably will be whether they know it or not at some point. And I think they've just kind of been back into a corner. Whereas I think better collective has a lot more to stand on with the breadth of their acquisitions. And it's just it's a time where things are tightening up at some of the operators. They haven't maybe gotten all the commercial deals that they wanted. And they need to pull back a little bit. And hopefully that's just a temporary blitz for them. So what's the what's the turnaround? No, obviously it's probably different for better collective as it is for Katina media. So I don't know if you want to pick one to talk about. Yeah. And your sort of links. And like if you're on the board, what's just strategy? How are you pulling out of the tail speed? Well, I think that you can't just you can't just rely on being able to hold on to what you had previously. You've got to be kind of ambitious about getting into new spaces. And I think better collective has done something really interesting with acquiring some businesses that aren't exactly affiliated. So aren't you know solely viewed as affiliates and sort of trying to get more affiliate revenue out of those. And I think more broadly speaking, they have an ambition to get non affiliate revenue to you know turn those large audience into audiences into marketing dollars from other brands that aren't just sportsbooks and casinos. I think I'd be definitely looking to invest more into that. If I'm them into you know, how to turn these big audience podcasts on playmaker into money from Coca-Cola and Nike or whatever else, you know, Budweiser. So I think that's a big one. I definitely think getting away from the media partnerships model. And I think you know, just backing up a little bit, they're they're at a strange point in their cycle because they acquired all these companies. I think yes, Persogar, the CEO said that they've bought 35 companies in the last seven years, seven or eight years. And these companies are very founder driven. Like our company was very, very founder driven. We didn't really have like a layer of mid upper management. There were kind of the founders that basically made all the big decisions and we're in everything. And when you when you end up in one of these situations, when you bought all these companies a few years ago and the founders have cycled through their earnouts and most of the founders have just departed, you don't have that sort of core decision-making apparatus that you had before that that sort of drove innovation and drove new creative ideas. And that's not to say that they're not creative people there or smart people there are lots. It's just that a lot of the smart people are better at things like how to get, you know, two dollars out of this spot and set a one dollar or whatever. How to how to turn the revenue into a bigger number, how to do a better job with analytics and mainly with revenue generation. And I think that another they're going to have to invest into is just figuring out how to build a team that can actually improve and grow their products reach. And that's that's really hard. Like I don't think I would know what to do in a position on that kind of stuff because because it's just it's not something I as a mostly like kind of small business founder have experience with usually were very hands on with everything that we do. And it's hard when you're a bigger org and you've got to build these teams and and actually create new things. Not just get more revenue out of what you have, but they're going to have to figure out a way to see in any way you've got say like this the senior management who bought these companies and then the people running the companies have left. And now they're like, okay, we have roto grinders. We don't really know how we what why roto grinders was great in first place. Well, we're not super familiar the way you might be in with that company. Yeah, I mean, and you know, in fairness on that particular example, one of my one of my partners from that business is still there running roto grinders and he's terrific and and is really doing a bang up job with it. But it's but it's hard. It's hard to maintain founders and to also like you're placing a lot of restrictions on them that they didn't have on them when they were running their own companies. You're restricting budgetarily. Sometimes if one business unit does poorly, you end up making cuts to all business units. And so you end up in a situation where people are frustrated with other parts of the company they're underperforming and and that cutting into their own ability to spend and and focus on their own products. There's just a lot of challenges with it that aren't there when you just have your own business and kind of get to play god in a way. Yeah, I picked roto grinders just because it's the it's the side of the use the most in past. It's still great. They've they've really managed to keep a lot of the core team together and and a lot of the core ideas behind it. And you know, I think if you can do that with all those businesses, great. But it's very hard because founders by nature are not going to want to be you know working somewhere in the middle of a big org chart. And it's especially difficult when you're cutting 10% of the workforce as these companies have done. This episode of Zero Lensy is sponsored by radar. The next generation of geo compliance is finally here. Discover why four thinking operators and vendors choose radar for cost-effective geolocation compliance and location-based app experiences. With radar, you get unparalleled pricing performance ease of interhesion and support. Learn more at radar.com/gaming and thank you radar for sponsoring this episode. What one thing I wanted to ask you about was editorial. There's another thing you've been talking a little bit about recently. Because the US was different to Europe. I think where Europe, online gambling coverage, came from companies like EGR, which was subscriptions, then like IGB and SPC, which was some ads, some events. But then in the US, like the news coverage came from these affiliates. I guess the model list is approving that it doesn't necessarily work for sort of pure editorial news coverage. So does that change the people come up with like a subscription model? Does the new brand come in? Like is there space there for something new? I mean, I don't think it has to change. I think what has changed and I went into some detail about this on Twitter the other day. So when you become part of one of these bigger organizations, another one of the issues that comes up is that you're a relatively small part of the whole. And we were running a site, for example, called Sports Handle. I know you're familiar with it. We've discussed it in the past and Sports Handle really operated independently, editorial, when I was running it. And we had our editor in Chief Brett Smiley, who's one of my current partners at Third Planet, really pride at himself and the team pride at themselves on being willing to place hard-hitting stories on the site, even when those stories might seem detrimental from a business perspective. That we, as the business head, stayed out of their way and let them do the good quality reporting. And we trusted them to be careful with what they were doing and that their source as well and be posting stories that were factually accurate and had journalistic integrity. One example that is when Tennessee started their legal sports betting market in, I believe it was late 2020, there was a provider and operator. They still exist in Tennessee called Action 247. They're run by the same people or some of the same people that run a large short-term loan, like Payday loan provider. It's one of the bigger ones in Tennessee as I understand it. And we posted some stories about them and some of the things that seemed like conflicts of interest and just kind of put into question their suitability for a license. And we got a lot of very positive feedback for that story. And I think that from a business perspective, it's somewhat risky to post things like that, because these people obviously are hiding with the regulators. They're tied in with a lot of other people that we may need even if we're not going to work with them directly. And it's even harder when you're publishing about one of your biggest partners. So, you know, we would, I think when you join a company, even it's bigger, they've got more in the line. If they have a $10 million or $20 million a year deal going with one of these operators, there's a lot more pressure to hold back on this kind of stuff, especially when it's from a site that maybe generates 5% or less of that revenue for them each year. So, just backing up a little bit to your question again, this model's really only existed for a little over 10 years. And it started with the site you mentioned earlier, online poker report, which was run by Chris Grove, who everybody knows now and seems to be in every conversation about everything these days. And he's also one of our investors and advisors at third planet. So, Chris was running the site online poker report. And I, from my perspective, it had kind of come in to take the place of another site called Subject Poker. I don't know if you remember that one, Brad. That was right after Black Friday in the US, this site arose to kind of like follow the saga of, you know, where's all this player money that's locked up and accounts going to go and what's happening with all these sites and it covered, you know, the almost saleable tilt poker to a very rich French guy. There were all these things that it covered in depth. And then that site stopped posting and Chris created online poker report. And I think the goal with online poker report was to turn what Subject Poker was doing into an actual business. Do the very high quality, detailed, well-sourced reporting, but also run affiliate pages that make money on the same site. And he was really successful with it. He did the same thing with legal sports report a couple of years later, covering DFS and then later legal sports betting. And then a lot of other sites have kind of jumped in and done something similar. And we did, we did that same model. So, I think as an independent operator, I think it works really well. That's exactly what I'm trying to do with my current business again. But I think it's very hard for a big company that has like much bigger other interests to operate that way, similar to how, you know, the company's like NBC or, you know, still like those guys, ABC with their larger business tie-ups are able to balance sort of accurate journalism with their other ends and obligations. It was definitely a problem that legal sports support as well. Because I think around the time Penn was working with Port Nye and Bastel and there was, you know, various allegations floating around and they were, they weren't doing, or they were talking to Big Game and doing 2% market share. I think LSI was quite critical of them fairly regularly. And I don't think it was a coincidence that they didn't have an affiliate deal with Penn. So yeah, it's really tough. I mean, it's really tough when, you know, you only have a handful of companies that you can make money off of and those companies are able to press the screws in you over your own revenue streams and your own, you know, sort of lifeblood. But I think it's a model that works. I think legal sports report was doing well with that before they weren't. Maybe I don't know how they're doing with it today. But I still remember seeing way back and this is probably 2014-15, like kind of the height of the DFS boom that, you know, they were posting all these, these stories, critical of draft kings. And then if you're Google draft kings, promo code, they were ranking number one and they were making boat loads of money for that. So it's possible to do both things at the same time, but it's also possible to totally wreck your relationships with these guys. And what I've found, by the way, Brad, is like what it comes down to for us usually is whether, whether the stories are generally viewed as fair or unfair. And as long as you're publishing things that are, you know, at least to unbiased or less biased is not hit pieces and sort of objectively notable and fair information. Usually even if you piss people off for a little bit, it ends up okay. I still think there is space for like the EGR style subscription model. They they because of had little crack at the US, but not fully not not public office in the US, I don't think. So I do think there's a sort of space for good quality news and interviews with execs for the subscription model. I think so too. I've just unless you're people in the US would actually pay for it. I was like wondered who the subscribers were to something like EGR because it's pretty expensive. But I guess, I guess it's something like, you know, a big company like Flutter will just get it for all their employees and pay some price for employer or whatever. That's probably a lot of B2B I guess. That could work in the US if there's some there's some publication against Dean does just like necessary reading for everybody. Maybe that is a thing. On the other hand, there are people doing a pretty good job of it for free still. So yeah, hard to say. Absolutely. Yeah. A lot of newsletters out there that people more going solo that seem to be doing well. Let's talk about third planet. Obviously, you're still in the affiliate business. So you clearly don't think it's, you know, it's a lost cause. Not at all. So third planet, they've got lottery geeks casino reports prox.com. Was it, what's the idea here? Like how is it different to some of these affiliate models that struggling? Is it going into new verticals like like lottery career and things like that? So lottery geeks, definitely the longer term plan with that site is to monetize careers as well as I lotteries. And I just we weren't able to find any site going really good lottery coverage. So this site's going to be a multi year project and aren't really that many monetization opportunities for it right now. So it does sometimes get sort of like the the backburner treatment from us as especially when it comes to monetization. Casino reports is mostly we're trying to do what we did successfully with sports handle before but on the casino side. We were aiming to do something similar with another site from our from our last network usbets.com. But we never really got there after the acquisition. It was doing okay. But our goals are definitely bigger for this site. And it's just it's a long term project search is tough. There are a lot of really tough competitors in that space. But the goal is to provide really top-notch coverage of online casino and only that and cover the industry closely. I get a wide range of perspectives from different people all around the industry about casinos and primarily online casinos. And that includes coverage of things like the sweepstakes market everybody's talking about these days and social and crypto casinos, and as well as the regulated markets. We want to talk about all of it and really put on display sort of the wide range of products and regulatory structures and company structures that are out there in this space, the different types of investors that are getting involved in it. There's just a whole lot to talk about right now. It's really interesting because I think a couple of years ago, everyone wanted to sort of expect that all the states that are regulated sports betting would regulate online casinos and that would kind of be the end of it. But that clearly is not the case. It's going to take a long time, if ever, that 25 or 30 states have legalized and regulated online casinos. In the meantime, other products are filling that void. So it's a different space. And I think people thought it was going to be a couple years ago. And we're covering that. That was perhaps.com. That wasn't part of the initial plan. But we got this opportunity to buy the site from fans unite, which they were kind of on the way out of business, I guess, at the time. I think the company technically still exists, but doesn't have any assets other than cash. But they had one primary asset, betting hero. And they sold that back to the founders along with geo-compliant. And we bought most of the rest, maybe all the rest of what they had, which was for a much smaller amount than what they sold betting hero for. And it was just-- just looked like a good opportunity to us. We weren't entirely sure what we were going to do with it. The site did already have some revenue, which was great. And it had some traffic. And we were able to bring over a staffer that had been working on it and keep operations going there. But the goal is mainly covering the prop betting space or prop markets. I don't even know what you would call it, like around things like price picks an underdog, where they're doing more fantasy, at least sort of categorically, what they're offering is more of a fantasy product. But it's all kind of around picking player outcomes. And we think props.com is a category defining domain that can cover that space. As of now, we're still mostly just doing what they were doing before with it. But the goal longer term is to grow that coverage and do even more and just get very comprehensive around the prop market space. Great, great domain name. Last thing I always ask you about was this SportRadar XL Media deal, which is-- no, I don't need to be covered loads. But like, why would SportRadar do that deal? For sure, I think the price was right. But it makes sense-- like, it makes a lot more sense for me for SportRadar to have an affiliate arm, or like a company like Gage over in Europe to have an affiliate arm as they do. That makes a lot more sense to me than affiliates being public entities on their own. And that's not to say that there won't be any affiliates that are public and successful over time. We've already seen some that at least to date have been and will continue to be for the foreseeable future. But I think from the perspective of a company like XL Media prior to that deal, their market cap was very small, under $50 million. It's very hard. Being a public company is expensive. You've got to do these quarterly reports. You've got to have investor relations people. You've got to have a board. There's all the stuff that costs a lot of money. And if you're doing 10 million a year in revenue or whatever, it's very hard to sort of like just have a high enough base even to cover all those costs. And you don't usually see companies going public with revenue figures that small. It's not like they had some immediate plan to grow a ton either. Or like a likelihood of getting a lot of, you know, influx of capital. So they were just kind of in a holding pattern. So for them, they needed to get out of that. Whereas sport radar can operate these assets, no doubt at a profit. And also they're adding leverage to what they can go to the operators with when they are not only able to provide the services they provided already, but also they're now able to actually send traffic directly to the operators. So I think from their perspective, they're rounding out their sweeter products a bit by adding some traffic generating assets. Now, I still have questions in my mind about whether they can maintain that traffic. You know, traffic comes and goes. And we saw this very much in my first say, pocket fives where it was huge during the poker boom years. And then it didn't, I get the same amount of attention at the management level after some years and traffic really dropped off a ton. That does happen. Communities come and go and search traffic comes and goes. If they're able to continue operating at the way that it has been and keep their search positions and the traffic on those sites, I think it's gonna be a good deal for them. Yep, his MBA data feed would also like some customers. Basically. I mean, they, they've got a lot going for them. And I just use it as very, very low risk for them. What they've done, that it's not an amount of money that would scare me if I were in there, you know, in their serum. Yeah, I mean, I'm sure they've done the math that I'm sure it'll pay for itself in eight years or whatever. Right, Adam, I will let you go. Thank you very much for your time. Very insightful as ever. Awesome, beyond. Thanks. Thank you again to our sponsor, Radar. And thank you again for everyone for listening. I'll chat you in the tweaking. (upbeat music)