Affiliate Marketing: down but Not Out

Regulatory Pressure Mounts

The use of affiliate advertising has been under the regulatory spotlight for some time now. The UK's data protection regulator—the Information Commissioner's Office (ICO)—undertook an investigation during the course of 2016 and 2017 into the use of personal details to promote gambling websites by over 400 companies, all believed to be remote gambling marketing affiliates. The Gambling Commission meanwhile has, on numerous occasions, re‐iterated the risks that the use of affiliate marketing poses to licensees and the need for accountability on the operator's part. In April 2017, the Commission imposed its first penalty on a gambling operator for advertising failings, fining BGO Entertainment Limited £300,000 following a license review. This landmark fine was imposed partly as a result of the Commission finding that fourteen adverts on websites of its affiliates were misleading (in contravention of the UK Code of Non‐Broadcast Advertising, Sales Promotion, and Direct Marketing [CAP Code]) and in breach of the Licence Conditions and Codes of Practice (LCCP). The Advertising and Standards Authority (ASA) has also mounted further pressure, frequently publishing rulings against gambling operators and affiliate marketers for noncompliance with advertising codes.

Such regulatory scrutiny has not just been confined to the British Isles however, with a similar theme apparent across Europe. In Belgium, the government plans changes that could eliminate affiliate marketing in the jurisdiction altogether. The Belgium Council of Ministers have approved plans to limit gambling advertising in numerous ways, which may mean online casinos are only allowed to advertise on their own websites. The Dutch Gaming Authority has meanwhile broadened the scope of its control, announcing in June 2017 that it will assess various new factors in determining whether an operator is targeting customers in the jurisdiction illegally, threatening operators with the risk of a refusal to grant a license once the licensing regime is implemented. This is thought to put the use of affiliate marketing in jeopardy in the Netherlands.

The Industry Turns Its Back

This regulatory pressure has, of course, not gone unnoticed by gambling operators, who have increasingly started to reflect on their use of affiliate marketing. As a result, there have begun to be casualties. Most notably, Sky Bet announced that it was ending its UK‐facing affiliate marketing program. In setting out its rationale for doing so—in the termination notice distributed to members of the program—Sky Bet described the regulatory landscape as one that is “developing and maturing” and running the program was posing a “significant risk” to its business from a regulatory perspective. Shortly afterwards, Paddy Power Betfair announced the introduction of a “one strike policy” to its program whereby a single breach of internal policy by an affiliate will result in its engagement being suspended. 888 meanwhile reportedly cut its affiliate numbers in the Netherlands due to the regulatory changes proposed by the Dutch Gaming Authority.

The press has compounded the regulatory scrutiny of the industry. The Guardian, for instance, mounted further pressure on the sector when it published two somewhat sensationalist articles making claims about dubious practices being undertaken by affiliate marketers. One article suggested that some gambling operators were using third‐party data houses to help their marketing affiliates target vulnerable customers, whilst another—published only a day later—claimed that affiliates disguising themselves as tipsters were deliberately recommending long‐shot bets that were unlikely to win.

Signs of Life

This combination of public pressure, regulatory action, and high‐profile abandonments by operators, led many to believe that further high‐profile casualties would follow. Whilst some operators may have limited their dependence on affiliate marketing, there has perhaps not been the deluge of closures of marketing programs one might have expected. Not only this, but a number of operators have reportedly gone as far as to reaffirm their commitment to their affiliate marketing programs in the wake of the Sky Bet closure.

Affiliates themselves have also been taking action. A group of leading affiliates are reported to have established a new trade body, the International Gaming Affiliate Association (iGAA). The iGAA aims to improve its members' compliance with local and international law and raise standards across the industry, including through the creation of a code of practice. In some cases, affiliates have gone on the offensive and taken legal action against operators, with some claiming engagements have been terminated illegally and commissions have gone unpaid. The relevance of this should not be overplayed, however, as realistically, if the sector wishes to survive, it cannot bite the hand that feeds it.

The Way Forward

If the positive signs are to continue, affiliates must do more. Firstly, they need to understand the increasing pressures that gambling operators are under. This not only relates to the use of affiliate marketing, but to the advertising of gambling in general. The backdrop that the affiliate debate has played out on so far should not be overlooked by affiliates. Not only was a review of gambling advertising added to the triennial review, but also, in October 2017, there was widespread furor as claims surfaced that gambling operators were targeting children by their use of cartoon characters and other material appealing to children in their adverts. A joint letter—signatories of which included the Gambling Commission, the ASA, and CAP—was sent to over 450 operators reminding them of the prohibition under the CAP Code of gambling ads being of particular appeal to children. In the letter, specific reference was made to the operators' responsibility to also remove offending adverts that appeared on affiliate websites.

Many operators have made the decision to review the terms on which they contract with affiliates to ensure that they are adequately protected. Whilst affiliates may be faced with an increasingly stringent set of terms, this should not come as a surprise. The LCCP provides that all licensees must take responsibility for third parties with whom they contract for the provision of any aspect of their business related to the licensed activities (including that such third parties comply with advertising codes and do not place digital advertisements on websites providing unauthorized access to copyrighted content). If an affiliate advertises in a noncompliant manner the responsibility for this—as far as the Gambling Commission is concerned—sits squarely with the operator. It is, therefore, no wonder that operators are assessing their contractual remedies and looking to amend the terms on which they engage affiliates.

In understanding the regulatory environment more, affiliates would also be wise to appreciate that contractual assurances will only go so far to ensure support from the gambling industry. As seen with the ASA rulings against Bonne Terre Ltd (trading as Sky Vegas), Ladbrokes Betting & Gaming Ltd, 888 UK Ltd, and Casumo Services Ltd, the risk of an affiliate acting contrary to the terms of its agreement with an operator is all too real. In these cases, whilst there is the possibility that the operators might be able to claim against the affiliate for breach of contract and/or terminate the engagement, this does little to assuage the real damage—the operator's reputation and compliance with the conditions of its operating license. Affiliates, therefore, also need to take action of their own to rebuild trust within the industry.

Whilst the widespread abandonment that was predicted in the wake of Sky Bet's decision may not have occurred yet, this does not mean that it might not later. Dialogues should be commenced between affiliates and operators to establish how they can work together to ensure compliance. It is not only the operator that should be monitoring the rhetoric of regulators—affiliates should too, assimilating guidance into their processes and procedures at the outset to avoid getting caught out later.

It would be wrong to suggest that some affiliates have not already started to do so. The establishment of the iGAA is a welcome development. Whilst a large proportion of the sector advertises in a compliant manner, that does not mean that the actions of a few could not still cause the industry to come crashing down. It has already been shaken, and whilst there are certainly signs of life, in today's increasingly hostile regulatory climate, it would not be surprising to see another major flashpoint spell the end of the affiliate marketing sector for good.