Web Gambling Law Could Slash Ad Revenues, and Open Doors

There’s no way to quantify the Web ad fallout of recent legislation outlawing U.S. online gambling transactions. But in the immediate aftermath, affiliate sites are scrambling, display ads are expected to dwindle, and newcomers are hoping to get in while the gettin’s good.

Big international outfits including 888 Holdings, operator of 888.com and Casino on Net, as well as PartyGaming, the company behind PartyPoker.com and PartyCasino.com, are closing their doors to U.S. bettors. Others may follow.

“It will have a huge impact on the way the online marketing is done,” predicted a source close to 888 Holdings. “It’s obvious to say if you’re not taking money bets in the U.S., then what’s the point of spending on online advertising [targeted] to the U.S.?”

Like other industry players, sports gaming resource VegasInsider.com is waiting for President Bush to sign the Unlawful Internet Gambling Enforcement Act of 2006. “We’re also waiting to see what our advertisers’ plans are, and expect some of them, if not all of them, to stop trying to [reach U.S. audiences on VegasInsider.com],” commented a spokesperson from the site, which runs ads from gambling sites like Bodog.com, SportBook.com and nine.com.

Just how much online ad money spills forth from the gambling industry slot machine is unclear. However, insiders estimate the largest Web gambling firm, PartyGaming, spends anywhere from $100 million to $200 million trying to reach the U.S. audience; the company spends on a variety of offline and online ad media. According to PartyGaming’s 2005 annual report, about $860 million — 88 percent of its total 2005 revenues — was derived from its poker operation, and 34 percent of those poker monies were generated through its affiliate network. Nearly 84 percent of PartyGaming’s online players are U.S.-based.

Marc Lesnick, who runs the Casino Affiliate Convention conference series, estimates the average experienced gambling affiliate site operator rakes in anywhere from $2,000 to $25,000 a month through ad commissions from real money gambling sites.

“We have not had any affiliate program come back and say [they] want to withdraw from a campaign,” said Bruce Sabot, director of sales for large affiliate site CasinoCity.com. The site partners with over 1,000 real money gambling sites, and according to Sabot, three-quarters of its cost-per-acquisition ad commissions come through U.S. players.

“It’s in our best interest to put more emphasis on focusing outside the U.S,” Sabot explained. That means targeting ads to other countries based on IP address, and steering players to lesser-known gambling sites run by non-public firms that aren’t threatened by investor pressure to stay out of the U.S. market. The site is also considering developing more foreign-language content.

Advertisers are also adjusting ad creative to appeal to non-U.S. users. Though Gambling911.com doesn’t target ads geographically, the gambling news and resource site can swap ads promoting NFL betting for ones that are less U.S.-centric. The site, which offers ads for a flat fee, hasn’t experienced much advertiser drop off. Yet, Gambling911.com President Christopher Costigan continued, “I’m assuming we will be affected.”

Sabot also expects “a negative impact” on CasinoCity.com’s ad revenues, but added, the legislation also has created “an opportunity for churn.”

Lesniak agrees there’s an opportunity for smaller sites to make their mark on the U.S. market now that big players are ducking out. “Smaller companies or midsize companies that are privately held…such as Full Tilt Poker, Bodog and many others will be coming into this scene and sort of attacking the market to make up where PartyPoker left off,” he believes.

There’s no sign of a downturn in the creation of new gambling sites. In fact, according to CasinoCity.com’s running tally, that number has grown from 2,300 in February to over 2,700 today.

One way of getting in on that action is to buy out affiliate sites. “This whole industry is so dependant on affiliate traffic,” observed Greg Boser, search engine marketing consultant at WebGuerrilla. “In the short term, [gambling sites] want to grab these [affiliate] sites that are going to shut down.”

Indeed, on behalf of a client looking to stockpile successful sites, Boser put out a buy request to affiliates who want to close up shop. As of yesterday, he was contacted by about ten potential sellers, some of whom run multiple sites.

Most traffic arrives on those affiliate sites as a result of cutthroat SEO practices. Yahoo, Google and other search engines have policies barring sponsored links from gambling sites or sites that link to those wagering sites; however, when bettors land on actual gambling sites, search engines are not far down the trail. For instance, a search for “NFL sportsbook” on Google turns up organic listings for real money gambling sites Bodog.com, Sportsbook.com and Sportbet.com on the first results page.

The same search on Yahoo results in a sponsored link for MegaSports.com, which features homepage text that reads, “Visit Sportsbook.com to see the Top Ten List of today’s most popular wagers by their customers.” Plus, gambling-related searches regularly bring up sponsored links for gambling guides or instructions for setting up online gambling sites.

To be sure, the incentives to evade the gambling sensors may be too great. “There’s way, way, way, too much money in this business to stop it,” declared Lesniak. “It’d be like trying to stop an ocean liner going full speed on a dime.”