Affiliate marketing is a strategy that pays external publishers to generate traffic and leads for businesses. In the marketing-affiliates sector, there are two main revenue models: revenue share and cost per acquisition (CPA).
Revenue share involves giving affiliates a long-term trailing commission, which is a percentage of the gross losses of the referred customer. On the other hand, the CPA model offers a one-time payment per customer.
In order to align incentives between affiliates and operators, a customer acquired through an affiliate is only recognized once they have made a deposit. This effectively ensures that both parties benefit from the arrangement.
In many industries, affiliates are seen as a “necessary evil” because they can be an effective acquisition channel but come with a loss of control. However, in emerging wagering markets like the US, affiliates play a critical role.
In mature markets like Europe and Australia, affiliate marketing is not a growing revenue opportunity. Therefore, the focus is on affiliates with growth potential in the burgeoning US market.
In the US, operators are competing to acquire as many customers as possible and are willing to spend significant amounts of money. However, marketing budgets are now under pressure, and operators are more cautious about overpaying for customers without clarity on their lifetime values.
Affiliates are well-positioned to generate significant earnings from their US operations despite these challenges. One such example is Better Collective, a Denmark-based industry-leading affiliate with a valuation of $760m.
Better Collective has over 2,000 content sites and applications and has secured partnerships with more than 250 operators, including big names like Bet365, FanDuel, and Coral.
The company’s US business has seen impressive growth, with revenue and EBITDA increasing by 435% and 469% respectively in the first quarter of this year.
The US market is gradually rolling out on a state-by-state basis, and niche audiences in each state will become valuable assets in future mergers and acquisitions. Targeted media channels like podcasts, newsletters, and radio shows will be crucial for operators looking to develop these niche audiences.
Better Collective has already recognized this opportunity and made a significant acquisition in May 2021 with their $240 million purchase of The Action Network. This media company provides sports news, insights, odds, and proprietary betting tools and data.
Better Collective’s management, led by founders Jesper Søgaard (CEO) and Christian Kirk Rasmussen (COO), have shown strong leadership with their focus on growth. Despite the inherent risks of an M&A-heavy strategy, the company’s adjusted earnings per share have steadily grown from $0.28 in 2017 to $0.67 in 2021.
Since listing, Better Collective is the only publicly listed affiliate that has generated a positive return for investors. The management team’s alignment and proven track record make them well-suited to navigate the challenges of operating in a relatively mature industry.
At Waterhouse VC, our total return since inception in August 2019 is 1,874% as of June 30, 2022. Please note that this information is based on publicly available information and should not be considered as financial product advice. For specific investment advice, it is recommended to consult with a professional.
