Gambling on Gambling
Last week we talked about an issue facing the more traditional side of affiliate marketing, one that has already had incredibly serious implications for the affiliate marketing space and could have equally monumental implications for the broader performance marketing space. While this affiliate tax issue has received a fair amount of press, the overall awareness feels low in relation to the seriousness of the topic and the effort being expended by individuals, companies, and organizations to fight it. If that is a correct perception, the reason stems not from the amazing efforts of those fighting it but our nature. Most people worry about today and tomorrow. They don’t focus on a long-term threat. We like doing things where we can feel and see what happens as a result. In the fight against affiliate tax, it’s like funding research. We see some advances, but it’s the type of fight where you have to give and support it even though there isn’t a clear or tangible path to victory.
The affiliate tax, like many taxes, is driven by one thing – money. The state governments need it. There biggest source of revenue is still not where they are used to having it, and unlike other businesses, once governments get used to spending a certain amount, they don’t have the nimbleness to cut back. Sensing an opportunity, we have the big box retailers who employ tens of thousands of people in various local markets whispering into the ears of lawmakers about millions of dollars they deserve. For the big box retailers, the affiliate tax is a chance to level the playing field, and if the end result is fewer tax dollars because of affiliates moving out, it’s no loss to the retailers. The retailers, who have physical presences in all states, must charge sales tax for all online purchases; whereas certain online merchants can appear the cheaper solution because they do not have to charge sales tax.
When it comes to the web, states aren’t just relying on potential sales tax dollars as a way of leveraging the web for new sources of income. Unlike affiliate tax, one such option has the potential to do the reverse – make the government and the performance / affiliate marketing community money. The only catch – it’s a touchy subject, because, like sex, it has deeper implications than just business. For the vast majority of those reading, the topic will sound anything but scandalous or charged. We could have already mentioned it, and they wouldn’t have known it is that commonplace. In fact, we have already mentioned it, and it also happens to be integral to one of the biggest destination cities in the US – gambling, more specifically gambling online in the US.
If you’ve been in the online space for a longer period of time, you will remember when as an affiliate you could not only run online gambling offers but gamble legally online. Even after it became illegal for US residents to gamble online many sites still allowed those in the US to play. After a few high profile arrests of executives that leniency came to a halt. It hasn’t stopped millions from still participating, but it has deeply curtailed the activity. Proving we are not the center of the universe, since the changes, the world of online gambling has been a thriving, multi-billion dollar business for everyone but those targeting US players. Like many rules, the change didn’t stop those in the business from making money only who made money from them. We hear stories about what the wealth creation in the gambling space has done, and the numbers sound more like Groupon with 80% margins. They are the type of money that we associate with Russian wealth and certainly the type of money that governments would dream of receiving. The problem? It’s gambling.
Gambling is obviously legal in the United States, so the question of online gambling is not simply about pure legality. Gambling based games are obviously hugely popular as well – it was on the back of poker that Zynga got its first major hit, and late night TV is filled with poker tournaments on multiple channels. The issue with gambling has more to do with the issue of abuse. Gambling is a vice, and the message being sent by states is one of an enabler. Gambling doesn’t kill, but in the hands of the wrong person it leads to story after story of ruin. It becomes a galvanizing force for morally concerned citizens. It’s death by a thousand cuts. 99% will have a positive experience, but the 1% who do not will easily cast a shadow over the rest of the industry, making not just the industry look bad but those who allow it to look bad.
There is another problem with gambling, and it is perhaps rooted in the nature of the activity. It’s a perception issue. The gambling industry doesn’t attract the most upstanding people. They aren’t all bad people, and they are certainly some of the smartest and wealthiest people. They just aren’t model business people. They aren’t as a whole, aspirational. The wealth they make is, but as a group, they tend to look and feel more like adult webmasters. They might share the same activity as their offline counterparts, but unlike the physical casinos, the low barriers to entry means more companies without the brand investment of a Full Tilt Poker. The physical nature of offline gambling produces an all-around experience – one that makes the gambling almost secondary. They are experiences in fun and luxury, not just about the game. That also makes it easier to survive negative press. We certainly wouldn’t mind seeing a new vertical enter into performance marketing, but we would want one that doesn’t just make money but helps build enterprise value companies not flat companies with quick cash.
