The gambling industry’s reliance on affiliate marketing may have exposed both operators and affiliates to unprecedented liability.

Is the affiliate marketing model a time bomb of liability, at least in the UK market?

Though many have questioned the viability of affiliate marketing for reasons of oversaturation and effectiveness, perhaps the real question should be, is affiliate marketing worth the risk in terms of liability?

But first, lets just take a look at some of the other fundamental problems with the gambling affiliate marketing industry.

Regulation, regulation, regulation:

Unless you’ve been living under a rock, you’ll know that over the last year, the world’s biggest regulated gambling market, the UK, has witnessed the start of a draconian crackdown on everything related to gambling.

In particular, marketing has come under unprecedented scrutiny, with the ASA proving themselves more than willing to ban adverts due to single complaints and flimsy arguments. But, in reality, no matter how misguided individual ASA rulings may appear to be (see HAS THE UK’S ASA LOST THE PLOT? MONOPOLY CASINO ADVERT BANNED), they must be seen against a wider backdrop of rapidly increasing public and political hostility to the gambling industry as a whole.

While the UK had already been going in this direction for some time, changes in other parts of Europe have been more surprising. From Italy deciding to ban gambling advertising and sponsorships completely, to the strict new regime in Sweden – something that appears to have caught many operators and affiliates off guard.

True, looking across the Atlantic, a vast new market is slowly opening up as individual US states legalise sports betting and online gaming, but it would be unwise to assume those markets will necessarily remain regulation-light for long (see AMERICAN GAMING ASSOCIATION PUBLISHES RESPONSIBLE MARKETING CODE FOR SPORTS WAGERING).

The point is that while its easy to keep ratcheting up restrictions, it is difficult to see a realistic situation in which they will ever be liberalised again. Basically, if you think things are strict now, they are only going to get a lot tighter.

And, given that many affiliates are already struggling to keep compliant, that doesn’t bode well for the future.

Oversaturation and a Savvier Market

Okay. So, as many will argue, compliance tech services, education and professionalism can counter the effects of tighter regulations. Well, maybe they can mitigate them. But, they can’t mitigate the effects of oversaturation and an increasingly sophisticated and savvy market.

Do affiliate marketers really, genuinely believe that people who’ve grown up with the internet are going to continue to fall for their fake reviews and comparison sites, for their woolly non-objective sales pitch type content? It might have worked on Boomers and Gen X, but will it wash with Millennials and Gen Z? Of course it won’t.

Sure, most affiliate marketers today know the buzzwords, and claim to be using social media etc to drive engagement, but few are really pulling it off. After all, time is now the most valuable commodity, and people will only engage if they really want to and feel they will get something out of it on their terms.

The truth is most affiliate marketing content simply doesn’t offer people anything of real value. Besides, social media platforms are also increasingly wary of letting people market things like gambling, no matter how indirectly.

The very fact that so many affiliates still cling to email marketing like some sort of child’s ‘security blanky’ really does speak volumes about how deluded many in the industry still are. Really, this is just denial now. Even before GDPR email marketing was a shadow of its former self.

People can argue all they like about writing better emails and the intricacies of open rates etc, but come on! Let’s be real. The vast majority of emails either don’t make it into inboxes at all, or go straight to junk folders, ‘not so important’ folders, or dedicated promo folders – immediately relegating them to next to useless.

Add GDPR into the mix, and the distinct likelihood of even stricter rules in the near future, and email marketing goes from being marginally useful to useless, at best, and a liability at worst.

Of course, this doesn’t mean there aren’t still plenty of companies and ‘experts’ out there who continue to push email marketing – and as long as they can get customers, namely affiliates, they will continue to do so. They don’t need their products to work to make money.

The Real Problem: Liability

But these issues may pale in comparison to the liability issue.

Now, before I go further, its not the case that this liability wouldn’t exist without affiliates in the chain, but more the case that by relying so extensively on affiliate marketing, the number of companies and individuals that are potentially exposed to truly scary liabilities has been massively increased.

The UK authorities have already made it crystal clear that operators are going to be held responsible for the actions of their third-party affiliates. This, in effect, means the relationship between affiliate marketer and operator (and any intermediaries, like affiliate program managers), is much more akin to an employer-employee, or at least a franchise, in terms of responsibility and liability.

However, despite this being fact in markets like the UK, most affiliates are quite understandably reluctant to accept this. After all, they are running their own business, taking their own risks, and get none of the benefits of being an employee or franchisee.

Simply put, to ensure compliance operators effectively need 100% control over affiliates – removing the freedom and flexibility that made being an affiliate attractive in the first place.

So, basically, we have a situation where for many years, a controversial industry, employing already dubious marketing offers, has relied on a marketing system that has exacerbated potential issues and acted without fully understanding the liabilities they have been accumulating.

PPI: A Warning from Recent History

Critically, it is perfectly reasonable to assume that, based on precedents like the Payment Protection Insurance (PPI) miss-selling scandal, and taking into account the changing social and political attitudes to gambling, in the UK at least, operators may face huge retroactively applied claims for compensation at some point in the future.

You see, despite the prevailing opinion in marketing departments across the industry going something like “as long as it was included in the Terms & Conditions, we’re covered”, nothing could be further from the truth. Again, it is the PPI crisis that provides the precedent.

Payment Protection Insurance had, for many years, been sold in the UK along with pretty much anything that was purchased on credit, from mortgages and cars to electronics. Those selling it ranged from huge global banks to small independent financial services companies, and many employed third parties agents (read ‘affiliates’).

Despite setting everything out and ‘covering themselves’ in lengthy Terms & Conditions, and despite having ‘proof’ that each customer had signed-up and confirmed they agreed to those terms (sound familiar?), the courts still decided that things were unacceptable. Critically, the courts also gave the green light for historical claims going back many years – something that has led to billions of pounds being paid out in compensation to consumers.

The key takeaway here is that banks and financial companies were forced to pay back billions in PPI compensation because the products had been “mis-sold” – not because the products were illegal per se. Agents had ‘merely’ glossed over realities, failed to adequately point to certain limitations, or even just put together products that didn’t offer the kind of value that matched customers’ perceptions.

Can anyone really argue that gambling affiliates haven’t (and still don’t), massively engage in exactly the same kind of behaviour?

Of course, with PPI claims it was also fairly simply to work out compensation. Basically, the amount a consumer paid, plus an extra bit as a ‘sorry’ for being naughty in the first place. But, thanks to that always ridiculous marketing ploy called ‘wagering requirements’ (which anyone with even a basic awareness of UK consumer rights and legal issues should have avoided like the plague in the first place), compensation claims could be catastrophic – how much did they deposit and lose to meet the wagering requirements, plus a fine for being naughty, plus how much did they win but then lose again before meeting requirements, plus did they get into financial trouble and get another loan out, or lose their car, or end up ill, or lose their wife etc. It truly is a ‘can of worms.’

Given the widespread and long-term use of what now must be considered dubious techniques, most notably wagering requirements, the potential liability for UK-facing operators alone must surely run into the many billions of pounds.

And, this means affiliate marketers are potentially on the hook every bit as much as operators.

That should be keeping CEOs and affiliate marketers awake at night.

The future

Yet, despite the glaring flaws, and rapidly increasing risks of affiliate marketing for gambling, operators continue to  rely on it to drive business. Is this because most operators simply don’t have an idea of how to replace it? Or is it because they just haven’t grasped the insane liability it is exposing them to in some jurisdictions?

For me at least, the regulatory developments in the UK, and more recently Sweden, have come as no surprise. The gambling industry, which was always an obvious scapegoat, has and still is, engaged in certain business practices that are absolutely asking for trouble – the fact that it is so reliant on affiliate marketers has just magnified the potential liability it faces.

Will affiliate marketing continue in some form. Yes. Large affiliate companies can afford to professionalise and employ technology to help manage compliance. But, will it all come crashing down dramatically at some point in the near future, due to liabilities for historical marketing practices? Very likely.

This article reflects the opinion of the author and does not necessarily reflect the views of Pentagon Digital Limited.

We caught up with Kinguin Founder and CEO, Viktor Wanli, to talk about the future of esports and  investment in facilities and education.

With esports emerging as both a major force in the global economy and catalyst for social change, we thought it would be a good time to talk about the future with someone who’s at the leading edge of the industry, Founder and CEO of Kinguin, Viktor Wanli.

You’ve clearly invested a lot in your Polish esports centre. What has the reception been like so far?

Kinguin’s vision is to boost the regional ecosystem by establishing cutting-edge arenas and training centers that provide world-class facilities for international esports teams to train and prepare for competition.

Renegades, a professional Counter Counter-Strike: Global Offensive team, were the first team to reap the benefits of training at the Esports Performance Center. After holding a bootcamp at the EPC prior to IEM Katowice, they went on to reach the quarterfinals finishing 5-8th overall, a first in their organization’s history.

Since then we had some of the world’s best esports teams visiting the EPC, including the International 2018 DOTA2 Champions OG RedBull, BIG and Vitality from the Counter-Strike scene.

EPC also has become the permanent base for top Polish team devils.one and its League of Legends and Fortnite divisions.

With esports growing so rapidly, we frequently hear that while there’s no shortage of playing talent, esports business skills are in short supply. Is this the reason for the Kinguin Education programs?

It’s one of the main reasons. Teachers in normal schools aren’t tech savvy enough for the digital age and facilities are lacking for everything from developing your personal brand to graphic design. The world is moving much faster than schools can keep up with.

We thought it would be great to have specialised courses for everyone from children to young adults. These include courses on 3D design, animation, programming, plus logical thinking and collaborative communication online.

There is a lot of industry now that isn’t in the traditional commercial world, things are changing rapidly, and we want to prepare the next generation for their working lives. Plus, gaming is a great motivator to get kids interested in education.

Where do you see esports in five years?

Esports has changed drastically in the last five years, so it’s exciting to imagine where it will be five years from today.

I believe bridging the gap between the online world and the offline world through physical gaming spaces are shaping the future of esports. I imagine a comeback of the gaming cafe where high-end gaming equipment is made accessible to the average gamer.

In fact, Kinguin is focusing its efforts on opening Esports Arenas where gamers can interact with each other in a physical environment while having access to top-of-the-line PCs.

Do you see any disruptive tech trends impacting esports over the next few years? VR for example?

Disruptive tech like VR, AR, and mixed reality bring the audience closer to the action and offer exciting interactive experiences. Immersive visuals for broadcast will only make the level of viewer engagement skyrocket as brands push the envelope in the creative digital space.

 Gamers are definitely interested in merging the real world with the gaming world, so I envision disruptive tech trends gaining momentum as they shape esports and traditional sports.

How do you feel about betting in esports?

Esports is gaining mainstream popularity and it’s naturally going to catch the attention of betting operators. As long as esports betting is done in a properly regulated way then it’s something to support.

The commercial side of esports is obviously growing rapidly, but do you think there’s enough investment in grassroots esports, at the entry level?

Kinguin is focused on keeping grassroots esports alive by combining our online marketplace with offline initiatives like the Esports Performance Center, esports lounges, and a comprehensive esports curriculum and education programs. We believe these initiatives will develop the next generation of gamers, and make professional gaming accessible to everyone.

There’s no escaping it, games like CS:GO and Fortnite created entertainment based on killing people, do you feel there is the potential for esports to normalise violence, or do you feel that by transferring combat and aggression into a digital arena where no one actually gets hurt, it has the potential to reduce real-world aggression and violence?

There are long-standing beliefs about the link between video game violence and human aggression, but new studies are proving these claims to be false.

The University of Oxford actually released a comprehensive study this year that found no relationship between aggressive behavior in teenagers and the amount of time spent playing video games with violent elements. The study is one of the most definitive to date, using both subjective and objective data to measure teen aggression and violence in games.

We’ve been hearing a lot of talk about equality issues in esports recently. How do you see things – should there be more of an effort to get girls involved in esports, or do you think it’s a non-issue?

Although esports has often been labelled as a male-dominated industry, women are one of the fastest growing demographics in gameplay, viewership and buying power. Esports will never reach its full potential if we ignore the vital influence women have on gaming.

There’s certainly some things to think about there, and it’s a huge ‘thank you’ to Viktor for taking time from his busy schedule to chat with us.

To find out more about how Team Kinguin is shaping the future of esports check out the official site at https://teamkinguin.com/

And, don’t forget if you’re feeling like playing something new, head on over to the Kinguin video games marketplace.

Exclusive interview content © Pentagon Digital Limited, all rights reserved.

Exclusive interview with Lorenzo Malanga, Chairman and CRO of Mercurius – the betting intelligence company using AI to create alternative sports betting asset class.

With AI and Big Data starting to deliver predictions of unprecedented accuracy, we thought it would be an opportune moment to catch up Lorenzo Malanga, Chairman and CRO of Mercurius – the betting intelligence company.

Mercurius conducts data processing and analysis, undertakes scientific research on sports models, implements strategies and risk optimisation, and offers execution and automation – enabling a new alternative asset class based on sports betting.

Sports betting is, logically speaking, just as valid as an investment strategy as stocks or FX, but have you encountered much negativity from the close-minded, more conservative commentators out there?

Generally speaking, we have very polarised reactions: either they love it and they go crazy for it or they stop listening as soon as I mention betting. Science applied to sports betting is naturally fascinating many people coming from different backgrounds and social levels; in particular, people coming from a financial background. This happens because our approach is based on the same principles and methods used in quantitative finance, which makes it easy for them to grasp the essence of what we do and why it makes sense.

Actually, our biggest challenge, more than negativity,  is to overcome biases. For the very same reasons why it is easy to understand why sports betting can be considered an alternative investment, people’s judgement is clouded by the perception of gambling and it takes a while to fully understand the peculiarities of this market.

Looking at your price plans, we’d assume most of your clients are individuals, but are you getting interest from corporate or institutional investors?

Today we have two types of clients, who are both individuals. On one side, sports traders who are looking for a new betting strategy, often because we cover leagues they don’t or simply because they can add a source of income without requiring any extra effort. On the other side we have sophisticated investors who want to diversify their investment portfolio with a truly uncorrelated asset and with interesting returns. Let’s also not forget that earnings on sports betting in many countries are tax-free.

We have started discussions with institutional investors, and they seem very interested in this new opportunity, but in order to work with them, we have to set up a fully regulated investment fund vehicle first. It is not something that will happen this year, but in 2020 we’re planning to start a partnership with a financial firm to merge forces and create an investment fund based on our technology.

Though your business model is good for betting exchanges, isn’t it potentially fatal for the traditional bookmakers? What would you say to those businesses?

It is not an easy topic. Betting exchanges reshaped the industry, and the new exchanges based on blockchain could challenge the rules again. At the same time, some sportsbooks are adapting and they’re moving to a business model based on lower margins and higher turnover. At the end of the day, the real war is on the ability to attract the biggest liquidity, and sportsbooks and exchanges are very interconnected on this. When we started Mercurius we also thought sportsbooks were doomed to disappear, but the more we got to know this industry and the more we understood it won’t happen.

I was once told  by a very skilled gambler and entrepreneur “In this industry there are no competitors, only potential partners”, and I believe it is indeed the key to understanding this market and the opportunity for Mercurius.

Given that you’re not an operator, or a supplier as such, what’s your relationship with regulators and authorities like?

It’s 100% transparent and we are fully compliant with regulations, more specifically we’re not required to hold a gambling license because we’re part of the Betfair Vendor Program.

We spent a lot of time looking for the leanest regulatory setup to safely offer a product that is easy to use and fully automated. After long research, we found in Betfair exchange the perfect solution and partner; we joined their software vendor program, and this gave us the opportunity to package our technology into a third party application for Betfair. Our customers have all their trading funds in their Betfair wallet, and use Mercurius as an automation tool to simplify their trading activity by leveraging on our Artificial Intelligence.

Given the rapid advances in Big Data and AI, where do you think predictive models will be in ten years from now? Will widespread quantum computing be the game-changer many say?

Well, you are asking me to make a meta-prediction! The evidence we have so far clearly suggest the evolution of such tech is not linear, but I’ll try to make some educated guesses.

Complex and Small Data vs Big Data:

A major accomplishment will be to be able to generalize hidden relationships among variables by requiring less and less data: even Eric Schmidt, Alphabet’s executive chairman, says that AI may usher in the era of small data because smarter systems should learn more with less training.

Improved unsupervised algorithms:

In machine learning, unsupervised algorithms are employed to make predictions from datasets when only input data is available without corresponding output variables. Whereas in supervised learning the output of the algorithm is already known, its unsupervised counterpart is closely associated with true artificial intelligence—the concept that a machine can learn to identify complicated processes and patterns without any direct human intervention. When algorithms are left alone to scour and present the interesting patterns in a dataset, hidden patterns or groupings can be discovered, which could have been difficult to get using supervised methods. In the coming years, we are likely to see improvements in unsupervised machine learning algorithms. The advancements in developing better algorithms will result in faster and more accurate machine learning predictions.

Quantum Computing:

Let’s first make a clear disclaimer. Like any other technological improvement, it is not going to be a one-fits-all solution for every problem. Yet, if quantum computers are integrated into machine learning, it could lead to faster processing of data, which could accelerate the ability to synthesize information and draw insights—and that’s is what the future holds for us. Quantum-powered systems could provide a much faster and more heavy-duty computation to both supervised and unsupervised algorithms. The increased performance will unlock amazing machine learning capabilities, which may not have been realized using classical computers and hardware.

As blockchain, AI and Big Data evolve, it’s becoming increasingly clear that the obvious weakness in most strategic planning has always been human bias and emotion. Of course, it’s not really a revelation considering some of the visionary writers like HG Wells and HP Lovecraft were saying this more than a century ago. But, how does it feel to be in the vanguard of companies that are finally overcoming this?

It’s become conventional wisdom to say and conclude that Artificial Intelligence could somehow replace us humans in the near future. But if you don’t understand enough how computers actually work, you may draw flawed conclusions. If you’re a pessimist about the future taking over us I think you watch too much Hollywood Sci-fi movies.

First of all, decision making can be improved by AI by enriching the interaction between human and algorithms, rather than replacing the latter with the former.

Moreover, let’s not forget Feynman’s wise words: “The first principle is that you must not fool yourself — and you are the easiest person to fool”. So, let’s not fool ourselves with fideistic optimism. Bias is intrinsic in any model and it is thus mandatory to always be aware of the assumptions we make when tackling problems and to always challenge ourselves and our thinking process. That being said, removing emotion (or better, irrationality) might be a different story and I do believe that a fully data-driven approach can help in avoiding common pitfalls. In fact, AI and big data can help in decision making in considering every micro pattern and to give you an enhanced and more “truthful” representation of the phenomenon at hand.

However many data points are analyzed, can AI ever take into account human fallibilities? Isn’t this individual emotional history, which we all have, the thing that will forever make humans unpredictable?

In my humble opinion, we can only strive to predict specific behaviours in particular contexts, as our stream of consciousness is a noisy, unstructured and unobservable dataset. Plus, unpredictability is the other side of natural variability and has to be embraced rather than fought!

What would you say to those interested in pursuing a career in data science?

Well, I would say the first thing is to commit to continuous self-improvement and adopt a curiosity-driven mindset.

You should reach a solid understanding of math and statistic, in order to get solid foundations; but learning all the theory is not enough, being a data scientist requires getting your hands dirty to code and acquiring a good understanding of how computers work.

A critical – and undervalued- activity is to deeply understand your data before doing any modelling, which often helps you understand how to clean it and manipulate in a way which is optimal for the answers you want to find.

Like I said above, be rigorous and do not fool yourself, challenge your assumptions all the time and be sceptical about too good to be true outcomes, because they usually are.

Last, but not the least, learn to communicate in the most effective and impactful way to a nontechnical audience, as every result that lives only on your computer is useless.

Where do you see Mercurius in five years?

Apart from partnering up with investment firms on the commercial/business side, we’ll keep pushing the technological frontier. In 5 years Mercurius will integrate advanced computer vision techniques to increase the number of data points processed, as well as applying the know-how developed in modelling soccer in other sports like tennis and basket.

I also believe e-sports to be the next big thing in betting and we’ll invest heavily in modelling e-players just like we do now for soccer players.

Sport integrity is another aspect we would like to contribute in the future by providing our global football knowledge to sports integrity stakeholders, in order to detect and advise on anomalies and integrity concerns.

A huge ‘thank you’ to Lorenzo for taking the time to share his valuable and unique insights into such a fascinating subject! We hope you enjoyed reading it, and we’ll be sure to keep up with the Mercurius team as they blaze a trail into the future.

Find out more about Mercurius Tradr, the first app for theBetfair Exchange able to analyse sports, find the edge and bet for you at https://trader.mercurius.io/ 

Meet the Mercurius team and learn more about the company at https://mercurius.io

Exclusive interview content © Pentagon Digital Limited, all rights reserved.