Marketing affiliates provide invaluable services to online gaming and betting companies in supplying marketing services and directing customers to operator websites. They do not typically hold customer funds, nor do they operate and provide games of chance and betting services to customers directly. Rather they advertise operator’s services and act as a liason between customers and operators and drive traffic to operator’s gambling services business. As such, their activities are similar in some ways to the services junket operators provide to land based casinos. Junket operators now require licensing in many gaming jurisdictions and are unfortunately tainted with a history of association with organised crime.
The UK Information Commissioners Office (ICO) in the past year has launched a crackdown on online gaming affiliates with respect to their use of personal data. In an announcement by ICO in November, 2016, ICO identified affiliate marketing as an area of particular concern because gambling operators and affiliates each fail to take responsibility and try to “pass the buck” to the other when a complaint is made regarding a data protection violation.
Operators have responsibility under their licence conditions with the Gambling Commission for the actions of their affiliates. Actions of affiliates may cause disciplinary action against an operator. Accordingly, operators are now being more selective with their choice of affiliates and culling the ones that do not comply. Is this burden fair to operators or should the affiliates be required to be licensed and held accountable directly to the Gambling Commission?
Currently licensing requirements for affiliates
Currently, affiliates do not require a licence from the UK Gambling Commission to provide marketing services for operators. Certain activities may however cause affiliates to cross the line and require licensing. This article will explore where the line may be crossed and how to avoid it. It will also consider if there is currently the need for licensing in the UK to be required of all affiliates due to the threat of criminal activity, the threat to operator’s remote gambling licence with the Gambling Commission and the influential position held by affiliates in relation to consumers. Finally, suggestions of measures that can be taken by operators to mitigate these risks.
Regulated gambling under the Gambling Act 2005 (“Act”)
Section 4 of the Act defines “remote gambling” as gambling in which persons participate by user of “remote communication.” “Remote communication” is defined to include the internet.
Section 5 of the Act defines a person as providing “facilities for gambling” if he
- invites others to gamble in accordance with arrangements made by him;
- provides, operates or administers arrangements for gambling by others or;
- participates in the operator or administration for gambling by others.
A person commits a criminal offence under Section 33 of the Act if he provides facilities for gambling unless that person holds a Gambling Commission operating licence authorising the activity.
Section 13 of the Act defines “betting intermediary” as a person who provides a service designed to facilitate the making or acceptances of bets between others.
The Gambling Commission Guidance Note, Betting: Advice for remote, non-remote and betting intermediaries, October 2013, (updated October, 2014) states that:
“A betting intermediary is a person who provides a service to enable others to make or accept bets. Such a person does not himself partake in the bet. The definition includes betting exchanges.”
The Commission further advises that if the operator is not a party to the bet but is providing a service to allow two other parties to make and accept a bet, then the operator is a betting intermediary and the appropriate licence is a betting intermediary operating licence.
The Guidance Note explains that the Commission has adopted a common sense approach to the question of what constitutes “facilitating” the making or accepting of bets between others, For example, the Commission does not consider that merely placing advertisements as to where to place bets or providing tips in a newspaper is sufficient to fall within the definition. In contrast, the offer of tipster services, whereby the tipster places bets on behalf of third parties in return for payment or commission would, in the Commission’s view, fall within the definition in section 13 of the Act.
Betting intermediaries require an operating licence in the UK. There is a separate class of operating licence for betting intermediaries and the licence to operate as a bookmaker is separate and not included in that class of operating licence.
Application to current affiliate business model
An affiliate that merely provides marketing services only to operators is currently not considered providing “facilities for gambling” by the Gambling Commission and is not required to hold a betting intermediary licence. However, if the connection with the operator is more than acting as a marketing agent, for example if the Affiliate takes customer money, registers players or provides an execution platform to place bets on the operator site, it is likely that the Gambling Commission would view this as providing “facilities for gambling” and require an intermediary betting licence. This is because it provides, operates and administers arrangement for gambling by others.
Further the software that would be used as an execution platform to connect with operators would likely be viewed as “gambling software.” The Gambling Commission Guidance Note, “What is Gambling Software?”, June, 2014 notes that the Commission considers any software which is designed for use in connection with remote gambling, that is intended to be used or is used by a gambling operator in the provision of facilities for gambling, to be gambling software. This includes software used by betting intermediaries. Since March of 2015, a gambling software operating licence is now required where a person manufactures, supplies or adapts gambling software.
Affiliates need to be careful about the extent of functionality on their websites and if they do not wish to be licensed, to avoid crossing over the line to be considered providing facilities for gambling and triggering the need to obtain betting intermediary licences and gambling software licences.
Should the law be changed to require licensing of affiliates in view of their influence on operators and consumers and threat of criminality?
There has been a long worldwide history of documented organised crime involvement in junkets, particularly in the US and Asia. Organised crime has been found to have ownership interests in, providing debt financing to or otherwise exercising control or holding financial interests in junket operators. Junkets are now required to be licensed in many gaming jurisdictions such as New Jersey, Singapore and Macau. Obtaining a licence requires extensive vetting of the junket ownership and financing, ongoing disclosure of its junket customers and compliance programmes.
Nevada was the first US jurisdiction to require licensing of affiliates. In New Jersey, affiliates for online operators must be licensed with the Division of Gaming Enforcement. A simple vendor license is required for a flat rate business model and a more onerous Ancillary Casino Services Industry Enterprise license is required for a revenue sharing model.
The argument for regulation is due to affiliate’s importance to operator success or failure, the ability of affiliates to damage the industry’s integrity and reputation in the eyes of the consumer, and the potential for infiltration by criminal elements since they are not vetted by a regulator. There is particularly sensitivity with revenue sharing, where in an extreme example, an unlicensed affiliate owned by organised crime could virtually control a licensed operator through an affiliate contract providing a majority revenue split in favour of the affiliate. These are some of the reasons for the licensing and regulatory approach taken by Nevada and New Jersey.
Is there now pressure for the UK to license affiliates?
The UK to date does not require junkets or affiliates to be licensed. The crackdown of ICO and other public bodies on abuses by affiliates on marketing and advertising activities may change this. A high visibility money laundering scandal or discovery of ownership of an affiliate by criminal elements could also tip the scales.
Due diligence and strong compliance programmes can avoid future regulation
UK remote operators already have a duty to perform due diligence on all their customers, including those provided through affiliates. Affiliates are subject to the current UK legal restrictions in gambling advertising and on data protection. Operators are required under their licence conditions to ensure affiliates are contractually required to comply with LCCP requirements including social responsibility and AML requirements. The UK Gambling Commission has not indicated any need or intention at this stage to license affiliates engaged in only advertising and marketing activities.
Operators should support this position by taking a number of steps. Operators should do enhanced due diligence of affiliates before entering agreements with them, possibly using the services of a professional services firm that can review suitability in depth. The contract with the affiliate should include detailed compliance provisions including data protection and require an indemnity for any breaches. Operators should have a policy on data protection, AML and marketing compliance that Operators must agree to comply with. Operators should require affiliates to enact and adhere to robust compliance programmes. Finally, operators should actively and diligently police compliance and address any non-compliance expeditiously and effectively. If licensing of affiliates is to be avoided, the industry must be able to continue to demonstrate that it can effectively self-regulate and control the actions of affiliates.