If there’s one worldwide industry that rakes in more cash online than adult entertainment, it’s gambling. The two virtual industries represent powerful economic engines for very similar reasons: Consumers can get the entertainment of their choice online quickly, conveniently, and discreetly. Analysts say that’s why online gambling is destined for financial greatness despite prohibitions against playing and dealing in the U.S. and some other industrialized countries.
The problem facing gambling prohibitionists is how does one tell an industry that has been growing at an astounding clip (from $6.5 billion in revenues in 2002 to $8.25 billion in 2003 and $11 billion in 2004, according to Datamonitor) to just go away? Combined global revenues for online and mobile gambling by 2009 could be nearly $40 billion, according to Juniper Research, and Datamonitor expects revenues to reach $125 billion by 2015. According to Ladbrokes, a United Kingdom-based wagering outfit that operates virtual race- and sports books, casinos, and poker rooms, U.K. players alone are gambling £19 million (approximately $33 million USD) a day just on online poker. That single segment of the market is expected to expand by 81 percent come 2008, due in large part to the popularity of televised poker tournaments.
The tax revenues alone are impressive, as the U.K. discovered in 2005 when it became the first country to legalize online gambling. In addition, the sector has an enormous “cascade” effect on other industries – notably advertising and marketing – according to Research and Markets’ Online Gambling Market Research Handbook. Statistics from Nielsen Media Research indicate “online operators accounted for 7 percent of the gambling sector’s total ad spend in the first quarter of 2003, increasing to 13.5 percent – or £2.6 million [more than $4.5 million] – in the first quarter of 2005.”
High stakes
Despite its popularity among consumers, virtual gambling remains technically illegal in the U.S. under the 1961 Interstate Wire Act, a federal law enacted to assist states in cracking down on racketeering. A section of the act aimed primarily at telephone bookmaking operations bans the use of “wire communication facilit[ies] for the transmission in interstate or foreign commerce of bets or wagers” and prescribes steep fines and prison terms of up to two years for violations. Congress has unsuccessfully been trying earnestly to update the act with tough anti-Net-wagering laws since 1998.
In a 2002 survey of 200 gambling websites, the Federal Trade Commission and the American Psychiatric Association identified virtual gambling not only as a contributor to gambling addiction and other ills that affect real-world gamblers, but also as an easy, covert route for money laundering by terrorists. That, and allegations that offshore betting operations are largely unregulated and may be rigged to prevent players from winning (Research and Markets says on average, virtual casinos keep about 75 percent of the money players deposit), led to a crackdown by the U.S. Department of Justice, which maintains the Interstate Wire Act applies to all online gambling. The courts have disagreed so far: The U.S. 5th Circuit Court of Appeals ruled the Wire Act applies only to sports betting. The U.S. Supreme Court has yet to weigh in on the matter, but the World Trade Organization in 2004 ruled against the country’s Internet gambling ban in a suit brought by the Caribbean state of Antigua and Barbuda, which claimed that U.S. law breaches a 1994 global trade agreement. The ruling was reversed partially in 2005 on a promise from the U.S. to adjust its laws so as not to damage Antigua and Barbuda’s economy (since it is estimated the U.S. is home to as many as 70 percent of the world’s online gamblers) while maintaining restrictions on Internet gambling in order to “protect public morals [and] maintain public order.” The legal landscape in that regard remains murky, at best.
The ambiguous nature of U.S. law hasn’t stopped American companies from jumping on board. Although most virtual gambling concerns are located in Curacao, Costa Rica, Antigua and Barbuda, the Dominican Republic, and Gibraltar, some are owned by Americans and many have American marketing and public relations divisions. According to Hitwise, the market share of visits to U.K. virtual casinos grew 38 percent from March 2004 to March 2005; during the same period, market share for U.S.-owned virtual casinos grew by 49 percent.
Upping the ante
Perhaps emboldened by the WTO’s position on the matter, virtual gambling operations have redoubled their efforts to attract serious players. That’s where the industry sees a natural match with adult entertainment. After all, the two industries both take heat from conservatives because of moral compasses that are seen as defective, both are constrained to dealing only with players who are of legal age in their jurisdictions, both have been called “recession-proof,” and both industries seek consumers with significant disposable incomes. According to Charlie Szebik, a partner in California-based CTN Gaming Inc., the customer base for both industries also shares another characteristic: They’re adrenaline junkies who always are looking for a new “rush.” CTN Gaming is the marketing arm of AdultPokerParty.com, a Costa Rica-based casino designed by a Panamanian company especially to appeal to adult entertainment consumers.
“We’re intentionally going after partnerships in the adult industry,” Szebik says. “This is our innovative niche. The customer bases from both industries are very similar, so it made sense to us.”
According to Szebik, in the past few years, online gambling has proliferated to an extent that the competition among casino operations has become fierce. Like the adult industry, each gambling company is scrambling to establish itself as an innovator that constantly leads the way with hot new trends. The trick is to stand out from the competition, and AdultPokerParty.com – which has been open for only about three months – seems to have hit a nerve when it combined first-rate gambling software with sexy spokesmodels like adult industry veteran Sunset Thomas.
“Sunset is a smart woman, and she got the appeal immediately and got behind [the project],” Szebik says. “Like a lot of other adult industry people, she’s looking for opportunities to develop revenue outside the adult industry. With gaming – especially poker – now seeing widespread mainstream acceptance because of the players being positioned as athletes in televised high-stakes games, online gaming is only going to get bigger. It makes sense [for adult entertainment companies] to partner with existing operations instead of pumping huge sums of money into new projects in a field that’s already crowded.”
No limits
Lloyd Samassa, a director with Gibraltar-based Carmen Media Group Ltd., sees a natural fit between adult and gambling, too, and he believes both industries can benefit immensely from affiliation. Gambling wants the traffic volume for which adult websites are notorious, and Samassa says he sees no reason why adult marketers would turn down affiliate revenues that easily can range from $100,000 to $500,000 monthly.
“Whales [players who gamble large sums] can drop $1 million or more a month online,” Samassa reveals. “The competition is even more fierce in adult than it is in gaming, and the widespread and growing appeal of online gaming makes now an excellent time for adult webmasters to partner with gaming companies. It may be difficult to believe, but right now it’s possible to generate a quicker and better return on gaming than on adult entertainment, and the marketing skill sets developed in adult are easily applied to the gaming space.”
Among Carmen Media’s holdings is Belle Rock Entertainment, which operates 10 online wagering destinations and the affiliate program Referback.com. Samassa says Referback is one of the oldest and most successful casino affiliate programs in existence, largely because it offers affiliates a variety of properties—and online gamblers are even more fickle than adult entertainment consumers. “Most players want to play at more than one brand,” Samassa says. “A good program needs to have at least four brands with distinct identities” because players enjoy variety and can be as superstitious online as they are in the real world. It’s all about “maximizing the value of the consumer in a responsible fashion,” according to Samassa, who says his company not only adheres to exceptionally tight guidelines about customer service, but also relentlessly studies consumer behavior in order to market more effectively. “We want to keep each consumer for 10 years,” he says.
In fact, that’s about how long his company has been engaged in online gambling enterprises, Samassa says, and Belle Rock maintains today some of the original players at its various online properties.
So why has it taken so long for the online gambling industry to approach adult webmasters about partnerships? The gambling industry has realized for years that adult webmasters lead the way in marketing to adult consumers, Samassa admits, but “it’s always been difficult to penetrate that market; to get [adult webmasters] interested in the online gaming space.” For one thing, until recently there was little regulation of the online gambling arena, and adult webmasters may have been leery of referring customers with whom they’d developed a relationship of trust to overseas operations where they didn’t feel their money was safe. “Trust is an important component,” Samassa says. “In both adult and gaming, there’s a serious consumer confidence issue.” The gambling industry has addressed that issue, Samassa avers, and now “gaming companies are very much in favor of regulations to create a safe gaming environment for consumers.” In fact, according to Samassa, adult entertainment websites that have developed high confidence levels among their members are the ones who will see the most return from affiliating with a gambling outfit—but only if the gambling company is equally as trustworthy.
Betting the house
Although Samassa says Carmen Media’s “initial, informal research” has indicated that the commonality between adult and gambling consumers is between 20 and 40 percent, the challenge for the gambling industry will be to provide a compelling offer to adult webmasters. “We need to wrap adult content into the gaming experience” in order to give adult webmasters an offer with intrinsic value that goes beyond the financial, he says.
The gambling industry also needs to demonstrate that it holds adult affiliates in high regard and will do whatever it can to help them succeed. “Most affiliates focus on a niche, which is typically all-consuming within itself,” Samassa says. “Diversification [into gambling, for example] requires a shift in focus – finding new search words, purchasing suitable domains, building new websites – and time, a commodity that good affiliates don’t have. Although both [adult entertainment and gambling] focus on entertainment, the content is very different, and you don’t typically find an affiliate with an appetite for both. [We] plan to show adult affiliates that we can deliver a mainstream and gaming package that will appeal to their audience, and hence whet their appetite for our sectors.”
Perhaps most importantly, the gambling industry needs to develop an affiliate payment structure that makes sense to the online adult industry. Adult webmasters are comfortable with revenue sharing and pay-per-click models, but in most cases they’re dealing with very concrete sums of money (like monthly membership fees, per-minute pay-per-view fees, etc.). Gambling revenues, however, are based on some very esoteric formulas that encompass the house’s “rake” (which equals a player’s loss) less processing fees, promotional costs, player bonuses, and other expenses. Some gambling affiliate programs offer a cost-per-acquisition payout, which amounts to a set payment for each new player referred (as long as the player makes an initial deposit at or above a declared minimum dollar amount). Some programs offer hybrid revenue models. Revenue shares for gambling affiliates are anything but cut-and-dried. Samassa says his company is working to define an affiliate revenue structure adult webmasters will understand and embrace.
That’s the point at which Bobby Taylor, the American owner of Costa Rica-based 2Bet.com, entered the market. Taylor began his online career as an adult webmaster in 2001. Then he discovered virtual poker. By 2003, he had left the sex space for gambling with an adult-entertainment twist. “I started seeing the business aspect of the game and saw that there was money to be made there,” Taylor says. He now runs the Webmaster Poker Tour and Adult Action Cash online, as well as a tournament-listing site called PokerVagina.com. “The tie-in [with adult] is so obviously there,” he says. The challenge is to get adult entertainment consumers interested in the free games all casinos offer, and then let them convince themselves they can win when they play for money. “If they start doing a decent amount of winning [at the free tables], there’s a good chance they’ll risk a real bet,” he says. “Trust and security are important—there are sites that list all the casinos [players] can’t trust. Earning the trust of adult webmasters, though…that’s another battle.”
