XL Media CEO David King has outlined that the company is becoming increasingly focused on securing rev share deals in North America in 2023, despite that particular model of business coming under pressure from regulators.
Addressing investors as the publisher and affiliate firm posted its financial results for 2022, King stated the majority of its revenue comes from CPA deals, but that it would like to try to secure the long-term revenues that rev share models afford affiliates.
He said: “Our strategy is clear; to diversify our revenue streams in North America while expanding our footprint, optimizing our sustainable gaming business, and upgrading and innovating our European sports sites.
“We currently earn the majority of our revenues in North America under the CPA model. This provides a very attractive income stream when a state first launches online sports betting, but does not necessarily provide predictable, sustainable revenues over the medium to longer term.
“We believe that it is important that we begin to participate in revenues from betting activity where operators are open to it, enabling us to build a more sustainable revenue stream.
“Since the year end, we have now entered discussions with a number of operators in North America to move to a hybrid revenue share model, similar to that in Europe, with lower upfront acquisition payments and ongoing participation in the revenue earned from betting activity.”
Despite this stance, the revenue-sharing model has recently been the source of debate in the industry, especially given the standoff between affiliates and the Massachusetts Gaming Commission.
After an initial outright ban on affiliate models, the MGC offered the firms a 45-day trial run of both CPA and rev share models. However, this week, the Commission told the companies that they will severely limit the rev share model after the expiration of the trial period.
Citing concerns over responsible gambling while also acknowledging that an outright ban would have an outsized impact on small and minority-owned businesses, the Commission has ruled that no deals will be allowed in which a percentage of the amount of revenue generated specifically by the affiliate or partner would not be allowed.
However, deals in which the total revenue generated by an operator split among affiliates would be allowed.
Meanwhile, the New York State Gaming Commission has also placed a ban on rev share agreements with the same concerns over RG.
This indicates that the evolving nature of the affiliate business is on the radar of regulators, and the two states that have already imposed bans could influence other regulators in different states.
But XL Media still seems intent on continuing on this path in the meantime, whilst the rev share model has not been explicitly banned in many other jurisdictions.
XL Media 2022 Financials
Now live in 19 US jurisdictions, XL Media posted revenue from ‘continuing operations’ of $71.8m in 2022 – an increase of 24% from 2021’s total of $57.8m.
However, the affiliate took a 14% hit in full-year profit from its continuing operations, which fell from $2.8m in 2021 to $2.4m last year as the group focused on restructuring its European Gaming and Sports division and expanded in the US.
Expanding its operations further into North America certainly took its toll on XL’s bottom line in the short term, with its EBITDA from both continued and discontinued operations declining 7% to $16.7m, whilst its P&L plummeted 521% YoY to an $11.8m loss.
Marcus Rich, Chair of XLMedia, commented: “A key feature of the past year has been the progress of our strategic redirection. Pleasingly, this is being delivered against the backdrop of the renewal of our leadership team.
“I firmly believe that we now have our focus on the correct areas and that the quality of our content and our engaged users gives us a competitive advantage.”