Negotiating Affiliate Contacts
Published 14th June 2016
A few years ago, the vast majority of iGaming operators and affiliate networks offered a standard cookie-cutter contract to affiliates. However, affiliate marketing has grown rapidly and that growth has spurred a change in the nature of affiliate contract negotiations, giving leaders more of an edge. As the market matures and an increasing number of new players make the game more competitive, affiliates are now getting around this one-size-fits-all approach as they seek – and win – contracts with more safeguards and protections. This article provides practical advice for affiliates by setting out the main contractual terms that they should seek to understand and, if necessary, negotiate with their clients - operators and networks alike.
Read the contract
It might go without saying, but you should always take the time to carefully look at all of the terms of a contract, not just percentage commission. The other side may seek to impose obligations on you that are unacceptable, or others that you don’t like but which you could live with if you had to. Have this in mind when you read the contract and, if there’s anything you don’t understand, have a qualified legal professional review the provision and explain its meaning.
Assess your bargaining power
In theory, all terms of an affiliate contract are negotiable, but your negotiating power depends on your bargaining strength and whether the market is hot or cold. If you are dealing with a new operator or network which has yet to test (or even formulate) their standard terms, you can probably win many concessions but if you’re dealing with an established operator or network that offers attractive commission coupled with a good reputation for paying, you’ll have considerably less leverage. When necessary, trade off the less important issues to win concessions on the items that are more important. If you sense the client is thinking of turning away from the deal, ensure you emphasise which of the unresolved issues are most key, and focus on reaching an amicable agreement on those points. Notwithstanding the above, many operators and networks will tell new affiliates, “Our terms and conditions are on our website”, but don’t just take this at face value. It’s not unheard of for online terms to be revised without notice, so even if the other party insists on sticking to their standard terms, it’s important to insist that those terms apply throughout the entire term of the contract to avoid having to abide by future changes that are unfavourable. If the other party resists this, get a separate signed agreement that they will obtain your consent in advance before amending the terms and conditions that apply to your contract (or at least notify you of any changes in advance).
Payment terms can be perhaps the most unfavourable to the affiliate, and are the most frequently disputed. Not only do payment terms often state that payment will not be made for a significant number of weeks after referrals are made, but this is often caveated with a number of get-outs, such as a threshold needing to be reached before any money will be paid out, or payment being delayed until funds are actually received by the other party. Understandably, terms like this can cause significant cash-flow issues for smaller players.
In order to combat these problems, payment terms should be clear and affiliates must insist that commission be paid within a defined period of time. If commission payments are delayed, include the right to charge interest on overdue balances. Reducing the amount of thresholds will also assist affiliates to better manage cash-flow and always ensure that, even if the threshold isn’t reached, any amounts outstanding in the affiliate’s favour will be paid out on termination, thus preventing the other party retaining profits simply because the threshold is never reached.
Right to audit
Another issue frequently facing affiliates is the question of how to determine if they are being paid correctly based on the leads or sales they have brokered. Although operators and affiliate networks will have systems in place to recognise when a revenue-earning transaction has occurred, how much revenue is due to the affiliate and when that revenue has been paid, it is not infrequent that affiliates will dispute these figures, and bad behaviours such as player shaving and removing of tags are not unheard of in the industry. In order to reach some form of resolution (without having to revert to litigation – although see below for more on that subject) affiliates can seek to incorporate a right to audit in the contract, which will allow them (or their representative) to review the transaction records relating to their traffic in order to verify the accuracy of payments made. To ensure that they are enforceable, audit clauses must be sufficiently detailed and prescribe the exact rights that an affiliate will have to audit in the event that it suspects breach. For example, by stating that: “A suitably qualified accountant nominated by A may audit such books and records of B as are necessary to verify the accuracy of payments made to A”, rather than simply saying: “A has the right to audit B”.
Excluding and limiting liability
In the event of litigation, arguably the most useful clauses in a contract are those which concern your, or the other party’s, liability. Exclusion and limitation clauses are provisions that seek to limit the rights of the parties to that contract by restricting the liability of one party should the other party make a claim. The most serious effect of not having exclusion and limitation clauses is leaving your business open to unlimited claims. Fortunately however, there are various ways that a party can attempt to limit liability including:
- capping the amount of their liability;
- capping the time within which a claim can be made;
- limiting the type of damage recoverable, for example by excluding unforeseen or consequential losses.
Don’t accept limited or capped liability from the operator without considering your own liability. A well-drafted contract will ensure that both parties’ liability is capped at an appropriate level and that relevant exclusions apply to both sides.
Court litigation is costly and in the event of a dispute, a good contract will contain a dispute resolution procedure which the parties are required to follow. If possible, include audit rights and a multi-tiered dispute resolution procedure to ensure that you can audit the operator to ensure it is remunerating you correctly and, in the event that it is not, you can escalate the dispute quickly and in a logical manner. Affiliate-friendly dispute resolution procedures could include one or more of the following:
- an escalation procedure - this usually involves the dispute being referred to management in the first instance to see if the dispute can be resolved at that level, and then there might be further escalation, for instance to board level;
- a provision for expert determination - if there is a technical matter which is in dispute, the contract might allow for the dispute to be referred to an independent expert;
- a requirement for mediation before formal proceedings are commenced;
- that the dispute be referred to litigation or arbitration - arbitration is a confidential (but binding) formal process before one or a number of arbitrators (an arbitrator may be a solicitor, a barrister or a judge).
Short-cut the process?
If all of the above seems like a lot of time and effort to achieve a few small protections, larger affiliates should consider hiring a legal professional to put together a full set of affiliate-friendly terms, which they can then present to third parties as the only terms on which they will contract at the beginning of negotiations. Although this is usually a more costly option, the terms can be used over and over again and the operator/network on the other side of the table might find it easier to palate a whole new agreement, than accept amendment to their own carefully worded document.
All in all, successful negotiation is a bit like poker in that it requires a sense of timing, creativity, keen awareness and the ability to anticipate the other side’s next move. However, with the right knowledge and determination, affiliates can – and should try to – negotiate with third parties and ensure they contract on terms with which they are happy. Why not give it a go next time you enter into an agreement?
“Affiliates can seek to incorporate a right to audit in the contract, which will allow them (or their representative) to review the transaction records relating to their traffic in order to verify the accuracy of payments made.”