If someone offered to buy your affiliate business for 3 months of prior revenue in cash would you:

A) snap call

B) consider it

C) consider it but aim higher

D) LOL







But it got me thinking. How are these types of businesses valued?


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Kahn

If we are talking revenue and not profit, i would choose A and snapcall.

The profit margin for affiliates are so small that it would take a long time to make the amount offered by having the business.

It's that small for affiliates poaching high volume players and offering deals with little to no margin. If you have a sound business model, bringing actual NEW players in to the sites, and know what you're doing it's definitely D).

Many variables would need to be considered.

If it didn't have any organic signups, then at a very basic ballpark figure I'd be going for around 6 months gross profit.

If it had organic signups, then I'd be looking at maybe closer to 9 months.

But that is a really basic way at looking at it, in practice I'd do a forecast on Excel to see what I'd expect the future cashflows and do various sensitivity analysis / what if scenarios to place a true value for me of the business.

Adding a little detail, I'd:

Estimate the next 12 months commission based on me spending only the bare minimum time (replying to emails if it's that type of affiliate business). This would include worst case and best case scenarios e.g. worst case would be commission falls by around 20% per month, best case commission falls by around 5-10% per month

- put a $ time value on the time spent replying to emails etc, effectively my opportunity cost

12 month commission less time value gives me the profit I'll make over 12 months.

12 month is just a figure I feel I could reasonably aim to forecast, anything past 12 months I'd consider bonus money. Also, I'd expect anything past 12 months to be very low, given I am assuming I wouldn't be spending any time promoting etc.

So this gives me a range from best to worst case profit I'd make.

I then compare this to the price I'm being offered and decide if there is value in it for me.

Note as part of the best/worst case scenario, I'd be looking at things such as number of players, which networks the players are on, to help me gauge the variance I could be facing. As we all know, 10 players on a small microgaming skin generating $2k commission/month is worth far less than 100 players mixed across 888 and party on rev share deals generating $2k commission per month.

I'd then also review the opportunities available - what skills do I have that could grow the business that the current owner doesn't have, or was he lazy? I'd then estimate the potential to grow the business, and the associated commission I'd gain from this, vs the costs + time costs of growing the business.

So overall, I'd perform to reviews:

1) Decide if it's profitable to just spend the minimum time and receive a monthly commission payment, based on the price I am paying upfront + minor time costs + any other costs such as hosting etc.

2) Even if 1) is or is not profitable, I'd also look at whether devoting time and money into the site could lead to a profitable site for me, based on the upfront cost + ongoing marketing/development and associated time costs.

Also one of the most important factors is to find out in detail why they are selling and do some research on the seller and their business to estimate the risks of being scammed.

Just my thoughts

john

Yes, perhaps I misstated. Can you define revenue in the terms you are thinking of? I had intended "monthly net profit*3"


Certainly NOT this.

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Kahn

Thank you for your thoughts John. Verbose, yet informative every time! Much appreciated

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Kahn

it really depends which room we talking here or which network

plus, what type of players he has or subaffiliates

if he has value subaffiliates im sure this is a snapcall with a big LOL

you really cant give a good advice if you dont know the facts


plus im sure you mean comission, so if his comission is $3k monthly , and he wants 9k i think depends on the room its very low and a good deal

i would say aswell depends on many facts it can go up to 12 months in comission

Are there really that many affiliates that sell their business @0.25-0.50 P/E? I know times are tough but would never have guessed they went this low.

I think a major consideration for someone buying an affiliate business is what type of access they will have to a more recreational player and newer players in general. The "poker professional" market is already over served and moving forward affiliates will have to find ways to access new players who don't currently use 2p2 or other poker forums.

Additionally, as poker regulation marches on, affiliate commissions are likely to decrease for a number of reasons. Even worse, the bigger players might not even use affiliates or may not offer offer revenue share plans if they do.

An affiliate business that has no real way of acquiring new players may get purchased for a really low P/E (.5 seems crazy though). If the business had a site that recreational players visited for reasons other than rakeback, articles and videos for example, that type of affiliate business should see a much higher P/E but I guess the business described is more than "just an affiliate business."

Another thing to consider is owner operators bring a lot of the value to their smaller affiliate business. They have personal relationships with a number of players and most of their signups are by word of mouth. Once the owner leaves new signups could slow or even stop all together if the transition is not handled correctly.

3 months of monthly net profit is a big LOL

12-18 months would be reasonable given how temporary everything is in online poker but still lower than many affiliates would probably sell for. 18-36 months is the sweetspot where you'd probably get a lot of people willing to sell, if you were a buyer. If it's a business with any kind of a moat, a strong brand name and a loyal following, it could still be a good (possibly great) investment at that price.

I agree with Matt's post.

We recently acquired a site that derives the majority of it's revenue from affiliate deals and advertising, but because the site provides so much content and thus has a great organic traffic base we paid quite a few times it's current annual profit.

Something else that needs to be considered is the site's potential. If you were to consider buying a site that pretty much only offered great sign up deals and rakeback, what could you hope to do with it? Could you make it better or boost it?

All very interesting anyway.

Jamie

Kahntrutahn did someone offer you their business for this much? If so, it's really a question of working out how likely you are to retain that rake post sale.

Your number one priority is recouping the money you paid for it.

Jamie

I could sell it for 0,5M$ only. Are there any buyers?

Are we talking about scratch affiliate start ups? Or PAS startups. I'd imagine they would have different valuations. For example. Say my site rakes in 2000 mgr and I keep 30% of that, for 600 a month. What would my site be "worth" if I wanted to sell out?

Unfortunately, nothing.

Your revenue is small and contingent on a handful of players. There is no brand, I doubt any organic traffic is coming to the site on a regular basis and unless you have a great domain name or some kind of undiscovered USP, there is little potential.

Jamie