North Carolina Regulator Removes Affiliate Marketing Rule

December 14, 2023
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North Carolina gaming regulators have scrapped a proposed rule that would have restricted the use of affiliate marketers in sports-betting promotion.
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North Carolina gaming regulators have scrapped a proposed rule that would have restricted the use of affiliate marketers in sports-betting promotion.

The North Carolina State Lottery Commission approved its second package of sports-betting rules at a regular meeting on Wednesday (December 13), completing the state's set of regulations ahead of a still undetermined launch date.

A third package, set to govern advanced deposit pari-mutuel wagering, has yet to be released by the commission.

Over the course of the rule-making process, the regulator’s position on affiliate marketers has shifted significantly.

In the initial draft rules, which were released last month, regulations would have prohibited operators from entering into a marketing agreement with a third party “when compensation for such services is dependent on, or related to, the volume of players, wagers placed, or the outcome of wagers”.

Several other states, including New York and Massachusetts, had proposed similar rules earlier this year, which affiliate marketers said would have effectively shut them out from the states by prohibiting both revenue-share models and the more common cost-per-acquisition (CPA) compensation structure.

However, New York and Massachusetts ultimately relented, allowing affiliates to continue to utilize the CPA model while prohibiting a revenue-share model in which marketers profit from lifetime player losses.

North Carolina appeared to be on the same path following a committee meeting last week.

The rule had been amended to say that marketing agreements were prohibited “if the third party’s compensation for such services is determined in whole or in part by a percentage of net sports wagering revenue that an operator generates from users that the third party directs or causes to be directed to the operator or the operator’s interactive sports wagering platform.”

On Wednesday, however, staff recommended that the commission drop the provision altogether.

“Initially, as proposed, this rule was a prohibition on operators working with marketing affiliates,” said Eric Snider, deputy general counsel for the North Carolina Lottery.

“And we've received a great deal of feedback from actors across both the regulated space and the advertising space about that rule.”

Snider said the reason for removing the rule was allowing staff to continue to focus on honing the language governing revenue-share models.

“There was just a desire for staff to spend some more time to understand how these rules are being applied in other states, and wanted to make clear that this idea of revenue-share would not move outside of the advertising context,” he said.

Snider added that one complicating factor was the requirement for operators to partner with local professional sports teams or facilities, with revenue-sharing agreements potentially being a part of those deals.

“There was some looseness in the language that created some uncertainty,” he said.

The draft rule is the second significant one that the commission has removed following heavy pushback from stakeholders.

Last month, the commission abandoned draft rules that would have narrowly defined fantasy sports to exclude pick'em style offerings after several fantasy operators challenged their legal authority to do so.

Sterl Carpenter, deputy executive director of gaming compliance and sports betting, said 14 operators have requested applications from the commission, as well as ten service providers and 34 suppliers.

The recommended submission date to return applications is December 27 for operators that wish to go live on the first possible day.

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