Strategies for assessing the selling price of iGaming affiliate websites

Are you interested in buying or selling an iGaming affiliate website? You may have asked yourself before “what is this thing really worth?”.

Most of the time when setting the price as a seller they generally rely on a combination of the sites turnover, EBITDA, and pure profit to evaluate the business. However these metrics alone won’t be enough alone to fully assess the strength of a business. There are many other factors to consider.

Below I’ve put together a comprehensive guide detailing some strategies to determine the fair value of an iGaming affiliate website.

In the context of writing this post, assume that I am a buyer looking to buy a website and I am going to tell you what traps to avoid. There is one main trap that you should avoid – focusing on one single metric and ignoring the full picture. For instance, profit, which is usually the most tempting metric to use.

If, however, you are a seller and you are looking for methods to evaluate your business, the information in this article might also be helpful in assessing its value before putting it on the market. You will learn what a buyer’s perspective is, and by knowing this, you will also be able to make a more accurate valuation.

1. Multiple of revenue

It is probably the most straightforward valuation method, which is why I started with it.

By analysing the revenue of a company you will gain a clear understanding of the top line performance of the business.

The revenue is the total income generated by a business from its primary operations before deducting the expenses. It’s the total sales, or the total turnover generated by the company.

The multiple of revenue valuation involves calculating the value of the business by multiplying the annual revenue with a certain factor. If a website generated 200,000 EUR in the most recent financial period and the multiple used is 2x, the valuation would be 400,000 EUR, which is just elementary math.

The question that arises is, what should the multiple of revenue be – is there a standard in the iGaming industry?

The short answer here is that “No, there isn’t”. You may ask why not, and it is important to understand the context around why ratios differ. To build the context step by step, once you have analysed the company's turnover or revenue figures, it’s essential to evaluate the profitability metrics.

2. Multiple of EBITDA

EBITDA is an essential metric that provides insights into the website's operating performance before deducting interest, taxes, depreciation, and amortization expenses.

The method involves calculating the value of a business by multiplying EBITDA by a certain factor. As an example – if the website has generated an EBITDA of 100,000 EUR in the most recent financial period, and the multiple used for valuation would be 3x, the valuation would be 300,000 EUR.

The same question here – does the iGaming industry have a standard when it comes to multiple of EBITDA?

No, it doesn’t. The multiple may vary from one transaction to another. This is why it’s crucial to consider other factors too when assessing the value of an iGaming affiliate website, such as market dynamics (regulation, operators active on the market), growth potential, positioning on the market, the quality of the traffic, revenue streams, brand reputation, brand strength and so forth.

But is EBITDA really going to tell us how profitable the business is? Yes and no – it depends on the accountant 😊. EBITDA is a metric that is quite easy to manipulate, intentionally or unintentionally, by adjusting accounting practices or capitalizing certain expenses, resulting in an inflated valuation. The same can be said for profit.

3. Multiple of profit

Down the line, we continue with profit. After analysing the turnover, and then the EBITDA, the profit comes next.

The logic is the same – if a website generated a profit of 50,000 EUR in the most recent financial period and the multiple used for valuation is 5x, the valuation would be 250,000 EUR.

Similar to the previous valuation methods, the multiple of profit may vary from one transaction to another, so don’t look for standards or a universally true approach. Furthermore, like in EBITDA’s case, profit can also be influenced by accounting practices and adjustments, which may impact the accuracy of the valuation.

While revenue, EBITDA and profit can provide valuable insights into the company’s health, they should be used in combination with other financial metrics, as well as non-financial metrics, to gain a broader perspective.

Out of the 3 methods I described above, multiple of profit is the most comprehensive valuation method, in my view, as it reflects a business's bottom-line earnings.

4. Discounted cash flow analysis

The valuation method is a bit more complex than the previous ones and involves forecasting the future cash flows generated by the website and discounting them back to their present value using an appropriate discount rate.

Step 1: Forecasting future cash flows

The first step is to forecast the future cash flows that the website is expected to generate over a specified period of time, in general, 5 to 10 years.

Let’s assume that you have forecasted the following cash flows for the next 5 years:

Year 1: 50,000 EUR

Year 2: 60,000 EUR

Year 3: 70,000 EUR

Year 4: 80,000 EUR

Year 5: 90,000 EUR

Step 2: Determining the discount rate

In the first step, you made a forecast for the next 5 years. But those are “future money”, now we have to bring them back into the present. The discount rate is basically a way to figure out how much less valuable money in the future is compared to money that you have right now.

Determining the discount rate involves considering various factors such as the website's risk profile, the expected rate of return, and the inflation rate. A higher-risk investment would have a higher discount rate, while a lower-risk investment would have a lower discount rate. For simplicity, we will consider a discount rate of 10%.

Step 3: Discounting future cash flows

Once you have forecasted the future cash flows and determined the discount rate, we can calculate the present value of each year's forecasted cash flows by using the following formula:

Present Value (PV) = Future Cash Flow / (1 + Discount Rate)^n

OR

Present Value (PV) = Future Cash Flow divided by (1 + Discount Rate) raised to the power of n

Where:

PV = Present Value

Future Cash Flow = forecasted cash flow

Discount Rate = rate used to discount future cash flows

n = number of periods into the future

Now let's calculate the present value of each cash flow using a discount rate of 10%:

Year 1: 50,000 EUR / (1 + 0.10)^1 = 45,455.45 EUR

Year 2: 60,000 EUR / (1 + 0.10)^2 = 49,586.78 EUR

Year 3: 70,000 EUR / (1 + 0.10)^3 = 52,913.01 EUR

Year 4: 80,000 EUR / (1 + 0.10)^4 = 55,373.37 EUR

Year 5: 90,000 EUR/ (1 + 0.10)^5 = 57,008.52 EUR

Step 4: Calculating the present value of all future cash flows

Total Present Value = PV(Year 1) + PV(Year 2) + PV(Year 3) + PV(Year 4) + PV(Year 5)

Total Present Value = 45,455.45 EUR + 49,586.78 EUR + 52,913.01EUR + 55,373.37 EUR + 57,008.52 EUR = 260,336.13 EUR

What else should you consider besides the financial metrics?

External factors, such as the regulatory environment and market dynamics, and internal factors, such as the quality of the traffic, growth potential, and brand strength, are all crucial to understanding the context. I’ll illustrate my point with some examples. Let’s assume that you have 2 offers on your table.  

Quality of the traffic and revenue streams

Website A generated 500,000 EUR in revenue during the last year with an EBITDA of 100,000 EUR, while website B generated the same revenue but a higher EBITDA – say 150,000 EUR. However, despite having a lower EBITDA, website A might still be a better option due to other factors, such as higher quality traffic sources, better conversion rates, a more favourable backlink profile, or a more diverse and stable revenue stream.

Regulatory environment

In countries with strict online gambling regulations which can be subject to frequent changes, websites that have managed to successfully navigate regulatory challenges and that have strong partnerships with legal operators may be more valuable.

On the other hand, websites that operate in countries with uncertain regulatory environments may be considered as riskier investments.

Make sure you understand the regulatory environment. Continuing with the example of websites A and B, if website B is targeting players from a country where regulation is uncertain, financial metrics are no longer so important since your revenue stream could just stop at any point in time. 

Brand reputation and strength

Considering that websites A and B have relatively similar financial metrics, they’re targeting players from the same country, and the quality of the traffic is more or less the same. However, website A is a much better established brand, built over years of providing valuable content and engaging with its audience, while website B is relatively new with limited brand recognition. In this case, you might be willing to pay more on website A.

Growth potential and market positioning

Website A has experienced consistent revenue growth of 20% year over year and has recently expanded into new countries. Despite having a lower EBITDA compared to website B, website A might have a higher valuation multiple derived from the projected future earnings.

The bottom line

Never make a decision purely based on financials. It's essential to move beyond simplistic metrics like revenue, EBITDA, or profit. While they are crucial to assess the selling price, they must be complemented by a comprehensive evaluation of other non financial metrics. In the end, it’s not about finding the best valuation method, but rather adopting a hybrid approach, a holistic view of the valuation, that considers various factors to have a clear understanding of the full context.