Due diligence of an online casino website is one of the most important steps when it comes to buying a casino website – and this step is done by the buyer, after he made an offer for the business, which the seller accepted, and signed a LOI (Letter of Intent). For large website or online businesses, due diligence is the most lengthy aspect of the business sale process. As it’s a very important step to take.
It can be tricky, but if you take a different approach, a more structured approach with lots of details, you can finish it without any problems. It is always good to keep in mind, due diligence issues when taking the steps to evaluate an online casino site.
Why Due Diligence?
When you invest in a business, you need to take into consideration many factors of risk the business may have; due diligence should be done online and offline, examining a variety of different perspectives. It can influence your final decision-making, and final negotiations with the seller.
Prior to making a full commitment to a legal binding contract, an individual or business has to do due diligence because it’s a critical step. It can give you peace of mind, when conducted well and with appropriate care.
Online Casino Business Due Diligence
Due diligence can be considered science and used as art. In simple terms, if you want to learn how to do it, you need to remember there is no wrong way to do it. Many buyers take different approaches when they perform this important task, but the information might differ substantially from one person to another.
Smart investors will take inquisitiveness, collecting as much data as they can before the final decision is made, and before they sign the contract. If you might have questions, ask a casino broker from CasinosBroker.com for help.
Due diligence can be done in different ways, the level can depend on the investment size, as well as the internet business, either sportsbooking or casino website for sale.
Let’s dive into six keys of the process for due diligence, of an online casino business.
- Traffic
- Financial
- Owner
- Operational
- Technical
- Legal
It depends on the type of investor as many parts of the process can be more important than others. For some businesses it will matter more than for other business models. Either way, it is very important to do your own due diligence process.
1) Traffic Verification
When it comes to verifying the traffic of the website, we’ll need to look at traffic reports which are coming into the site, checking for differences, anomalies, and lastly, the link profile of the particular website, which needs to look natural.
Transparency with the seller is an important factor. You have to make sure that any purchased traffic is present on the income statement, and resonates with cash spent and traffic generated. Some websites have Google Analytics installed on them, some have other traffic analysis code snippets added to the website. If the seller of an online casino website is buying traffic, without disclosing it, there might be problems of trust with the seller, and be a material misrepresentation.
Another factor to take into consideration is paid links or sponsored links, which are not declared to the buyer. Traffic sources can look legitimate, but we’ll need to go further, to validate every traffic source. Let’s take a simple example: Online Casino Website “A” seems to rank well by the help of it’s links pointing to different pages and to it’s homepage, but in the true nature of it, the seller purchased sponsorship links for thousands of dollars or euros a year, which is actually helping him with the rankings in Google, Bing, Yahoo and other search engines. It is always a good idea to examine the link profile with tools found below. A buyer needs to examine the link profile, backlinks which were added in the last 6 to 12 months, and ask himselfs or herself if the links are naturally added, by people linking naturally to the seller’s website.
Other things which a buyer needs to look at:
Average time on a website – How long does each visitor spend on the particular website (on average? If it’s below 30 seconds, then it means the website’s content and design (UX) is of poor quality.
Number of web pages visited by visitors – How many pages of the website, the visitor is visiting and/or viewing? If this number is high, it means the content (text, image or video) is appealing to the visitor and it captivates him/her. Which is a big plus.
Financials vs. Traffic numbers – How much does a unique visitor generates in terms of revenue. If you compare traffic numbers with financials. If they do not correlate, it’s more than likely the seller has another source of traffic (example: inorganic).
The traffic sources – Traffic sources can be of many forms, organic search, social media, referral, purchased, link traffic, and so on. Where is all the traffic coming from? The seller’s website is relying on a particular traffic source? – this might cause instability. How did these traffic sources evolve in a period of time, and what are the explanations for the changes in traffic numbers?
A good and possibly the best practice to take when you’re measuring, and doing due diligence is to talk to the seller, and ask for Google Analytics access or access to other 3rd party traffic analytics platform the seller uses. This way you can go deeper into the due diligence process by having the true traffic numbers in front of you.
Tools (to use):
2) Financial Verification
As a buyer, you will need to be aware of the business financial details, when doing your overall business due diligence, as it’s crucial to know the historical and current financial details of the casino business you’re interested in purchasing. Be sure to check the seller’s financials and see if he maintained a detailed and accurate financial report or record since the casino site was created.
Buyer needs to audit the financials by checking monthly affiliate or merchant statements, against the bank statements which should be provided by the seller. Tax details or tax returns should be requested as well, but in some cases they are requested less often. Most of the websites or casino internet businesses are owned and managed by companies, and when it comes to tax returns you’ll need to ‘get your hands dirty’ to see the full picture. In most cases you will need a combination of affiliate or merchant statements and also bank records (or bitcoin transactions) to make it work for your due diligence and financial audit trail.
Best way to check the financials of a seller before diving further into the due diligence, is to request a live screen share with the casino website seller, getting access to back-end of the website, affiliate partner site reports, and also if possible online banking platform or portals – this will help you with financial and authentication of ownership.
Another good place to start is credit rating checks, historical, current and future liabilities associated with the online casino business are worth checking and tracing – this will help you with the financial perspective, making your final decision easier, as at this point you will know if the online business is healthy or unhealthy.
Tools to consider for the financial part:
3) Owner Verification – Who are you dealing with?
Owner verification is important, and it’s also an obvious need. Is the owner telling the truth about who he/she is? In the online world, the sellers and buyers don’t meet face to face during the sale process. Verifying the identity of the owner can give you peace of mind, knowing more about who actually owns the casino asset; company history, company information and reputation, and a legitimate audit trail is an important step in this verification.
You can go on social media, and verify his identity. Use sites like LinkedIn, Twitter or Facebook, and if the sellers identity doesn’t show up, you’ll need to keep exploring on other platforms as well. ScamAdviser.com is a good website to check the sellers trustworthiness.
Tools to consider:
4) Technical Verification – Investing in a burning platform?
When it comes to the technical version and technical verification of a website, we have to take into consideration the buyers technical levels, and the technical risk. The buyer needs to be comfortable with the website technology used. If the website is fully migrated on your web server, you, as the buyer, wouldn’t want to be left in a position where there are technical issues, which can jeopardize the business operations. Ask yourself: do I have to get in touch with in-house programmers to change the code of the website if there is something needed? Is the website code clean? Can it be modified cheaply and quickly, if I require it?
If we’re talking about WordPress CMS, be sure to check the plugins and theme of the website, check if they are paid and licensed by the seller. You don’t want a website with nulled / cracked plugins and themes. If it’s custom-made website, ask for a sample of the source for your audit, to get more comfortable with the annotation of the code and quality of it, for future amendments.
Useful Tools:
5) Operational Verification
The buyer needs to verify the time required to operate the business successfully, before making the formal offer for the seller. It is important to know the time and effort needed to run the online casino website smoothly. The seller should help by explaining what is needed, breaking down tasks, estimation of the work hours required, and responsibilities.
This information needs to be analysed and it will give you a nice understanding of the tasks involved in operating the Internet casino site.
6) Legal Verification – The Law
Is the seller operating an illegal website or internet business? It might be illegal in some countries, but not in your country, and vice-versa. Opportunities for growth can be limited or constrained, this can limit the value you are placing on this particular business. Take into consideration the following: in the seller’s country, it’s legal to operate such an internet casino business, but in your country it can be the opposite, not necessarily legal.
Tools:
Final Thoughts – Online Casino Site Due Diligence
To arrive at a conclusion, the due diligence process is a critical step in any major casino business transaction; due diligence helps sellers and buyers before taking any important decision. If there are unclarity things, they need to be discussed before the purchase decision.
You don’t need to be afraid of approaching in different ways, based on specifics of the particular transaction. Above you have six steps, outlining the process of a due diligence for an internet-based business.
IMPORTANT: NEVER buy an internet-based business or website without doing real due diligence.
