The cut that they take went up in some of their NFL contests, a move that was not popular with a wide range of their most loyal users on social media on Monday.
What is rake in DFS?
First, here’s a quick primer about “rake” in DFS, in case you’re not familiar with the concept.
When a DFS operator creates a contest, it has a prize payout and a maximum or required number of entrants. The difference between the entry fees paid by players and the prizes paid out is the “rake.”
This is where revenue comes from for DFS operators.
There are two types of contests, generally:
- Contests that must fill to run, generally with a small number of entries. These contests always have a static rake.
- Guaranteed prize pool (GPP) contests, which can have hundreds of thousands of entries. These run regardless of how many people enter. As a result, these have an “effective rake” if they fill (which they usually are designed to do). In reality, the rake can vary depending on how many people actually enter. If a contest doesn’t fill, its effective rake goes down.
The easiest place to see rake on display is in two-person “head to head” contests. For example, H2H contests at DraftKings and FanDuel with a $10 entry fee award $18 in prizes. Since users are paying in $20, the rake is $2.
What happened Monday with rake
It’s important to note that increases were not across the board, and were actually fairly minimal. But rake has crept up at DraftKings and FanDuel over the years. And then Monday saw increases in some large GPP contests, to a rake of 16 percent in some cases.
Monday’s increases were apparently a bridge too far for a number of players who were upset with the changes, some more vocal than others:
DraftKings co-founder Matt Kalish offered that the latest increases were small in the grand scheme of things, and that the money it takes in is often reinvested in its product.
“DraftKings is committed to providing the best value to daily fantasy sports players of all experience levels,” Kalish told Legal Sports Report. “We’ve invested more than any DFS provider to create the best platform with the most sports and contest types, the largest prizes and the biggest active player base.
“While we understand our players want the lowest commissions possible, in order to continue offering an unmatched level of service and innovation, we have raised our rate by less than 1/3 of a percent in aggregate, which enables us to make important investments to grow the industry.”
Also on Monday…
The rake increases also came as DraftKings took the Sunday Night Football game off of its “main slate” of contest — the one that includes the Millionaire Maker among many other contests. That’s another move that was widely greeted as unpopular, and primed the pump for displeasure with the rake increase.
That decision was explained thusly by a DraftKings representative:
Of course, Monday Night Football used to be part of that same “main slate” and was dropped previously, as well.
Rake and the DFS industry model, ecosystem
Let’s start here: No one likes paying more rake. That’s always been the case in online poker, and it’s the case in DFS.
But the rake, as it increases, makes the contests more difficult to be profitable for anyone, including high-volume pros. The more money being paid to the sites means less money going to players.
Therein lies the rub. DraftKings and FanDuel make their money from rake. And there are basically two ways for them to increase how much money they make:
- Acquiring a lot more customers that pay rake.
- Make existing and future users pay more rake.
While DFS is growing, it’s not at the fast rate that had been forecasted in the salad days of 2015, when both sites raised hundreds of millions of dollars.
In the wake of a merger that didn’t go through, both sites have to focus on turning their companies into profitable ones. That means trying to make more money. And making more money could be done by raising rake.
At the end of the day, market forces will determine if the rake is actually too high. Will people actually stop playing, or is there a tipping point at which rake is simply too high to sustain the ecosystem? DraftKings and FanDuel would certainly lower the rake if that became evident.
Alternatives to DraftKings and FanDuel?
Some players have said they’ll move their action away from either DraftKings and/or FanDuel in protest.
The proof of that is in the pudding, of course; the combo of the SNF decision with the rake changes seems to have annoyed players at DraftKings more than its competitor. But there’s no denying that DraftKings has bigger contests and more liquidity right now, so it’s not likely a protest will hurt unless it becomes widespread and longer than a week.
Where once there were a number of sites that might cash in from displeasure with DraftKings and FanDuel, the list of DFS operators today is fairly minimal. Those that adhere to the salary cap model are basically just Yahoo and FantasyDraft. Other alternatives in the DFS space with a different way to play are Draft and Boom Fantasy.
One of those is trying to cash in on the sentiment against the “big two.” If you sign up at FantasyDraft with the promo code “LowerTheRake,” the site will refund all rake paid on play through this Sunday, Oct. 1. (See the site for details.)
FantasyDraft already offers rake-free head-to-head contests, and claims a maximum rake on all of its contests of under 13 percent. The site also has a $1 million live final for the NFL season.