When CBS went live with its daily fantasy sports product, it did so with a major piece of news: There would be no rake, at least to start.
Pretty much every DFS site around takes a percentage of every entry fee to generate revenue. But CBS is eschewing rake for the time being.
For starters, how long will there be no rake?
Right now, that appears to be an open-ended question. Grant Gurtin, director of DFS for CBS Sports/SportsLine, addressed the subject on Twitter:
Not planning to have rake any time in the near future! https://t.co/KetYy0qjMR
— Grant Gurtin (@GrantGurtin) August 3, 2015
In a thread at RotoGrinders, Gurtin gave a little more background. When asked about deposit bonuses:
no bonuses, but we will be staying rake free which provides significantly better value than any bonus in the industry
When asked about the types of contests available:
All of our contests early on are going to be guaranteed but we will be doing a ton of double ups. Our season long fantasy game gives us distribution to find new customers and as long as we are able to fill out games, we have the budget to grow these guarantees every day.
And obviously this one is a bit tongue-in-cheek, when asked how the fantasy platform would make money without rake:
There is a long term business model here, but given that we broadcast the super bowl, I don’t think paying the bills will be a problem
Reading between the lines, it seems safe to bet the “no-rake” model will be employed for a decent amount of time. No rake in the “near future” and “staying rake free” makes it sound like the rake-free experiment should spill into the NFL season, and perhaps beyond.
So if that’s the case, what is the game plan for CBS and SportsLine?
The revenue model, and does SportsLine need to make money?
What we know, so far, is that CBS is offering DFS contests, and isn’t making money directly off of those contests (or at least not yet).
So how does it make money for CBS? One line of thought: It doesn’t have to make any money, at least not in traditional terms used in the DFS industry.
The most expensive part of the DFS industry right now is customer acquisition (see the half a billion dollars DraftKings is reportedly dedicating to marketing and ad spend at ESPN and Fox.)
If CBS keeps its customer acquisition costs low — marketing via platforms it already has access to (TV, radio, CBSSports.com, etc.) — the cost of the platform boils down to development of the platform and the manpower it takes to run the contests.
And, as Gurtin alluded to, CBS is a big company that can eat the cost of powering a DFS platform, as long as it has some value — even if it’s not directly monetary.
So the benefit for CBS is…
Industry insider Michael Rathburn, a DFS analyst and a co-founder of RotoCurve, believes it’s all about driving people to CBS products.
“CBS is looking for eyeballs with its DFS product,” Rathburn told Legal Sports Report. “They keep seasonlong players on the site. They will get some to pay for premium content, and they are also going after sports bettors. And the rake-free model will draw a lot of cash game players in.”
The “premium content” Rathburn mentions comes via SportsLine, which offers subscriptions that include “daily fantasy insights” that appear to be available for DraftKings and FanDuel, as well. There are also sports betting picks as part of the subscription. CBS is banking on the high level of “statistical modeling and expert analysis” put into its product to differentiate it on the market, according to a story at Forbes. And as we’ve pointed out, there is still room for growth and huge upside to content and tools for DFS.
On other fronts, as Rathburn alluded to, CBS is also one of the leaders in season-long fantasy sports. Converting season-long players — or creating new CBS season-long players — and keeping players engaged via a rake-free DFS platform obviously has benefits. The DFS product could also can drive more people to CBSSports.com, and it could be used to generate more viewers for its television broadcasts.
DFS, at its core, creates fan engagement. CBS might just be employing that DFS concept like sports leagues do: using DFS to drive and generate interest. The ancillary value of a DFS platform could outweigh CBS’ need to create direct revenue.
How does CBS and no rake affect the industry?
If CBS can grow its DFS product and keep games rake-free, that could obviously have a large impact on the industry. Stating the obvious: DFS players would like to play contests that feature no rake as opposed to games that feature rake.
For now, CBS is offering mostly small contests, so it’s not going to immediately cut into players who want to play for the huge guaranteed prize pools offered at DraftKings, FanDuel, and even at smaller operators.
But it could start affecting cash-game traffic — smaller field contests without guarantees — at other DFS sites almost immediately, if players start flocking to the CBS platform for the rake-free contests. (Although, right now, some DFS regulars are concerned over how SportsLine will report winnings to the IRS.)
DFS sites — which are already not making a profit across the board — largely cannot afford to lower rake substantially and generate even less revenue. But if CBS starts drawing players in large numbers with the promise of no rake, one would have to imagine that DFS operators would have to react. We may find out if the old adage “if you build it, they will come” works for DFS.
CBS might be trying to find out if a rake-free system can shift the paradigm in the DFS industry. Or, it’s just offering rake-free contests to get people to try the product. Either way, it will be interesting to see if the rake-free model stays, and what kind of impact it could have on the industry in the short and long term.