Daily fantasy sports sites are a business, and as such, they need to make money to stay alive. This is accomplished through what’s called a rake. It’s a weird word, but it comes from casinos where a rake-like tool was used by the dealer to collect money left on the table. For decades, this has been the way to describe a casino, or in this case, the website, taking their share of the money.
No one wants to pay extra to play, but the fact is that if we didn’t, the big fantasy sites like FanDuel and DraftKings couldn’t exist. The people that run these sites are passionate about creating an awesome experience for you, but they are also running a very profitable business and have responsibilities to their families and employees.
The rake works a little bit differently at different sites. At DraftKings, you are given a flat fee, and that’s it. If the tournament costs $10 to enter, you pay $10. But if there are 100 people in the tournament, the total payout isn’t going to be $1,000. A portion of that money is kept by the site. Usually, the percentage is roughly around 10 to 15%, depending upon the site and the size of the contest.
Here’s another real life example. DraftKings has a MLB $4,000 guaranteed tournament. The entry is just $1, but they accept 4,600 people to enter the tourney. If everyone enters, the site will have profited $600 by holding that. That ends up being 15% of the entry fees that they keep in the form of their rake. Depending upon the size, this number will fluctuate.
Another good example comes from FanDuel. They have a tournament, also an MLB one, that has a guaranteed payout of $4,500 with a $1 buy in. This particular tournament accepts up to 5,027 players. If everyone joins, the rake equals $527, or about 12%.
Do keep in mind that this is a risk being taken by the site. To stay compliant with the Unlawful Internet Gambling Enforcement Act of 2006, fantasy sites must state what the payout for each and every tournament is before it begins. When it comes to guaranteed tournaments like these, it is a risk for the site because there’s a chance that the tournament might not get enough entries to offset the prize pool. They do have the opportunity to shutdown a tournament if it doesn’t fill up in time, but with guaranteed tourneys, they will not do this. If this happened often, the site holding the contest would never do well, but for the bigger sites, it’s a very low probability of occurring. However, it does end up creating the impression that players in the tournament are getting better value for their money. It’s only an impression because the tournament will more than likely fill. If it doesn’t, only then are you getting more value out of your entry fee. It’s still a nice concept, though, and displays the fact that fantasy sites do care about their clients and are giving back to them.
That’s really what the best businesses do. They create a product of value, charge for it and make a profit off of it, but also ensure that the people that they created that product for are able to get full enjoyment and satisfaction out of it. It not only gives the customer more than what they paid for, but it keeps them coming back as repeat customers. With this in mind, you should not ever be bothered by paying a rake fee to play fantasy sports, but you should also be aware that this is an easy way for a site to take advantage of you. If you’re sticking to the top rated sites, you probably don’t need to worry too much about this. That’s why we stress FanDuel, DraftKings, and DraftDay so heavily here. However, if there is a less reputable site that you are looking at, there’s nothing stopping them from charging a 20% rake if they wanted to. Yes, the smarter fantasy fans would stay away from the site, but they’d still make money off of that high rate. Just be aware, and you will be fine.
Beating the Rake: Strategy
The final thing to consider is the fact that a rake does make it a little bit harder for you to make money. The lower the rake, the easier it tends to be to finish in the money. You will want to adjust your strategy slightly to account for this.
Here’s a breakdown of the math behind this. FanDuel has a $100 double up tournament that pays out $200 to each of the top 30 finishers. There’s no difference in prize money, as long as you finish in the top 30. There is a prize pool of $6,000 then, but they accept 66 entrants. That means while your money is doubling, you have to finish better than in the top 50% of finishers to win. You must finish in the top 45%. If you’ve been finishing right around the middle of your tournaments, then, a competition like this would have negative expected value for you. Before you take something like this on, you would want to ensure that you have a good chance of finishing in the top 45% rather than just in the middle in order to overcome the way that the rake affects payouts.