Raking it in: Have FanDuel and DraftKings raised their take-out too much?

Words by Julian Rogers

Price rises are very rarely met with widespread customer approval. So when the two biggest names in DFS quietly increased the rake – up 1% to almost 16% for certain guaranteed prize pool (GPP) contests – ahead of Week 4 of the NFL season, it caused quite a backlash on a prominent DFS forum and on Twitter.

In fact, certain players threatened to boycott DraftKings and FanDuel and take their bankrolls and their business elsewhere. Others vowed to eschew the higher-raked games and scale back their play on both sites. On face value, getting irate about a 1% rake might seem like a storm in a tea-cup, but the rake has slowly been creeping up over the years. Four years ago, it was an industry-wide 10-11% for low- to mid-stakes GPPs.

For Aaron Hendrix, staff writer and assistant editor at DFS resource site RotoGrinders.com, it was the lack of an official announcement by both companies that irked him most. “My problem with it is how they went about it; just doing it surreptitiously in the night and not telling anyone and letting us figure it out on our own. They didn’t communicate it all.” Furthermore, he says the fact that both operators increased the rake at roughly the same time set alarm bells ringing. “I thought it was very suspicious how both sites did it on exactly the same day. It’s like they coordinated it. It gave me a very uneasy feeling that they are working in tandem when they are not supposed to be.”

After the aborted merger this summer, DraftKings and FanDuel went back to operating as entirely separate companies, and rivals once again. A plausible explanation is that one company simply decided to immediately follow the other’s move, but its notable that the merger was blocked in the first place in part to protect consumers from rising costs. Either way, a major decision like this had probably been in the planning for some time. Chris Mazzone, who previously held senior marketing roles at DraftKings and soccer DFS site Mondogoal, says a rake hike is never an off-the-cuff decision. “The idea that these companies make these changes on a whim is kind of naïve. They have teams of analysts evaluating the ecosystem daily and making recommendations for how they may be able to make changes, and what things they should test.”

He adds: “Rake is not much different than determining a price point for a product. The acceptable level of rake is the highest you can make it to maximize your profit.” DraftKings and FanDuel didn’t go as far as to lift rake in cash games, defined as head-to-heads (H2H), double-ups and 50-50s. Instead, the rake increases mostly affect the lower-stakes GPPs. For instance, FanDuel bumped up the rake of its $200,000 guaranteed NFL ‘Dive’ contest ($1 entry) from 14.99% to 15.99%. At the time of writing, the $1.5m guaranteed ‘Play-Action’ contest ($3 entry) on DraftKings for Week 6 of the NFL is raked at 15.9%, while its headline contest – the $4m guaranteed ‘Millionaire Maker’ – is now 14.97%. According to an article published on CalvinAyre.com in September 2016, the rake in this same contest was 13.5% at the time.

Not so smart casual

The vast majority of low-staking, recreational players won’t even notice how much cut a site is taking, let alone whether the commission has increased and by how much. For them, DFS is entertainment. It’s a second-screen experience while watching sport and a chance to scoop a life-changing sum of money for a modest outlay. The reason they don’t notice the rake, though, is because it isn’t clearly visible . Users can ameliorate this opaque arrangement by downloading a browser extension from RotoGrinders.com, which displays the rake – or margin – as a percentage and overlay next to each contest, while DraftKings recently published its commission structure on a standalone page. Yet some question why the sites aren’t more upfront about their rake, especially in the wake of all the legal challenges the industry has faced.

“The sites continue to force customers to calculate rake for themselves, essentially hiding it, and also varying it across contests,” Mazzone remarks.

“This shows us that the real belief within these companies is that customers don’t care about rake as long as they don’t understand it, and can’t see it. There is obviously a fear that if they are transparent about the site fees, they will start to lose casual players and may not be able to convert as many new customers to cash players. So, the problem I have, as a customer, isn’t testing an increase in rake, it’s the companies feigning a desire to be more transparent, but continuing to only actually be transparent to the point that the emerging laws force them to be.”

At the higher stakes, rake is always considerably lower across the industry. For example, an upcoming $100 NBA GPP on DraftKings is raked at 10.7%, while the rake for a $1,500 contest for Week 6 of the NFL is just 5.56%. But unlike poker where the pros don’t tend to play low-stakes games as it’s not worth their time and effort, high-volume DFS ‘sharks’ will often also enter cheap GPPs. Even a small rake rise will, over time, put a dent in a player’s ROI. Hendrix says: “An increase of 1% isn’t going to impact anyone over a month, or over a year, but over five years it will have that trickle down effect where instead of losing 1,000 people because of the rake, you lose 1,100 people. So the higher you increase the rake, the more money you are taking away from the player pool. If they increase the rake then they need to make sure they are bringing in new players.”

Step this way, Sir

With certain regulars expressing their anger at the leading duo’s decisions, DFS operator FantasyDraft was quick to try to capture these disgruntled players’ business. The site started using the hashtag #LowerTheRake on Twitter and also deployed it as a promo code. Meanwhile, new users were offered rake-free play from the Thursday to the Monday of NFL’s Week 4. “It was very effective,” says CEO and co-founder Stephen Krombolz. “We had hundreds and hundreds of people take advantage of it. We also had an uptick in players who didn’t take advantage of it and just moved over. So it was good for us.” As well as permanently offering rake-free H2H games, Krombolz also stresses that his site has never raked a contest above 12.99% and they have “no plans to raise it” anytime soon. “We also run a lot of contests with overlay because we are still building our player base, so the effective rake is a lot lower than that.”

Of course, threatening to boycott the market leaders is one thing. Actually following it through is something entirely different. The truth is DraftKings and FanDuel are where the liquidity and massive prize pools can be found. In fact, the main GPPs filled for Week 4, which means the rake increases added more money to the sites’ coffers rather than hurting business. “The likelihood of a significant number of the vocal minority reducing their action by an amount that would impact these sites is small,” says Mazzone. “If any of them do leave, they are also the easiest customers to bring back, which is why it would be bad business if DFS companies didn’t see how far they can push the rake.” Mazzone continues: “It makes sense that other sites are trying to capitalize, but I don’t see anyone moving the needle significantly long term by offering marginally lower rake. The customers who care about and understand rake are willing to pay more for the better product and bigger contests.”

However, DraftKings also triggered further dismay among some players by removing the Sunday Night Football game from its main slate of contests and slashing the number of options on most tiers in its quick-draft Pick’Em NFL games. Along with accusations of softer salary pricing for the classic contests this NFL season, critics say these changes make DFS a less skillful product. But that’s arguably the point. Mazzone suggests the majority of the changes and new features are designed to bring in new customers, level the playing field, improve the experience for the majority of players and increase the rate money is turned over. In other words, the less time money is locked in live games, the better. “There is no doubt that in a perfect world for DFS companies, the game is short term and as close to a coin flip as possible, while making the user believe their skill plays a significant role in the outcome.”

Mind the gap

While much of the industry’s growth has been fueled by the high-volume, analytical DFS pros shelling out five- and six-figure sums on contests, competing with these more sophisticated players has deterred many casual users. An attempt to close the skill divide and protect the player ecosystem is much like how many online poker sites turned their backs on the multi-tabling pros a few years ago with more recreationally friendly features and simplified versions of the game. “They are trying to gear games towards the more casual users who are not interested in spending hours researching their draft picks,” Krombolz states. “Subsequently, there is less edge for the skilled player who is very interested in spending the time to build a complicated model or all kinds of research to find an edge. The quickest way to reduce that edge is to raise rake.”

FanDuel and DraftKings have been around since 2009 and 2012 respectively, yet neither has turned a profit after hemorrhaging money in the past few years of marketing blitzes and legal battles. So with the rake increases not hurting liquidity or GPP numbers, you could argue it was a sound business decision. FanDuel especially is rumored to be targeting short-term profitability ahead of a potential sale.

However, the fear some players have is that either or both operators could try to push rake even higher in the near future. Perhaps to 17% or even 18%. After all, DraftKings and FanDuel know full well they have the head-turning prize pools, brand presence and now control an estimated 95% share of the space. “People want to boycott FanDuel and DraftKings because of the rake increases,” Hendrix says, “but the real truth of the matter is they can’t because there is no other place to play.”

Both DraftKings and FanDuel declined the opportunity to answer our questions, although DraftKings did supply a statement from Matt Kallish, co-founder and chief revenue officer, regarding the rake increases. “DraftKings is committed to providing the best value to daily fantasy sports players of all experience levels. 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 raised our rate by less than a third of a percent in aggregate, which enables us to make important investments to grow the industry.”