How are Fantasy Sports sites making money?
The fantasy sports industry continues to evolve as daily fantasy sports continue to grow. Once a hobby that was played for a full season including spending time drafting players to trades during the regular season to the end of year being crowned. Now with daily fantasy sports fantasy owners can draft a new team daily or weekly with a chance to walk away with real cash money.
Along with the chance to build a new team daily, win a variety of cash prizes but also have a chance to walk away with million dollar cash prizes. With all of these cash prize payouts it leaves many people wondering how do these sites actually make money if they continue to pay out big cash prizes.
That one simple answer is through a rake system that is set up on the site. For example if 100 people signup for a $10 contest the cash take in would be $1,000. The contest will reward out the top 15 places paying out a total of $850. This would result in the website making $150 on this one contest.
While it doesn’t seem like much the larger websites like FanDuel and Draftkings have thousands of different events that go on any giving day for MLB, NHL and NBA and every week for the NFL. The large quantity of events in return allows the websites to make cash on each event.
Before we look a few of the sites here is how to figure out the rake percentage.
Entry Size – 100 entries / Cost to enter – $10 / Payouts – $750
You would multiple the entry fee ($10) x entries (100) equaling $1,000 total buy in.
Rake would equal (Buy In Amount – Payouts) divided by Buy In Amount
So for this example ($1000-$750)/$1000 = 25 percent
Here is a little deeper evaluation of the rakes for a few of the top Daily Fantasy Sites.
Fanduel Rake Example
The site has some of the highest rakes of all the fantasy sites but they also have one of the largest followings of all the daily fantasy sites. Much of their success has been through the endless marketing the site has put into the company over the past few years. The sites rake percentage is based on the amount of the tournament or contest you are entering. The rakes lower in value the more expensive the buy in is for each contest.
So taking a look at the FanDuel Tournament above which is a tournament they have during the NBA. Once the league fills up the total entry fees raised will equal $8,500. The site is paying out a total of $7,500 in prizes earning the site a $1,000 profit.
($8500 buy in – $7,500 prizes) divided by $8,500 = 11.8 percent rake
Draftkings Rake Example
Much like FanDuel, DraftKings is one of the major leaders in this industry and is paying out in the same neighborhood. For example if you are playing a $.25 entry which is a nice low buy in DraftKings earns a rake of nearly 15% but it lowers to 10 percent for games between $1 and $22. The lowest rake the site earns on are contest that are $530 or more in which the site earns a rake of 5.6 percent.
So as you look at the tournament above DraftKings brings in $4,400 when they fill this league. The site is paying out $4,000 in cash prizes earning the site a $400 profit.
($4,400 buy in – $4,000 cash prizes) divided by $4,500 = 9 percent rake
Fantasy Draft Example
One of the newer daily fantasy sports sites on the web that is slowly making a name for themselves based on their referral program. Despite being a much lower site their rakes fall much in line with the larger sites.
So when you look at this tournament on Fantasy Draft it brings in a total of $550 when all 22 spots are filled. The site is paying out $500 in cash prizes earning the site a profit of $50 dollars.
($550 buy in – $500 cash prizes) divided by $550 = 9 percent rake