How Lower Rake Dramatically Increases the Percentage of Profitable Players
At Fantasy Sports Live we lowered our rake in all Heads-Up Leagues to a range of 6% to 7.4% late last year. It was one of the best moves we have made post launch, as our business has dramatically increased since we made the change. Prior to that, we had a 6-9% rake structure for Heads-Up fantasy leagues. Industry standard is 10% with some sites changing even higher than that. We lowered our rake for many reasons, but the primary one was to allow for more of our users to be long-term profitable playing Daily Fantasy Sports. When I say long-term, I am talking over 1000+ Heads-Up leagues. When we analyzed how many of our best players were long-term profitable, the percentage was simply too low. We see this as one of the reasons, that daily fantasy sports has had difficulty in gaining traction, even though it is so compelling on the surface. The nice thing about lowering the rake, is small changes in rake percentage can have dramatic effects on the percentage of players who can be long-term profitable. To understand why this is the case, I will need to go into some statistics and cover what is called a Normal Distribution. In every heads-up league we have one winner and one loser. The mean winning percentage is 50% over all competitors. Most players winning percentage is very near 50% and has you move away from 50% you find fewer and fewer players that deviate that far from the mean. You have a classic bell curve distribution of winning percentages in heads-up fantasy leagues.
At a standard 10% rake you would need to win 55.6% of your HU leagues to break even. For the sake of this post, I am going to assume that 4% of all players can beat a 55.6% rake long-term. The percentage of winning players in online poker is know to be around 10%, and it is also known that the percentage is lower than that for daily fantasy sports. So assuming the percentage of players who can beat a 10% rake Daily Fantasy Sports long-term is somewhere between 0 and 8%. I split the middle to use 4%, but the actual percentage is not that important to show what lowering the rake does.
So for a 10% rake with 4% beating it you get the following Distribution.
The red area of the curve indicates the winning players, and the gray area under the curve indicates the losing players. Now let’s say that you lowered the rake to 7.5% for a 25% rake reduction from 10%. You would get the following curve.
As you can see, you have more than doubled the number of winning players by reducing the rake by 25% as now you only need to win 54% of your leagues to break even. As the rake gets lowered you capture more and more players into the “winning” area of the curve. This is the power of the normal distribution. 7.4% is our standard rake at FSL for all Heads-up leagues from a $2.70 to $54 entry fees. We also offer even lower rake at our highest buy-in levels. At the top, our rake goes down to 6% which requires a 53.2% winning rate to beat long-term. Below is what that would look like.
Now we are talking! The move from 7.5% to 6% more than doubled the number of players that can be long-term profitable. Going to the extreme of 0% rake would allow 50% of players to be long-term profitable. The daily fantasy sports industry is young and still trying to find out what works best. What we have found at FSL is that rake levels are very important if you want at least 10% of your players to be long-term profitable, as in the online poker industry. You pretty much have to lower your rake to get there. Player liquidity is removed by rake primarily. Lower rake allows players to play longer before the liquidity is removed. It still ends up gets removed either way. We count on our players to play more as a result of the lower rake, and they have. If you are close to break-even now, and would like to be profitable, all you really need to do is play at FSL. Our lower rake can make all the difference in the world.