The Perfect Payout Structure for GPPs
I feel the need to give a precursor to this post. It may feel like I am critical of some sites in DFS. While this is true, I do not want the impression to be that I am unhappy with them.
Quite the contrary: I have been very impressed with the growth and advances in the DFS space in the last year. The big sites get A pluses from me. That said, I have some suggestions!
Al Smizzle recently had an insightful tweet:
(Here’s a link to the prize structure layout)
Al, who also discussed prize payout structures on the forums, was referencing DraftKings’ Slam Dunk #2. It was a $100,000 prize pool tournament with a $100 buy-in. DraftKings released it on January 28th after their Slam Dunk #1, which had a $500,000 prize pool with a $100 buy-in, filled early. The two contests had a big contrast, which I’d like to demonstrate with a simple chart.
Because we’re dealing with percentages, I’ve changed the scale to be logarithmic. This scale shows the difference between each order of magnitude, e.g. 1% vs. 10%.
As a proportion of the prize pool, you’d be much happier in the Slam Dunk #2 instead of the Slam Dunk #1…unless you placed in the top 0.9%! Here’s another way to think about it: the only finishers who’d make more money in the Slam Dunk #1 than they would in the Slam Dunk #2 would be the top five finishers!
The only real benefit to the Slam Dunk #1 was that it allowed DraftKings to advertize a larger first-place prize. The purpose of that, in theory, is to attract more users. While the Slam Dunk #2 was overlaid by 78 users, it still made DraftKings $3,300. This was a tournament that was released a mere six hours from game lock! Also, many users, including myself, were already invested in the Slam Dunk #1 and didn’t enter the Slam Dunk #2. FanDuel was also running several large tournaments at the same time. So, a tournament with “only” $10,000 as a first-place prize was almost able to fill, despite having a high price point and having tons of competition, including from DraftKings itself!
I’d like to give one more example of flat versus heavier payout structures. Both FanDuel and DraftKings are running large live finals events for basketball. FanDuel has the Playboy Basketball Championship in a week. It has 70 entries and a $500,000 prize pool. In March, DraftKings will be running the Fantasy Basketball World Championship, which will have 40 entries and a $2,000,000 prize pool. Let’s compare how those two pay out:
The reason for this example is that live tournaments have far fewer entries than a regular tournament like the Slam Dunk. The Playboy Basketball Championship is still more top heavy than Smizzle’s ideal structure, but we notice a similar trend with the Slam Dunks from above. Not quite as extreme as 0.09%, but as soon as you get outside of the top 20%, FanDuel’s structure is better for its entries. In concrete terms, 32 of the 40 Basketball World Championship entries would be more satisfied with a flatter structure. Even at this extreme level, fewer than 10 people benefit! Why does it matter?
Why do you see so many pros harp about this? Smizzle placed second in the Slam Dunk #2, so had the Slam Dunk #2 followed the more top-heavy prize structure of the Slam Dunk #1, he would have upped his winnings from $7,500 to $10,000. Even still, Smizzle preferred the flatter payout structure in the Slam Dunk #2. The reason is that pros want the DFS ecosystem to get better.
Yes, large field tournaments attract new users. Saying “Win a $1 million playing Daily Fantasy Sports!” gets people’s attention when you put it in commercials. But, the second part of growing the DFS population is keeping your existing users. There’s nothing more disheartening than almost winning a big tournament and coming away with a tiny fraction of the top prize. The reality is that anyone who wins one of these super top-heavy tournaments is going to take a lot of that winning money out of the site.
We’ve also hit a point where these big contests feature prizes complete with, as Dan Back regularly calls it, “life changing” money. DraftKings was able to make a $100,000 tournament with a $100 buy-in and it almost filled in six hours! And I’d like to stress, once again, that that was against a ton of competition.
While it’s exciting and tempting to want to make the top payouts bigger than competing sites, the reality is that the prizes are already at a point where they draw in new users. The trick now is in keeping them.