When a DFS site runs a “guaranteed” contest, they guarantee that the stated prize pool will be paid out in full, even if the contest does not fill. If a contest fails to fill, the site has to put up the remaining money for the contest themselves — essentially guaranteeing ‘free money’ to the players.
This side of daily fantasy sports is important to consider. The sites make money by charging a fee (called the “rake”) for your entry. Usually, the rake is anywhere from 10% to 13% (though it has been creeping higher lately in some of the low-dollar contests!), which means that the “average DFS player” — a player who is doing nothing to gain an edge on the competition — will inevitably lose money over time, as even “breaking even” in play will lead to a slow bleeding-out of bankroll through rake.
In contests with overlay, on the other hand, an “average player” — even with no particular edge on the competition — will make money over time.
To show an example of this, let’s pretend there is a contest with a $5.00 entry fee, a pool of 100 entries, and guaranteed prize pool of $450. You will notice that the prize pool is $450, rather than $500, as this accounts for a 10% rake.
In this example, however, the contest only fills to 80 entries! As such: the players have invested only $400 total dollars, and the site has to invest the remaining $50. Not only are players in this contest avoiding the rake, but they are effectively getting free money, as each $5 they spent entering the contest was actually worth about $5.63 ($450 dollars paid out to 80 players :: 450 / 80 = 5.625). The average player who played only overlaid contests would make money over time, simply by virtue of the math. These players are buying extra money every time they play!
These days, it’s difficult to find overlay on DraftKings and FanDuel, but FantasyDraft, in particular, still has overlaid contests every single weekend. And if you are not doing so already, it’s time to start taking advantage!