Death, Taxes, and DFS: The Syndicate Model

Written By PlayPicks Staff on September 29, 2014 - Last Updated on June 27, 2018

 

The newest Daily Fantasy millionaire is less then 8 days from being crowned on Draft Kings yet more and more around the industry we are seeing and hearing about people grouping their RotoDollars together to take a stab at these top prizes. Many of you are probably wondering what I am talking about here, so let me break it down for you. There’s plenty of ways to do it, but the gist of the idea is that you are better able to attack and take down a tournament by entering multiple line ups that allow you to have more than one avenue to the top of the leaderboard. Most players do not have the bankroll to throw in twenty or thirty lineups and cover all of the QBs they like with multiple combinations of WRs and RBs they want to play. That doesn’t even include the multiple TE options they may want exposure to which could bring the combinations of plays into the hundreds. While it would be cost prohibitive and a bankroll killer to do this on your own, if you share the risk and the reward over a bunch of players then your expected return from spreading out your plays is higher than the expected return would be if each of those players played one individual entry. While the risk is less the reward is also less since you are sharing it with multiple other players. If there was 20 individual entries the overlap would be much higher and the thought is that those rosters would all tend to be chalkier and less GPP winning worthy, since you tend to play it safer when you only have one bullet to fire. Therefore all twenty of those individual line ups would be low EV due to normal variance and high ownership percentages. By pooling funds or entries and spreading the risk and the exposure to a greater degree you give yourself a wider net to catch that fluky huge upside game by a Matt Asiata or a Eddie Royal, while still having a comfortable amount of exposure to the guys you really liked who were in amazingly obvious good spots. The reasoning goes that by casting a wider net with those twenty entries you can be a little more out of the box on a few things here and there and those small changes can yield huge results. It only takes one lineup to make the top 100 to pay for all the entries and if you do hit one, then you probably also had a bunch of those guys on the other 19 which could also land in the money. The real way to make a killing here is to get a Lineup into the upper echelon of the leaderboard and then you could see $5000 or more in winnings, which is a 20 times your money or better return for all those involved.

 

Say  you like 2 QB, 3 RB, 4 WR, 2 TE, 2 Def and use the same guy in the flex on all of your rosters you would need 96 line ups to cover every combination of them all. That would be a layout of $2592 in cash and would only give you less than 10% coverage of possible winning rosters. This assumes you pick all the right guys and avoid landmines too, because the actual number of combinations overall would be somewhere in the millions to cover every combination of players in the pool, even if you limited it to just the starters and a few backups with high usage rates. Needless to say, throwing a single line up in and hoping you don’t have a Calvin Johnson, DeAngelo Williams, Donald Brown, or Antonio Gates on it is very remote. All of those guys made sense at 12:59 and all of them blew up rosters with very poor performances this past weekend. In fact many of these syndicates will throw in twenty rosters knowing that they may have 8-15 of them dead because of a few bad plays. Avoiding all landmines on one roster is very tough to do. It’s even tougher to do when trying to construct a roster with some upside that can win a GPP. If you still have 5-10 rosters alive going into the late and evening games on any random football weekend, then you had a pretty solid week. If a few things break right in those later games, then you should still have 2-5 rosters left with a legit shot at a nice payoff. The hope being that those 2-5 rosters that hit the money cover the buy ins with some profit and you give yourself twenty shots at the top heavy big prizes instead of one single prayer of a big score with a perfect line up. The top heavy prize structure is the main reason why you would do this as the thought is you lessen your risk and increase your chances to hit the Home Run score as you have 20 ways to get there instead of just one. Below I will discuss the different methods you can use to gain exposure to more lineups.

 

The Shared Entry Method

 

One way that DFS players have done this recently is to share entries. Four guys might all have some $27 Qualifier tickets and they might all get together and make lineups as a team and split the profits. I have also seen some guys who respect the others Daily Fantasy knowledge and he makes 10 teams, I make 10 teams and we submit them all and split the prizes. If you do go with the second method I caution you to talk before submitting those line ups to make sure you are not overexposed to any one guy. You give up the advantage you gain with the multiple line up entry if all those line ups are too similar. If I had 10 lineups with Calvin Johnson in all of them and you had a lot of Calvin too, then it might be advisable to take Calvin off a few of those and get some exposure to other plays rather than just blindly submitting them and hope for one of you to hit. That way of doing it is basically the same as dropping one entry in and you give up your edge without the upside potential increasing to compensate you for it. I would also only do the shared entry method with people I knew and trusted as there’s a lot of honor code here with respect to which line ups are and are not part of the syndicate as many players will also play other lineups outside of the group think and you need to be sure the person is honest with which of those Lineups hit the money and which did not. Overall if you have some close friends you play DFS with and watch games with, then this is a great way to do it as you all get to use those stored up $27Q tix and you all get 20 ways to a million this weekend.

 

The Buy a Share Method

 

This is another great way to spread your risk if you are a small player and want to have a chance at a piece of a million dollar prize. If you look on RotoGrinders Forum or Twitter, you can see people selling off a percentage of their total plays to help offset their cost. Some seasoned DFS players who know how to gauge ownership percentages and their exposure rates and are used to making 10-20 rosters to attack a tournament probably has a higher chance to make +EV GPP lineups then you could do with only one bullet to fire. In order to increase your exposure, you can buy a percentage of his play for a fee. If he has say 50 lineups, then your $27 buy in either gets you one Line up on your own or 2% of his exposure to 50 lineups with a chance to be the top one. That 2% of a million would still be larger than every prize outside of the top 4. If you are new to DFS and do not really feel you have the skill and understanding of the game yet to make solid line ups, then this is a way for you to go. This is the idea behind sites like SwollYourRoll starting a private daily fantasy sports investment fund.

 

The Syndicate Method

 

Big words that basically mean pooling your money together to make more plays. Basically everyone throws in some amount and then you make rosters with the total amount of money collected and everyone owns a percentage of the winnings based on the percentages of the contribution. If you throw in $100 of a $500 syndicate then you own 20% of the winnings. Someone else throws in $50 than they own 10%. The teams can either be made as a group think or by one or two individuals who know what they are doing. Either way, it is becoming more and more common for these big tournaments.

 

What to Consider?

 

Well as with everything in life, the main downside is taxes. Taxes and lack of regulation. Currently none of the sites have an option for pooling money or even to transfer funds between players like old online poker sites, either of which I think would be a great next level addition to some of these sites. Since none of them offer it, the deals and profit sharing arrangements are made on the honor system. So far I have not seen any problems with the ones I have been a part of or any of the ones I have seen on twitter or RotoGrinders, but that does not mean it will not happen eventually. That is why I said to make sure you know who you are going in on it with. The bigger concern though for me is how do you handle the taxes if you do score. $1 Million is a lot of money and if you are lucky enough to be the guy whose account name won it, then you bet Uncle Sam is going to want his cut. When you win a Million dollar prize you do not actually get a million dollars. Depending on how shrewd you and your accountant are, you can bet your ASSets that at least $300-$400K of that is not going in your pocket. For those of you who are joining, running, or participating in one of these shared pools, let me pass on a little knowledge I received yesterday when discussing this with a few well respected CPA’s who also happen to be CFOs of their respective companies and guys who have done tons of work with some of the top grossing online poker pro’s.

 

Earned Income vs. Schedule C

 

For now let’s all close our eyes and assume we just won the Million dollar first prize. After the bikini models and new car and the all night party is over, we need a minute to let the reality of the situation sink in. The reality of the situation is that you need to share these winnings with the other people in your group. Legally, how do you do so? For starters, it depends on the size of your prize. If you win over $600 then you are getting a 1099 from the site. Let’s assume you win about $5000 for starters, then for most people the easy way to do this is add that $5,000 to your already earned income and figure out what tax rate that would cost you. Since the winnings are in your account, you are responsible for paying the taxes on them. The guy who owned 10% may want you to give him $500, but if you do that then when tax time rolls around your win will actually be a loss or a very small profit if you did not put aside enough to pay for it. For most people this is a number probably between 25-30%, and that does not even include if you live in a state that will also want a cut of this. When all is said and done that $5,000 win should probably be more like $3,500 or so when it pays out. If this is how you choose to do it, then you can keep the taxes owed to send to the IRS and State Treasurer and then pay out the owners in either cash or checks after transferring the money to your bank or through paypal. If no one in your group is due a rather large sum of money then this is the easiest way to get it done. I have been involved in a few of these that have worked this way where we had scores of $1000-$2500 on a day and they all worked out fine.

 

The harder one to pull off is when you smash it out the park and take down a Million dollars. At this point you are better off being a S-Corp and filing a schedule C. Do not get bogged down in the terminology as if you the one lucky person to take this down, then you will have plenty of cash to pay an accountant a few bucks to walk you through this. In reality you will be sending incredibly large amounts of money to multiple parties if you were the big prize winners and part of a syndicate. A 1% share of a million dollar prize is $10,000 and twice the amount that the IRS flags as suspicious. Anything over $5000 and you can bet Uncle Sam is taking a long look at it and where the money came from. There’s nothing illegal about sending someone winnings, but if you do not do it right, then you as the account owner will be the one on the hook. The easy way around this is to send everyone a 1099. By sending everyone a 1099 with their share of the winnings you are basically saying I am not responsible for the taxes collected on this portion of the Million dollar prize my account is credited with. You will only be responsible for reporting who got what percentage of the prize and then paying taxes on your share. This method has pro’s and con’s associated with it as well, but if you win the big money it really is the only way to go about distributing the prizes out legally amongst your partners. The pro’s to doing this are you are basically incorporating yourself as a business. Therefore you pay taxes not on the amount you won, but on the profit you made. Profit means the amount of money over your buy ins, while also subtracting any other business related expenses, such as NFL game, MLB TV, and any subscriptions to sites like RotoGrinders or Pro Football focus. If DFS is your main source of income you can also deduct things like medical insurance and life insurance coverage just as if you were running a business (since technically you are). The drawback is that just like running a business, you also are a paid employee which means that you owe the government for things like Social Security taxes. I know this is getting a little bit involved and your thinking why do I have to do all this? Rest assured if it’s too much of a hassle for you, I know a few guys who will gladly take that million dollars off your hands and deal with the regulations. I do not write this to scare any of you away from participating or running a syndicate this weekend, but to give you a blueprint of how to handle it if you are the lucky winner and find yourself in this spot. Most people assume if you win a Million dollars then you win a million dollars, but only insurance payments are considered free and clear of income taxes as far as I know, so you have to understand you don’t get to keep it all. Good luck this weekend in the DraftKings millionaire maker. Before you get all crazy about this stuff, remember that syndicates are a good way to increase your upside in a top heavy pay out structure tournament and that having to send out 1099s to fellow partners is something you can pay an accountant to help you do after you win. This weekend I expect to see one of you thanking me on twitter for this information, with the hashtag #RICHPEOPLEPROBLEMS at the end.

 

 

Syndicate

 

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