Raffles

By | October 20, 2017

Win a prize for charity!

A raffle is a type of gambling or lottery that produces revenue for the raffle operator, be it a church, non-profit, or civic club. The basic structure of any raffle is that you sell tickets for the possibility to win a prize. Prizes can be monetary, concrete items (t-shirts, golf clubs, or even something as big as a car or truck), or services (vacation packages, meal at a fancy restaurant).

Since raffles are a form of gambling, they are regulated by state and local laws. You’ll need to check with your local government to find out if raffles are legal. If so, you will likely need to purchase a license and follow any restrictions that they might impose. No sense in risking a fine or worse by doing something illegal.

A raffle has two key components: the profitability structure and the sales strategy.

The Profitability Structure

Anyone who has ever watched movie set in Las Vegas has heard the phrase, “The house always wins”. What does this mean? In every profitable gambling scenario, the odds are stacked against the people participating so that the operator of the gambling enterprise makes a handsome profit.

Gambling is gambling. Whether you’re a fancy Las Vegas Casino or a church hosting a bingo night, the same principle holds. You have to design your raffle so that you will cover your costs plus generate a significant profit. Don’t forget to include the cost of time and personnel when you’re making your calculations. You have to cover those as well as the cost of the prizes before you have a profitable enterprise.

Here are a couple of examples. You hold a raffle for a brand new truck! The cost of the truck is $50,000 and you plan to sell tickets for $100 a piece. If you don’t sell at least 500 tickets, your organization is in the hole for the difference between the cost and the revenue. Bad news! If you sell 1,000 tickets, you’ve brought in $100,000 revenue, which translates to $50,000 profit from which all other expenses must be collected.

Monetary awards may also be used, as is the case with many state lotteries. Say you charge $5 per ticket for a chance to win $1,000. You have to sell at least 200 tickets in order to break even. Anything above the cost of the prizes and expenses is your profit.

I read one example of a raffle written of by P. T. Barnum, the great circus pioneer. His grandfather sold 12,000 tickets for $5 apiece, and awarded 11,950 prizes of $2.50 and 50 miscellaneous larger prizes up to $100. Their total profit was in the neighborhood of $20,000 (a substantial sum at the time), but it took his grandfather more than a week to pull all of the winning tickets, one by one. The spectacle of this particular model is what made it work.

One of the troubles with raffles as a fundraising strategy is that it’s not really focused on your mission. You might tell people it’s for a good cause, but the determining factor for whether they purchase a ticket is the prize that they might win. This also means that a raffle with more prizes tends to be more attractive. If there’s only one winning ticket, the lure to buy is smaller than if there are 20 winning tickets. While the mathematical probability of winning is only minutely larger in the second case, it is more attractive to people who might purchase.

The Sales Strategy

The biggest challenge in a raffle is selling enough tickets to fulfill your goals for profitability. Selling tickets for raffles is a business. In fact it’s a BIG business. Total revenue for the Georgia State Lottery totaled more than $4.2 billion last year. That’s billion with a B. That’s a lot of scratch off tickets.

So how do you sell all of your tickets? As you can see by looking at the profitability structure of your raffle, the more tickets you sell, the more money you make. If you have created a well-structured raffle with a good number of desirable prizes, your next action item is spreading the word. You have a number of different options for how you sell your tickets:

Person-to-person – One prominent strategy is to enlist friends of your organization to sell tickets. This approach has the benefit of reaching an audience that might not know you directly, but have a personal connection with one of your supporters. You will need many salespeople because most people have a fairly limited number of friends that they can ask. Some states allow you to give ticket sellers a commission (either financial or material) on their sales, but make sure to check before you go that route. It can be a good incentive for people to undertake the arduous task of selling raffle tickets. Give each supporter a limited number of tickets and a deadline for selling them all. If they are sales geniuses, you can give them more tickets. You should include any commissions (which can come in the form of prizes) when you are calculating your profitability structure.

Door-to-door solicitation – Also called ‘canvassing’, the door-to-door method of selling raffle ticket can be pretty brutal for the ticket sellers. They will face lots of rejection, so make sure you warn them in advance. You can ask volunteers to canvass their neighborhoods, where they are more likely to have personal relationships with the people who open the door. It takes a lot of time and bodies to use this approach effectively. It may also be limited by statutes in your area.

Sell tickets in a high foot traffic area – Some businesses will allow you to set up a table outside their entrance and sell raffle tickets. Make sure that you follow any rules or guidelines they may have about where to set your booth or how they want you to approach customers. Put up posters explaining the raffle and the cause that it will support. Ask people courteously, and be thankful even if they decline.

Sell tickets online – You have to be careful with this because some states do not allow online ticket sales for raffles. If they are permitted, you can use a third-party vendor like Raffle River that has many options to publicize your raffle online and on social media. If you’re selling tickets online, make sure that you have a team of people promoting the raffle on social media, because a website can sit and do nothing if you don’t have a way to drive people to click on the ‘buy now’ button.

Media partners – One powerful way to sell tickets is to have media partners – TV, radio, print, and online – who publicize your raffle. These partners can do it as a public service, or you can pay them to advertise. If you are paying for advertising, this adds an additional risk to your raffle because of the added cost. You have to weigh whether the amount of money raised justifies the cost associated with paid advertising.

Event based sales – Raffle tickets can be sold to event attendees, but this should not be your primary sales channel unless the event is truly huge. Only a small percentage of your event attendees will purchase tickets, so having a big crowd is essential to success. You will also need people to ‘work the crowd’ with the raffle tickets, so that attendees will be directly asked to buy a raffle ticket.

Legal questions

Since raffles are legally considered a form of gambling, every state has statutes that govern what you can and cannot do. Some require ‘no purchase necessary’ entry. Some forbid raffle ticket sales online. Some forbid paying commission to ticket sellers. California requires that 90% of the proceeds go to the charitable organization, severely limiting the amount that can be returned to participants as prizes. Most states limit raffles to non-profit organizations. Some require purchasing a license for all raffles, whereas others only require them when the prizes are higher than a certain dollar value.

Also, it’s important to know that raffle income is not tax-exempt to either the ticket buyer or seller. It’s typically considered unrelated business income and will have to be reported separately. Winners will also have to pay taxes on their prizes.

What all this means is that you need to consult with a competent attorney in your area before you hold your raffle. The fines for violations vary from a few hundreds to tens of thousands of dollars. Don’t make a stupid mistake that could end up costing more than your raffle collects.