What’s So Bad About a 50-50 Fundraiser?

Reader Melissa Belvadi writes in with a question about preferences on fundraiser incentives:

Here in northeastern Canada, there is a very popular form of local fundraising called the “50-50.” Basically it’s a raffle, where 50% of the total money collected is then randomly given to one of the donors (odds weighted proportionately by the donation size), and the other 50% goes to the original ’cause’ of the fundraising, whether it be a local homeless shelter, a recent victim of something, or whatever that is of interest to the local community.

This strikes me as an incredibly bad deal, but a bit complicated to explain why, as it contains two components:

  1. As a gamble: poor expected value. I am not sure how to calculate this, but from my experience in Las Vegas where slot machines boast being set to 97% return ratios, a gamble where 50% goes to the “house” seems unlikely to be a good EV.
  2. As a charitable donation: poor “program ratio” — at most, 50% of my donation will go to the “program” (charitable cause) – this is considered a very poor ratio in the philanthropic world where typically 60% is the bare minimum acceptable – the BBB requires 65%.

The complication is trying to combine these two perspectives – if both are poor choices by themselves, should they “boost” each other’s value as a choice because of the extra value offered by the other, or reinforce each other’s “poorness” and make it an even worse decision?

When confronted with one of these, my response is usually to refuse to participate in the 50-50 concept, but if the cause is at all reasonable, to ask if it’s possible for me to donate directly to the cause without having 50% of my donation going to some other donor. Sometimes they say yes, but sometimes they’re so thrown off by my objections to the format, that they can’t deal with my counteroffer.

Is this just another case of “lottery is a tax on those who can’t do math,” or is there something more interesting going on here?

What are your thoughts on the 50-50 concept? Keep in mind what John List has taught us all about the tricks that make donors donate. In my view, there’s nothing at all wrong with the 50-50. I can see how some people, like Melissa, might rule it out. But I think a lot depends on how it’s marketed. Yes, as pure fund-raiser it’s inefficient; yes, as a gamble it’s inefficient; but as a hybrid, what’s not to like?

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  1. Jim says:

    This 50-50 raffle is all over the USA at “car shows” and local “Cruise Nights” as well.
    The organizers have some cute girl roam around with a bucket. Win-Win for them as they keep 50% of every dollar that goes into the bucket. There is no charity involved.

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  2. Paul Clapham says:

    Well, out here in Western Canada the 50-50 is apparently becoming an endangered species, since they’ve been cracking down and making you get a casino licence before you can run one. So, no more whipping round the swimming pool with a plastic bucket to collect loonies and toonies.

    But to address the question: aren’t those about the odds you face when you buy a lottery ticket? Normally the payout for the provincial lotteries is somewhere near 50%, as I understand it. And there’s no shortage of people to buy those tickets.

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  3. David Adelman says:

    I think the concept here for the ’cause’ side is to shame the 50/50 winner–who typically has to walk up in front of a crowd after hearing how great an organization is and how underfunded they are–into giving the ‘winnings’ back to the cause.

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  4. kjc802 says:

    I just don’t like to do those because when I win, I feel like I need to donate it back to the charity. Unless it was the Quirky Odd Looking Economist Charity, then its a good cause.

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  5. Adam says:

    I suspect that the winning donor often feels pressure to donate all or a part of the winnings back to the charity, so 50/50 becomes 100/0 in some cases.

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  6. minnmass says:

    How is this different from a standard raffle, aside from removing the risk (however small) that the cost of the prize is higher than the amount brought in?

    As a single fund-raiser, especially as part of a larger event, it strikes me as a fun option.

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  7. Mark says:

    I would thing the chance to win money (as poor as it may be) would be an incentive for someone who would not normally donate. It would be interesting to see what 1000 people would select if they had to donate say $100, which option would they select…

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  8. Jonathon says:

    The student dance group I was involved with in undergrad always loved doing a 50/50 for each and every concert. They would raise a large sum and would usually be raffling off about $75. They would also pocket $75. The big kicker here though was that many of the donors who would win would donate their winnings back to the club. Sometimes the donor would take their initial investment, but most of the times it was not the case.

    The theatre club, on the other hand. Would try to do this but would never end up with the same results. The total collected, and the total for both sides would often be only $20. Rarely would the winner return the money. And the club would make less profit.

    The reason for this I believe this is due to one major factor: the audience. With the dance club, most of the audience members were parents or teachers who respected the interest of the club to make money. For the theatre group, the audience were mostly students who were looking to make money. So, this formula works in some cases.

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