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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COMMENTS: 50


  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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  9. Dan says:

    I think you all are missing incentives here. With a charity raffle of any kind a loser is never a complete loser because they should somewhat value donating. On the other hand because odds are proportional to donation size some donors may be incentivized to give more than normal. Either way I’d say in most cases you should see this as a win win!

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    • Jonathon says:

      You are correct that no charity raffle has a complete loser. But this cannot be considered a win-win since there are inherently many losers in a raffle. Yes, for the organization holding the raffle, any amount of money is a win.

      For the people participating, yes, donating money should be of some value, but the real question is if a 50/50 raffle is the best way to be donating money to an organization if you know half of your donation will be going to a winner.

      After the 50/50 raffle was not working for the theatre group, they decided to instead do basket raffles. Member of the organization would find donations from local businesses and groups and raffle the baskets off at the end of the run. This turned out to provide a larger return for the organization. Alas, a bigger win and the participants still got to go home with a win.

      But in the end, I will agree that any sort of donation is a win for the organization, but finding what is best for the organization will need to be determined. As for the participants, a 50/50 means that a portion of their donation will be handed out while a raffle provides non monetary incentive.

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  10. Charlie Alfred says:

    The winner of the /50/50 donating their winnings is certainly a bonus. But even if they have the audaciousness to pocket the winnings, it’s still a fair proposition

    First, the idea that most charities donate well over 60% (as much as 97) is comparing apples to oranges. In the charity case, the excess goes to operating expenses. Here it goes to the raffle winner

    From the perspective of a donation, only half of what one pays is really a donation. The rest, as someone above pointed out is a fair lottery

    So, the proposition is “Would you like to donate $50 and have a chance to win X times $50, where the chance to win is 1/X”?

    The problem is that the choice is bundled. To get the value meal, you have to buy the burger, fries, and flat soda!

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  11. Renee says:

    50/50 raffles do well within my church during functions. Usually everyone, who participates is apart of the congregation. It is someone you see on Sundays, on a regular basis. Even if you don’t win, you’re happy for the winner. In a situation where I don’t know anyone, I wouldn’t give in a 50/50.

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  12. Travis Idol says:

    As described, this 50-50 fundraiser is a horrible idea economically and as marketing. A better marketing approach would be to structure it like a state-sponsored lottery, where there are lots of little prizes and a few big ones.
    From the charity’s perspective, however, the 50-50 split may still allow them to come out ahead economically. The effort invested to put on such a fundraiser may have bigger returns than normal fundraisers where you are asking people to give with no expectation of a payout.
    The last comment is that the best charitable raffles, carnivals, (silent) auctions, etc. are structured to provide positive social experiences for the donors. The donors get something of value, even if they don’t win anything. And from that perspective, it’s not a bad deal, at all.

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  13. la_boheme says:

    What a fantastic idea! The reason is right in her first words: it’s _popular_. I suspect that the people buying the raffle tickets otherwise would not have donated that money to charity, nor would they have spent it in Las Vegas (which is actually a pretty terrible deal, seeing as you have to buy air fare and hotel rooms in order to stick the money in that slot machine — I’m sure they’re losing more than 3%!).

    Imagine a stand at the local grocery store that is raising money for soccer equipment and programs in poor areas. There are kids with donation containers asking people to make contributions. The people who will give them money are soccer fans, soccer moms and dads, and a few good souls here and there — if they have the money to spare.
    Now instead of donation containers, they’ll be selling 50/50 raffle tickets. I’d be willing to bet (wink) that the soccer team will raise a lot more money a lot faster. Suddenly the pool of donors grows to include not just the gambling types; it will also include people who normally don’t gamble, but are intrigued and would buy a raffle ticket this time as “it’s all for a good cause”. This type of person normally just picks up a couple of raffle tickets at the state fair, no big prizes to boast of … so, comparatively speaking, this potentially large grand prize sounds quite interesting. (And they’re not betting anyway, it’s all for a good cause, right? so it’s okay if they lose :)).
    In addition, it’s a good strategy for the charity as it represents no risk: they give out half of what they take in, there’s no fixed expense they have to pay. This way they can keep the price of the raffle ticket low, which then encourages more people to buy tickets.

    So this income from a 50/50 raffle is purely “extra” for the charity. And if the person who bought the winning ticket really did just want to give to charity, they could just donate their winnings.

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  14. Christa says:

    Another way of looking at this is as a bundle of two separate services. For a total cost of $2x, the participant gives a donation of $x to the charity in question, and also purchases $x worth of raffle tickets with a return ratio of 100%. If phrased this way, the odds to the gamble are ideal, and participation has extra social acceptability because of its association with charity. The $x donation to the charity has whatever ratio of services to overhead as given in the charity, which presumably the purchaser knows and supports.
    There are many people who wouldn’t chose that bundle of services (both donations and gambling) but for those who do, the value of that combination of services rises because they are bundled.

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  15. Jim says:

    Rabin and Thaler showed that someone who would take a 50/50 gamble on $1 would logically and consistently gamble their entire wealth at the same odds. It may be a bad deal in expected value terms for a risk neutral individual, but is perfectly rational for a person exhibiting log utility preferences. (if such a person ever really existed).

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  16. ExoByte says:

    They need to invert their thinking.

    As a Gamble, what game in Vegas will give 50% of the money it takes in to charity? None i know of. This lets you gamble but feel better since you’re helping a cause.

    As a Charity, what charity gives you the chance of winning money? None, but maybe the “lotto” chance will encourage those that might not normally donate to change their mind.

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  17. zepplin says:

    It’s completely efficient.
    Think of it as spending 50% of your money in a 100% EV lottery and 50% of your money in a 100% program ratio charity.

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  18. bob says:

    Correct me if I’m wrong, but the 50/50 is a better deal than what the girl scouts and boy scouts present when they sell their cookies and popcorn.

    I generally give the scouts a cash donation and let them keep the food.

    What percentage of the cost of a box of cookies do the girl scouts receive? Is it as much as 25%?

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    • Jim says:

      I don’t know about Girl Scout Cookies, but Boy Scout popcorn is actually a pretty good deal for the scouts. The individual unit keeps 33-39% depending on how do with regard to sales targets. The district and council keeps about 35%, which is used to update camping facilities and support the local infrastructure (district service offices/staff/etc.) Our council campgrounds are proud to show off the improvements paid for by popcorn sales earmarks. Part of why they can offer overnight summer camp for about 1/2 the price of what private and church camps can provide.

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      • Jim says:

        Forgot to mention that coordinated sales like popcorn and cookies is a way for the district and council to encourage scouts to raise funds for district activities without assessing individual units. Boy Scouts pay $15 per year per person to the council, which doesn’t go very far given the services and insurance that the council provides.

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  19. Bearman Cartoons says:

    In the United States my understanding is that it would also be considered an illegal lottery and in most cases that I have seen it used would probably NOT be tax deductible anyway.

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    • Enter your name... says:

      Raffle tickets are never tax deductible, even if you lose. The IRS believes that the ticket you buy has an actual cash value of whatever you paid for it.

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  20. KB says:

    I’ve never seen such a thing promoted as a 50/50 fundraiser — around here they are always called 50/50 raffle, and your impetus to pay is for the opportunity to win half the pot, not because you care where the other half of the money is going. They used to have one at pretty much every single high school sports game I ever went to, so I assume they were run by the boosters, but to be honest I never bothered to find out and I doubt most people did!

    It wasn’t something I ever participated in — I never win and I certainly had stuff I wanted to actually spend that dollar on instead.

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  21. Jamie says:

    Most state lotteries in the U.S. that I have heard of have a return of 50 cents on the dollar, or the same as a 50-50 raffle. The difference in this is that the beneficiary is a defined charity or organization, while with the state lotteries it just goes to the state. To me, a 50-50 would be a better choice for anyone willing to purchase a scratch ticket because you determine who benefits from your donation, and you get the gambling aspect to fulfill your need to gamble. The difference is that these raffles are honest about the payouts (it is in the name), while normal scratch tickets blind you with silly games and potential huge payouts. Whether or not it is beneficial as a way to get donations would have to be determined by a psychologist and several studies, but I would think that it would be a way to trick people into donating who would not be willing to drop money in a jar.

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  22. Tony says:

    I think there another aspect being overlooked here: effort required by the charity/organization holding the raffle. It takes quite a bit of work to gather raffle prizes and often the amount raised is out of balance with the value of the prizes. If there are good prizes, you’re better off doing a silent auction. A 50/50 can be run with no more planning than is needed to pick up a spool of raffle tickets.

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  23. Billie says:

    We have 50-50 fundraisers at my kids’ school (along with several other). I’ve never won, but it doesn’t stop me from entering. And I’ve been told that proper etiquette for the fundraiser if you win, is to decline the winnings and donate it back to the organization. In this case, it is my children’s school, so even if a parent (assuming it’s mainly parents who participate) declines the money, she is still benfitting because it benefits the school which benefits her child.

    Perhaps, since it’s a private, catholic school, there is a guilt factor involved. The fundraiser occurs at triva night and the nuns roam around and ask for donations-how can you say no? Plus, the winner is announced at the end of the night, so everyone there can see what the winner does.

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    • Enter your name... says:

      It always disturbs me to see a Catholic organization promoting gambling. Their official doctrinal statements condemn gambling as a morally risky (but not, I believe, always or automatically sinful) behavior.

      It seems to me that a church should not directly engage in behaviors that they believe can be harmful or sinful. I believe that famous line runs, “Lead us not into temptation”, rather than “Let’s see just how close we can get to the edge of the cliff before someone gets hurt.”

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  24. Mike B says:

    50/50′s make sense where the potential pot is small enough so that the potential house take wouldn’t justify the hassle to run the event in the first place. To the player the charitable donation comes in the form of the decreased payout.

    My mother was actually a pretty big 50/50 innovator on the local swim meet circuit. Normally the prices had been $1 for 1 ticket and 5 for $3. She introduced an arm’s length for $5 (the person could choose whose arm they wanted even) which had the effect of bumping everyone up to the $5 price point and also making them feel that they were getting better value for money (after all they had a whole roll of tickets instead of 1 or 5). She was able to double or triple the standard 50/50 take and the “arms length” option became standard throughout the area in the following years.

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  25. Tim says:

    There is nothing at all wrong with it- it’s genius, in fact. It is the perfect mathematical intersection between self-interest and philanthropic interest. Contrary to Ms. Belvadi’s assertion that “both ways you lose”, I’d say either way you win: you have a chance to win the money, you get the entertainment value of participating in the game, and you get to feel good knowing your gaming is benefiting a charity.
    If you’re still skeptical, here’s the salient question: is this method of fundraising more effective for the charity than simply soliciting “pure” donations? I’d wager the answer is a resounding “yes”- and thus the idea of rejecting it as not an effective donation to the charity is misguided.

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    • Joel says:

      THIS.

      People go to Vegas thinking they will get lucky and win money, people go in on a 50/50 with the main intention of donating to the high school band, or whoever is running it, and maybe a slight hope of winning 50%. It’s more entertaining and less obnoxious than “please donate to our cause”.

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  26. canuck says:

    50-50 draws are by design easy to administer since they amount to purchasing a ticket roll at a dollar store, organizing some people to sell tickets, having the draw and distributing half of the collected money. No one cares about the odds or payoff for the charity/team, transparency and administrative simplicity are what matters when someone decides to hold a 50-50 draw.

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  27. Jim for what the boy scouts charge for that popcorn they could buy it retail, double the price an sell it. The customer gets a better deal and the scouts get 50%

    I am more likely to buy cookies from the girls multiple times because of the lower cost. Boy scouts I may buy once

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  28. Enter your name... says:

    These are theoretically illegal in California, where charity raffles must pay out no more than 10% of the proceeds.

    They are also common. You just do a little accounting sleight-of-hand and declare that the 50% prize doesn’t actually come from the raffle proceeds, but from some unrelated prior donation. This is presumably how the Yerba Buena Center for the Arts in San Francisco is justifying their “Dream House” raffle, which offers a $3 million prize with a maximum potential revenue of $6 million. In another proof that voter initiatives and amendments are among the worst written laws on the books, there’s no limit to the actual payout, but only to the part of the receipts that are paid out. According to the law that authorized charity raffles, you could legally take a million dollars of non-raffle-related donations, sell a single $1 raffle ticket to each of the organization’s board members, and raffle off the million-dollar prize. So long as each of those $1 ticket prices ended up in the charity’s bank account, that would be considered a raffle for which 100% of the proceeds benefited the charity.

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  29. Murray says:

    I think the best way to do the math is to separate your contibution. Lets assume you pay $20 to enter the 50/50. $10 is a donation with 100% efficiency and $10 is a gamble with $10 expected value. Both are very good outcomes.

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  30. Silly says:

    The 50% isn’t wasted–it incentivizes others to donate.

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  31. Justin says:

    Starting with benefits to the charity. That’s easy I think. 50% of something is better than 100% of nothing. So if they get a donation through this ‘lure’ then all credit to them. They weren’t getting anything in the first place.

    But for a pure gambler…the problem is information asymmetry. Specifically what the total prize pool is so that they can work out their return on investment for a given bet. As I understand no-one knows what the total is until the draw.

    I’m a bit sketchy on the math and probabilities here, but lets start with the notion that the prize pool is known to be $100. A $50 investment gives the gambler a 1 in 2 chance of winning their money back. Well no one is going to go for that. The other side of that is they have a 1 in 2 chance of losing their money. But if they know the total prize pool they can make a decision on the risk and reward they will accept. What about a $30 ‘bet’ in a prize pool of $100. Now the chances of winning is about 1 in 3, but the ROI is 67%. Is that an acceptable gamble. Maybe it is.

    But what if the prize pool was increased to $200 without the gambler knowing. Now the odds are 1 in 4 chance of winning their money back (albeit doubling it). If that were the odds in the previous example, they would have only had to ‘bet’ $25, saving themselves $25.

    So in summary, the thing that I think makes this a bad (meaning uniformed) gamble is not knowing what the total prize pool is so the gambler can work out the chance of winning and ROI. And just to add, the draw is presumable randomly drawn. Not much different to roulette, but at least in roulette you know the odds you are dealing with.

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    • Murray says:

      The odds and Payout or “roi” are always inversely proportional, so the gamble is certain. Your expected value is always equal to 50% of your contibution. The gamble is always perfectly fair.

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  32. Marco says:

    Isn’t this a theory paper by John Morgan in the Review of Economic Studies: “Financing Public Goods by Means of Lotteries”, 2000? Bottom line: it balances the trade-0ff to contributing too little to a public good on the one hand, and buying too many lottery tickets as it increases your chances of winning to the detriment of others. Some suggestions of commenters here were along the same lines, I guess.

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  33. Andrew says:

    I wonder if it softens the blow of losing. I don’t think anyone actually buys a lotto or raffle ticket with the expectation of a win, hope definitely, but not necessarily expectation. Thus when you lose the lottery, it’s all loss. You just threw your money away. A horrible feeling. If you lose a 50-50 raffle, at least you gave money to an at least decent cause. It softens the blow of losing thus making it a more attractive risk.

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  34. Paul says:

    Melissa mentioned that she did not know how to calculate the expected value of the lottery. If the probability of winning is proportional to the amount that is donated then shouldn’t the expected value be (-.5)*(the amount donated)?

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  35. marty isaac says:

    Good observation. I recently assumed responsibility for an event that used a 50/50 drawing at intermission to raise funds. I too was struck by how much went back to the donors — I changed it to a flat rate return (e.g., winner got $100) and we immediately increased the charity take handsomely. It was kind of a win/win in this regard. The charity got more money of course … and we may have even gotten more participants because the $100 was more tangible than the 50% of whatever we take in.

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  36. Tommy says:

    If you like the cause, you’ll also approve of the winner’s action in donating to the 50-50. Isn’t rewarding charity you approve of also a good cause? The winner is someone “good”, so you won’t resent them for winning.

    If so, you then have 100% going to the “program”. You also get the entertainment of the raffle

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  37. danny says:

    The reader has completely missed the point. 50/50 raffles #1: aren’t meant to be appealing to a gambler. It’s generally considered merely a donation. If you happen to win, bonus. and #2: the 50/50 ratio shouldn’t apply when it takes about 5 minutes of effort to put together a 50/50 raffle. All you need is a volunteer to sit at a table and pass out tickets. Then it takes 2 minutes of an emcee’s time to do the raffle pull. It’s not a “50% fundraising overhead”. The cost of doing the raffle is the cost of the volunteer to sit at a table and 2 minutes of emcee time.

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  38. Steve Bennett says:

    I’ve never heard of this before, but it sounds great for gamblers, and sucky for donors. For gamblers it’s like a 50% house take, where the “house” is a charitable cause. And you can convince yourself that the whole lottery ticket is charitable. So you spend $10, and let’s say 1% of the time you win $500, and 99% of the time, you donated $5 to charity. It takes the sting out of gambling, knowing that at least someone is benefiting from your loss.

    For serious donors, it just plain sucks, but is it any worse than other inefficient fundraising mechanisms like dinners, balls etc?

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    • Sam says:

      Except that it’s not bad for serious donors and it isn’t inefficient. Since the gamble (minus the donation) is completely fair there is no reason you can’t just give back your winnings.

      In your example you’ve lost 99 times and won once, spending $1000. You’ve given $500 to the charity and are left with $500 which you can give back to the charity or not. What’s the problem with that?

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  39. Robbie López says:

    Gentlemen, I would like to point out two points on this which may change your mind.

    1. You can’t completely look at a 50/50 fundraiser as a gamble. Most people go not expecting to win anything, but rather to have fun and feel good about giving their money over a sustained period of time.

    2. In events where bikers are concerned, I have never seen an occasion where they 50% that goes to the winner is ever kept. The winner usually turns their winnings over to the fundraiser.

    -Robbie

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  40. J says:

    Because the winner has already supported the charity (he has established SOME loyalty), isn’t there a strong likelihood that he might give some of the winnings to the charity as well?

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