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. 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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  2. 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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  3. 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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  4. 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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  5. 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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  6. 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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  7. 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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  8. 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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