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