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