Raffles and sweepstakes: What’s the difference?
Explore the differences between raffle fundraisers and charity sweepstakes below.
Charity raffles and sweepstakes can be a great way to raise money for your cause. Most organizations are unaware of the differences between the two, however, and aren’t sure which option will best fit their fundraising needs. This article provides the information you need to help make that decision.
Raffles and sweepstakes are similar in that they both give donors a chance to win a prize in exchange for a donation. But there are key differences, particularly in how they are regulated. Raffles are technically considered a form of gambling by government regulators since donors make a payment in exchange for a chance to win something (just as you’d do at a casino).
Raffles for charitable purposes may be allowed at the federal level for 501(c)(3) organizations (US) in many instances. But organizations conducting raffles must still comply with the state and local raffle laws and regulations that apply to them. These regulations make it very difficult to run an interstate raffle, and impossible to run one nationally. But for local fundraisers by 501(c)(3) organizations who qualify, raffles are a great way to raise money.
Please note: Online raffles are prohibited entirely in Alabama, California, Hawaii, Kansas, Utah, Washington, Iowa, Minnesota and Montana.(Montana prohibits raffle ticket purchases by credit card, so Montana organizations are unable run raffles on RallyUp.) If your organization is fundraising in one of these states, you may want to consider whether you can run a charity sweepstakes instead.
Charity sweepstakes generally have fewer geographic regulatory restrictions than raffles, and entries may often be able to be sold nationally or even internationally. This enables organizations to run charity drawings that have a wider reach, when that’s a goal.
The primary factor that makes sweepstakes different from raffles is that a sweepstakes must offer a free method of entry in addition to donation-based entries. Because of this, sweepstakes may not be considered a gambling activity in the same way that raffles are (you generally can’t gamble in a casino for free).
The free method of entry is typically provided by requiring an entrant to print and hand-mail an entry form for a chance to win. In our experience, mail-in entries typically total less than one percent of the number of donation-based entries. Some sweepstakes receive no mail-in entries at all. We find that most people are willing to donate to participate since the cause is charitable. There are limitations on free entries (e.g. one entry per person) to prevent abuse. But at the very least, participants who enter for free are learning about your organization as they participate.
There is an additional requirement for charity sweepstakes if the total prize value is over $5,000. In that case, if you want to be able to receive donation-based entries from the state of New York, a state registration and surety bond are required. Don’t worry; this sounds more daunting than it is, and RallyUp can assist you with that paperwork. New York’s registration fee is $100 per charity sweepstakes, and the surety bond costs 2% of the prize value. But again, these are only needed if the prize value is over $5,000 and you want to allow residents of New York to participate. If you're considering a sweepstakes fundraiser instead of a raffle, feel free to read our article Charity Sweepstakes: What you need to know
Sweepstakes also differ from raffles in the fact that they do not allow for any physical entries or paper tickets to be sold. While raffles may offer the sale of paper tickets in person, sweepstakes do not have the ability to make these ticket sales and then add them into the drawing; only online entries are allowed. This is because sweepstakes have strict legal requirements. In particular, there must be a method of free entry presented to the purchaser at the point of sale. Because RallyUp cannot guarantee a free method for sweepstakes entries if in-person sales were being conducted, we can only offer online entries as an option. Moreover, restricting sweepstakes to online-only entries protects your organization in the event of a campaign audit by a government agency. Of course, this option also helps to ensure your campaign raises more funds: if participants were presented with a free option for sweepstakes entries in-person, they’d likely go with that choice instead of purchasing entries. This would have a direct impact on the amount raised by the organization, but online-only entries allow you to sidestep the issue.
Finally, sweepstakes do not offer a manual drawing option, whereas raffles do. The only option is to have the RallyUp system draw winners. This is also due to the mandatory free entry option. Free entries, while limited to one per person, are not just worth a single entry into the drawing. Instead, free entries receive the average number of entries donors have paid for to enter the drawing. Calculating this by hand would be too complex and introduce the risk for human errors. For the sake of fairness and simplicity, RallyUp uses a certified random generator to first calculate the average number of paid entries and assign that number to each free entry. Then, it goes through the drawing process to select a winner.
We hope this information has been useful in helping you understand the difference between raffles and charity sweepstakes. As always, please feel free to reach out to our team if you have questions or want more information. Although we can’t provide legal advice, we have years of experience with charity drawings of all types and we’ll be happy to help in any way we can. Happy fundraising!