The theory among charity lottery operators is that consumers may be more inclined to buy tickets if a portion of the proceeds goes to helping a good cause. While this may be true, research shows mega-lotteries are not the most efficient way to donate money.
A survey of 30 major charity lotteries in Canada showed that, on average, 27% of each dollar of ticket revenue is retained for funding charity programs. The survey was conducted by Kate Bahen and her team of financial analysts at Charity Intelligence, a Toronto-based organization that crunches data and financials to help donors determine where their dollars can have the most impact. Bahen and her team found that the remainder of the revenue is used to pay for prizes and for marketing and operational expenses. By way of comparison, the average amount of donations retained from other fundraising methods by the same charities was 72%. Charity lottery ticket buyers should consider charity lotteries primarily as entertainment and not as a substitute for donations, due to the relatively small portion of revenue retained by the charity.
But that’s not the point. Barbara Baarsma, the co-author of the Better chances for charities report that was commissioned by the Dutch National Postcode Lottery, asserts that charities benefit from mega-lottery fundraising not only because it brings in money but opens up the wallets of consumers that may not donate funds directly to their cause. In other words, it’s a new, untapped revenue stream for organizations and causes that definitely need the money. (Plus, as Baarsma points out, “charity lotteries may also benefit in terms of increased brand awareness and knowledge [and] this can trigger lottery participants to give (more) direct donations to charity organizations.”)
“Many lottery ticket purchasers view the charity lottery as a combination of philanthropy and gambling. To appeal to the gambler, some charities emphasize the limited number of tickets or the high odds of winning a prize, thus making the lottery odds seem favourable,” writes Kate Bahen at Charity Intelligence (Ci) in her landmark report Charity Lotteries in Canada: An examination of charities holding mega lotteries in Canada.
But to capture a percentage of the estimated $750-million that Canadians give to charity lotteries each year, these mega-lotteries need to get creative. That’s why you get lots of full-colour, glossy advertisements in the mail and why you hear or see ads on radio or TV.
Turns out for ticket buyers there are two important factors that determine where they spend their “fun” money and these are: the magnitude of the prizes and the price payout ratio. We all know the magnitude of prizes. There’s the dream home worth $2.5-million or the $100,000 in cash and even secondary prizes worth $30,000 to $50,000. The price-payout is the odds of winning statistic that virtually all charity lotteries promote. For instance, the Calgary Home Lottery, where earnings go to the Calgary Health Trust, advertise their odds of winning at 1 in 30. That means for every 30 tickets sold, a prize is awarded.
Believe it or not, of these two factors, the biggest motivator is the probability of winning. According to a 2006 study published by Tilburg University, 40% of lottery ticket buyers will stop buying tickets due to a low probability of winning. As Baarsma and her colleagues state: “Participants expect to win a prize now and then.”
When you compare charity lottery odds to provincial or national lottery odds, you can see why. You have roughly a one in 14 million chance to win Lotto 6/49 and a one in 28.6 million to win Canada’s national lottery, Lotto Max. Plus if you do end up playing the national lotteries and you end up competing against more players and that often means winners end up splitting the prize money in several ways.
Also, when comparing various lotteries it’s not enough to simply look at the odds of winning. Some games offer a lot of very small prizes in order to boost the overall odds. For instance, the OLG once offered a game with a 1 in 1 chance of winning, meaning every single ticket won. The catch? The basic prize was $4, while the ticket cost $12.
While a greater chance of winning can be enticing its still nice to win the big prizes. But it turns out that, in general, charity lotteries pay out less, on average, than most popular government lotteries. How is this calculated? By examining how much of each dollar spent the ticket buyer can expect to get back each time a ticket is purchased. This analysis was done by Kate Bahen and her team of financial analysts at Charity Intelligence. Bahen’s team found that provincial government lotteries provided the highest payouts (on average 54%), while the payout range for charity lotteries was quite large, with some offering as low as 27% and others offering a payout as high as 53%.
So, the big consideration for ticket buyers is whether or not you care about the size of the overall jackpot or whether you’d prefer to increase your odds at winning a prize (and, perhaps, helping out a good cause).
Charity lotteries provide charities with a source of unrestricted funds, allowing the charities to freely fund their operations, and they can help to raise the profile of the charities with their associated marketing.
If you opt to go the charitable lottery route, where the odds of winning are even better, you will be required to fork-out a bigger upfront cost. Tickets cost upwards of $100 a pop — although this is easier to digest knowing that a portion does go toward a good cause.
If you do opt for a mega-lottery, keep in mind you will actually increase your odds of winning if you purchase more tickets. In the US, where Powerball is the quintessential lottery to play, analysts are constantly pointing out that if you were to buy one ticket, you’d have a one in 292,201,338 chance of winning the jackpot. Buy two tickets and you’d have a two in 292,201,338 chance of winning, and so on.
No matter what you choose, it’s critical to be wise and smart about your lottery playing, explains Ric Wallace, a self-proclaimed “luckologist” and repeat lotto winner who spoke to MoneySense.ca. “Our dreams are important, but play within your means, play as a group and always put it on paper,” Wallace, says. For more play-safe tips visit responsiblegambling.org.