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 one would be best for them. 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 the federal government, since donors make a payment in exchange for a chance to win something (same as you’d do in a casino).
Raffles for charitable purposes are allowed at the federal level for 501(c)(3) organizations because of an IRS exemption. But each raffle must still comply with additional State and county regulations that may apply based on where the charity is located. These regulations make it difficult to run a raffle in more than one State, and impossible to run them nationally. But as a State or local fundraiser for 501(c)(3) organizations, raffles are a great way to raise money.
Please note: Online raffles are prohibited in Alabama, California, Hawaii, Kansas, and Utah. If the organization you're fundraising for is in one of these states, you'll want to consider running a sweepstakes instead.
Charity sweepstakes have fewer geographic regulatory restrictions than raffles, and entries can usually be sold nationally or even internationally. This enables organizations to run charity drawings that have a much wider reach, when that’s a goal.
The primary factor that makes sweepstakes different than raffles is that a sweepstakes must offer a free method of entry in addition to donation-based entries. Because of this, sweepstakes are not classified as a gambling activity like raffles are (you can’t gamble for free).
The free method of entry is typically provided by requiring an entrant to print and hand-mail an entry form. In our experience, mail-in entries typically total less than half a percent of the number of paid entries. Many 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 also restrictions 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 one additional requirement for charity sweepstakes if the 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 short 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.
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. We’ve got you covered for charity drawings of all types, and we’ll be happy to help in any way we can. Happy fundraising!