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Lottery Returns

Charities often raise funds through the use of lotteries or raffles. These charitable lotteries compete in the market place with state run lotteries. However, they are very different products. While both state lotteries and charitable lotteries are both used as sources of revenue for the organisers, the customer base approaches purchasing tickets differently. In the case of state based lotteries, the customer is only interested in winning the prize. Ideally all of the money raised would be returned to the entrants as prizes. For charitable lotteries there is an understanding that the purpose of the lottery is to give money to the charity. The prize is just a sweetener.

Given that these two types of lotteries have such different expectations, it is interesting to note that neither the state lotteries nor the charitable lotteries are particularly transparent in how much money is funneled out as revenue, and how much is returned to the participants as prizes. In most jurisdictions there is a requirement to make public this information. That does not mean that it is exposed in large print on the front page.

In the case of the RSL Art Union, I have been unable to find out how many tickets, on average, are sold. However, in very fine print it states that the number of tickets printed is $1,300,000. At $5 per ticket, the percentage of funds taken returned to the participants is approximately 20%. So the RSL is keeping 80% of the ticket price. The amount raised is even higher if they have obtained the houses at a discounted rate to the published market rate.

The California state lottery is the best lottery that I have found. The California Lottery Act requires that a minimum of 84% of money raised through ticket sales should be returned to the public in the form of lottery prizes. It seems that the California State Lotter is an anomaly. Most state lotteries return something closer to 50-55%.

I think it is clear why the lotteries try to keep the rates of return secret. If it were widely publicised, it would hardly increase usage would it? Or does this secrecy provide an opportunity to provide a lottery in which the rates of return are clearly and honestly stated up front? I remember being driven by the father of friend when I was a child looking for a service station. We drove past a station that did not display the price of petrol (gas for you Americans). When I asked why we did not go there, the father replied "If they are not showing their price then it cannot be low". With this in mind if a lottery publicised its odds, would people not think that this must be a good bet?

That aside, how much should be retained by the organiser, and does this amount depend on who is publishing the lottery.