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Not-for-Profit Raffle Regulations in Massachusetts

May 28, 2014

The first thing to know about running a raffle at your next NPO event.

Charitable organizations frequently hold raffles to raise money. Sometimes these are very informal such as the raffles at golf tournaments and sometimes they are very sophisticated with expensive prizes. The first thing to know about running a raffle is that it is a gambling activity and is highly regulated in every state.

Today we will talk about the laws in the Commonwealth of Massachusetts. The laws in Massachusetts are contained in two places:

  • Massachusetts General Law 271 (M.G.L. c.271) and
  • Section 940 of the Massachusetts Code of Regulations (940 CMR)

The general law is very straight forward and indicates that you cannot run a raffle unless you are a charitable organization and you need to obtain a permit to do so. The 940 CMR regulations are where a raffle running in Massachusetts runs into complexity.

Today I am going to talk about avoiding 940 CMR. These regulations are applicable to raffles only if the sum total of the value of the prizes exceeds $10,000 or the individual ticket price exceeds $10.00. Obviously, if you want to save yourself a great deal of compliance and record keeping work, you would want to avoid both of these thresholds.

This Spring I was consulting with an organization running their first raffle and they had a number of cash prizes that totaled $9,500. Good, they failed to cross the first threshold of 940 CMR. However, because they had a limited number of people in their constituency, they priced the raffle tickets at $50 each figuring that their supporters will want to participate in the fundraising effort and the organization wants to raise a substantial sum of money. As a result of the $50 ticket price, they were going to be subject to 940 CMR (exceeding the $10 per ticket threshold).

This made me think of a golf tournament I attended a number of years ago. When you check in at a charity golf tournament, one of the things you can do at the check-in table is purchase raffle tickets for the drawing of door prizes which happened during the meal after the tournament. Almost everyone buys raffle tickets.

Since a golf tournament only has a limited number of golfers, this is the classic marketing challenge of trying to get your customer to spend more money by purchasing raffle tickets. As a matter of fact, selling more to an existing customer is one of the 4 basic ways to improve your business (think about McDonalds, “do you want fries with that?”).

Typically, golf tournament raffle tickets are $5 each; 3 of $10 and 7 for $20. Ideally, the charity would like everyone to purchase 7 for $20 but it doesn’t happen. At the tournament I am thinking of, the ticket sellers sold 1 ticket for $5, 3 for $10 and your height in tickets for $25! If you plunked down $25, two people came around the table and measured you for 6 feet of raffle tickets – what a buy. Many, many people purchased $25 worth of raffle tickets.

While on the course that day, I thought about this. How could they afford to give you 40 or 50 tickets for $25 when they were selling 3 for $10? The reason is that the number of tickets sold doesn’t matter. The same number of prizes exists no matter how many tickets are sold. What matters is how much they raise in selling the tickets. Raffle tickets cost next to nothing – they are not valuable to you. Cash sales are what you are after.

Getting 100 or more of golfers to pay $25 for raffle tickets when we normally would have only paid $5 or $10 was an excellent up sell and a much better value! The golfers were excited about their extra chances to win (and the awesome deal they got) and the organization was able to sell a ton of raffle tickets.

Back to my raffle client from this spring . . . when they saw the amount of 940 CMR work required due to their $50 ticket price, they hoped that most people in their group would purchase; they were overwhelmed and a little disappointed. I suggested reducing the price of a single ticket to $10 but offering 20 or 30 tickets for $50. They eventually settled on 25 tickets for $50 because people could more easily see that the price-per-ticket was thereby reduced from $10 to $2. As expected, and similar to the golf tournament example I gave above, most people purchased 25 tickets and their fund raising raffle was a financial success without any 940 CMR requirements.

Isn’t it fun to apply a lesson learned one day on the course to a situation many years later?! If you have questions about raffles please contact me or any member of the not-for-profit team.

Read our white paper: Regulations Affecting the Running of Raffles in Massachusetts to learn more about the rules and regulations regarding raffles in MA.

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