Sweepstakes and Raffles
Please note that this article is provided as a courtesy for fundraisers to get an overview of the subject, but does not constitute legal advice. Consult with proper legal counsel before conducting any form of raffle or sweepstakes, as these types of campaigns are highly regulated.
Although they may sound similar, there is a significant legal distinction between Sweepstakes and Raffles.
Raffles require a participant to make a purchase in exchange for a chance to win a prize. This is essentially gambling, but is allowed at the federal level for 501(c)2 organizations. The issue is that many states prohibit online raffles completely, including New York, New Jersey, and California. As a result, The Chesed Fund does not allow for raffle campaigns to be run on the platform, and prohibits the use of this word in any part of your campaign description or graphics.
Sweepstakes have slightly different rules, which makes them significantly easier to run while remaining legally compliant, as long as the rules are abided by.
The most important of these is that individuals may enter the sweepstakes without making a purchase. That's right, you'll notice on almost any sweepstakes the text "No purchase necessary", and will always include a method of entry that allows for participation without payment, typically by simply requesting an entry and providing contact info. The legal term for this is "Alternate Method of Entry", and it's a critical part of what makes Sweepstakes compliant.
Some sweepstakes require participants to jump through additional hoops such as writing and submitting a short essay, as this can discourage free applications while still being compliant by not requiring payment.
So why do people ever buy tickets when they could participate for free? There are a few reasons:
They may not realize this rule
They may find it too much of a hassle to participate this way
Most importantly, they still understand that you are a charity and ultimately want to support your cause. The sweepstake is just an extra incentive; and they are still giving because they believe in your mission. Stats have shown that less than 1% of all participants end up being free entries.
Because of this key distinction, Sweepstakes are not considered gambling, and can be run in a compliant manner far more easily. Note, however, that you may end up selecting a winner who did not actually purchase a ticket (but those who did purchase do not need to know about this).
Another key rule for sweepstakes is that they must include a link to the terms and conditions of the sweepstakes, as part of the sweepstakes. This would include details like the value of prizes, when you'll be doing the drawing, and how participants can enter without making a purchase. Here is a template you can use to help with this - again, please consult with legal council to ensure you are compliant.
There are a few more rules to keep in mind:
You may not run sweepstakes where participants win a portion of the total amount raised
You may not limit the total number of entries
You cannot manually select a winner, it must be done randomly.
Finally, there are some important rules to keep in mind for residents of New York and Florida:
The State of New York requires that before allowing its residents to participate in your sweepstakes, you must have a "surety bond" and register your sweepstakes if the total value of your prizes is more than $5,000. Florida has a very similar rule if you're running a sweepstakes without 501c3 status.
A surety bond helps ensure that sweepstakes prizes are actually awarded to the winners. They cost 2% of the total value of the prizes you are offering - an online search for "Sweepstakes Surety Bonds" will yield multiple providers who can provide this service.
Registration in either New York or Florida costs $100 in each state, and can be done online. New York registration link, Florida registration link.
As you can see, although sweepstakes and raffles are popular fundraising methods, they come with their own complexity which can be navigated with nuance to remain legally compliant. Despite the fact that many fundraising campaigns disregard these rules (most likely out of ignorance as to their complexities), it is important to still follow the correct federal and state regulations on the subject, as "everyone else was doing it" will not hold up well in a court of law.
Got additional questions? Don't hesitate to talk to our support team!
Although they may sound similar, there is a significant legal distinction between Sweepstakes and Raffles.
Raffles require a participant to make a purchase in exchange for a chance to win a prize. This is essentially gambling, but is allowed at the federal level for 501(c)2 organizations. The issue is that many states prohibit online raffles completely, including New York, New Jersey, and California. As a result, The Chesed Fund does not allow for raffle campaigns to be run on the platform, and prohibits the use of this word in any part of your campaign description or graphics.
Sweepstakes have slightly different rules, which makes them significantly easier to run while remaining legally compliant, as long as the rules are abided by.
Sweepstakes rules
The most important of these is that individuals may enter the sweepstakes without making a purchase. That's right, you'll notice on almost any sweepstakes the text "No purchase necessary", and will always include a method of entry that allows for participation without payment, typically by simply requesting an entry and providing contact info. The legal term for this is "Alternate Method of Entry", and it's a critical part of what makes Sweepstakes compliant.
Some sweepstakes require participants to jump through additional hoops such as writing and submitting a short essay, as this can discourage free applications while still being compliant by not requiring payment.
So why do people ever buy tickets when they could participate for free? There are a few reasons:
They may not realize this rule
They may find it too much of a hassle to participate this way
Most importantly, they still understand that you are a charity and ultimately want to support your cause. The sweepstake is just an extra incentive; and they are still giving because they believe in your mission. Stats have shown that less than 1% of all participants end up being free entries.
Because of this key distinction, Sweepstakes are not considered gambling, and can be run in a compliant manner far more easily. Note, however, that you may end up selecting a winner who did not actually purchase a ticket (but those who did purchase do not need to know about this).
Another key rule for sweepstakes is that they must include a link to the terms and conditions of the sweepstakes, as part of the sweepstakes. This would include details like the value of prizes, when you'll be doing the drawing, and how participants can enter without making a purchase. Here is a template you can use to help with this - again, please consult with legal council to ensure you are compliant.
There are a few more rules to keep in mind:
You may not run sweepstakes where participants win a portion of the total amount raised
You may not limit the total number of entries
You cannot manually select a winner, it must be done randomly.
New York and Florida Requirements
Finally, there are some important rules to keep in mind for residents of New York and Florida:
The State of New York requires that before allowing its residents to participate in your sweepstakes, you must have a "surety bond" and register your sweepstakes if the total value of your prizes is more than $5,000. Florida has a very similar rule if you're running a sweepstakes without 501c3 status.
A surety bond helps ensure that sweepstakes prizes are actually awarded to the winners. They cost 2% of the total value of the prizes you are offering - an online search for "Sweepstakes Surety Bonds" will yield multiple providers who can provide this service.
Registration in either New York or Florida costs $100 in each state, and can be done online. New York registration link, Florida registration link.
Summary
As you can see, although sweepstakes and raffles are popular fundraising methods, they come with their own complexity which can be navigated with nuance to remain legally compliant. Despite the fact that many fundraising campaigns disregard these rules (most likely out of ignorance as to their complexities), it is important to still follow the correct federal and state regulations on the subject, as "everyone else was doing it" will not hold up well in a court of law.
Got additional questions? Don't hesitate to talk to our support team!
Updated on: 02/13/2023
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