Mega lotteries: fun to play but how much do charities really benefit?
Just imagine winning the lottery. Now, more than ever, charity lotteries are selling that dream. It seems like the prizes just keep getting bigger and bigger every year. But, charity lotteries are not just about prizes – they are also about raising money for a good cause. And there is certainly no end to good causes – it’s estimated that Canadians gave $750-million to charity lotteries in just one year.
Three-quarters of a billion dollars- but just how much of all that cash actually makes it to charity? That’s what Kate Bahen at Charity Intelligence (Ci) wanted to find out. The Toronto-based organization analyzes information about charities to help donors determine where their dollars can have the most impact. Bahen’s team of financial analysts reviewed the most recent three years of audited financial statements of the 30 largest charity lotteries in Canada.
And what did they find? On average – only 27% of all that money actually goes to charity. Why so little? For starters, Ci’s analysis found huge operating costs.
“There is marketing: newspaper, radio and television. There’s also the direct mail that pretty much every household receives – the flyers about these charity lotteries. And at the same time, they also run 24/7 call centres” said Bahen.
The other big cost is a little known fact – those luxurious prizes? Charities buy them.
“In some cases, maybe some prizes are donated or time is given or there’s some corporate sponsorship. But in the vast majority of cases, the prizes, the Maseratis, the luxury homes , the dream vacations, are all paid for by the charity and that makes them very costly to run”.
Canada’s biggest charitable lottery operator is the Heart and Stroke Foundation. They sell $61-million worth of lottery tickets in an average year. But only 30% of that money ends up back in the hands of the organization supporting its aims.
Tom McAllister, CEO of Ontario’s Heart and Stoke Foundation, insists that’s an important source of revenue. “We’re thrilled with that. We’ve generated net proceeds over the course of the last 16-17 years of in excess of $200-million.”
The Heart and Stroke Foundation’s net return from their lotteries is above average, but Ci found many charity lotteries with much smaller returns – there were some that kept less than 15 cents on the dollar.
And paying for all those prizes means that lotteries can be a huge gamble for the charities themselves, particularly if they don’t meet sales targets. Some charities have lost big money on their lotteries. The Canadian Cancer Society runs lotteries in several provinces. In 2010 their Newfoundland lottery lost $174,000 and their New Brunswick lottery lost $341,000.
“With every fundraising activity there’s an inherent risk,” explained Rowena Pinto, Vice-President of Public Affairs and Strategic Initiatives for the Canadian Cancer Society. “Both divisions learned from that experience and haven’t done lotteries since. The organization though that year raised more than $3 million for lotteries.”
In Edmonton, the Royal Alexandra Hospital Foundation and the University Hospital Foundation ran the “Dream Away Lottery” in 2011. They lost a combined total of $1.6-million on that campaign, but they continue running their “Full House Lottery” which has been more successful.
“We’re very fortunate that that year we were successful in our other gaming venture,” said Andrew Otway, Royal Alexandra Hospital Foundation President and CEO. “So, on the balance for the year we had a very small return, but at least it was positive dollars.”
For some charities though, their losing lotteries have knocked them out of the game. In 2011 the Peace Arch Hospital Foundation in White Rock, B.C. lost $746,000 on their lottery and they haven’t run one since. The same year the Royal Columbian Hospital Foundation in New Westminster, B.C. fell short in a lottery that offered three vacation homes, losing $3.3-million. The Royal Columbian Hospital Foundation has not offered a lottery since then.
All the expenses of operating a charity lottery can really add up – but it’s hard to tell from financial statements of some charities exactly where all the money has been spent. Of the 30 charities Bahen’s team reviewed, only 14 broke down their expenses between operations and prizes.
“Some charities may see that as competitive information, so the requirements are not there for financial disclosure,” said Bahen, who believes more transparency in the charitable sector would be a good thing.
“Charities need to be more open and provide the information to donors and to Canadians. I believe that there’s some organizations that are very transparent and this is something we have to continue to advocate for, that Canada’s charitable sector should be open, it should be transparent and it should be more accountable.”
Those lottery tickets are not like making a donation to your favourite charity, and you won’t get a tax receipt. Bahen argues that Canadians should make informed choices and if someone wants to support a cause through a charity, the best way may be through a direct donation rather than buying a lottery ticket.
“If this is a cause and charity that you want to support, please don’t confuse the money you would spend on making a donation to buying a charity lottery ticket,” she said. “It’s always more cost efficient to make a simple donation.
“If you choose to support a charity, making a donation always makes your dollar go further. If you want to gamble, then look at charity lottery tickets, absolutely.”