I was reading a forum recently, and there was a question posed about whether entering a dream house raffle is worth it.
They asked, “The odds of winning something are 1 and 50 apparently. They have other prices like vehicles and vacations, etc. Is this worth buying a ticket for, or should I stay away?”
I was curious as to the answer, so I thought I would investigate.
The grand prize is a multi million dollar home in San Francisco. Also, there are many large prizes including numerous cars and international holidays. With the odds of winning a tempting 1 in 50 and tickets only $150, this sounds like a tempting deal.
The raffle : http://sfraffle.com/Overview.aspx
The site lists a lot of details about the prizes, and are very upfront about what’s on offer. Which is always a good sign that they are being trustworthy.
Unfortunately, they know that humans are instinctively lazy, and will take everything at face value and won’t bother to dig deeper to see just how beneficial – or how bad, this ‘Dream House’ raffle really is. Fortunately, I quite enjoy wasting an hour determining the maths behind deals like these.
To be fair, I had no clue what the payoff would be for someone who participated. I was expecting it to be similar to scratch-it cards or physical pokie machines at the casino. Which are in the 60%-80% payout range.
In this instance it is a charity organisation so you can expect a poorer result than you would for a commercial organisation. Although investigating where their funds go, this doesn’t appear to be that enticing as they are just trying to provide funds to an arts hall.
So lets begin.
This competition provides the punter with a 1 in 50 chance of winning. The tickets are a mere $150 each. Which seems like a fairly decent deal. 1 in 50 chance to win! Those are fairly good odds, particularly with holidays, cars and your dream house on offer.
But before we get too excited, lets determine the amount of ticket revenue that comes in.
After going through their list of prizes I can only find 1705 prizes listed. Which comes to $12,780,000. Since this is the only thing I can legitimately verify, this is the number I will use.
Note: The headline states that there are over 1800 prizes. That’s $13.5 million in ticket revenue.
The costs for the organisations are in 3 parts.
- Advertising costs, in promoting it and sending out letters.
- Employee costs.
- Buying prizes for participants to win.
We do not know what the first 2 are, but the third is relatively straightforward to determine. We just grab the prize list from their site, and do some searching to determine it’s market costs or RRP. Calculate the number of prizes on offer by the individual cost and we have our total payout.
Notes: How i calculated the prizes:
- For products like Samsung or Apple, i went to the companies own websites and took the prices in US$.
- For the others, i either used Amazon (new) prices. Else took the top search item in google.
- For some options, the winner can choose to take a cash offering instead of the original prize. This is for all top tier prizes such as cars, holidays, and the dream house. In these instances, I simply took the cash option every time.
We can see the final result here.
The total value of the prizes comes to $4,332,427. Which pales in comparison to the 12.78 million in ticket revenue. That is a 66% return when calculating the prizes alone.
I highly doubt that employee costs, and advertising/ pamphlet mail outs will make much of a dent in those figures.
Note that, although you have a 1-in-50 chance of winning a prize, over 90% of those prizes are worth less than the price of the ticket. So like all good gambling products it is just the illusion of winning, and you still lose. Your chances of breaking even in this competition is closer to 1-in-500.
Like most gambling products, this is extremely profitable for the companies organising it and a poor choice for consumers.
If you want to donate to a charity. Then cut out the middle men and donate directly to the charity. (Which also provides tax incentives for doing so).
If you want to enter a raffle to win a dream house, then know that they are robbing you blind under the pretense that you have good odds. Anything that takes a dollar and returns 44cents in return via prizes is not a way to become rich.