Assessing the value of property raffles

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The ASA recently published a ruling on a complaint about a house raffle. I blogged about it, concluding the post with a comment that we would probably see further complaints about house raffles. Well, it turns out I was right!

Yes, just a week later the ASA published another ruling on a complaint about a house raffle. This one concerned a company called Raffle House and there were two aspects to the complaint. The first focused on whether its house raffle was fairly administered, because the entry method was altered during the lifetime of the promotion. The second, which was raised by the ASA itself, related to the lack of a prominent closing date.

Now you don’t have to know every last sub-section of the CAP Code by heart to realise that you can’t change the structure of a prize promotion halfway through. Or that every prize promotion needs a closing date which should be displayed clearly. I mean, that’s basic stuff, but there’s also something here that I think is particular to property raffles.

To start with, in order to stand a chance of winning a house, entrants had to buy a £5 ticket and then they were given 30 seconds to answer a multiple-choice question. This was apparently along the lines of ‘Which of these cities has the highest population? London, Paris or Tokyo.’

If they gave the right answer their ticket was entered into the prize draw, but if they gave the wrong answer their ticket didn’t go into the draw and the cost of the ticket wasn’t refunded. However, the entry method was subsequently changed so that entrants had to answer the question first and only if they got it right could they buy a ticket and be entered into the draw.

Changing the mechanic was unfair, because the conditions of entry were different, depending on whether you entered when the promotion opened or after the entry method was changed. In an attempt to address the unfairness, Raffle House gave the initial participants free entry to the prize draw, but in effect this served to compound the unfairness for those who entered at a later stage.

Raffle House told the ASA it had changed the first entry mechanism because entrants complained that it wasn’t fair, but know how obsessed I am by terms and conditions and what interests me is a detail from the Ts&Cs, which referred to a “minimum number of entries”. This was set at 150,000 paid-for entries, so it seems to me that in simple terms the draw needed to generate £750,000. That’s how house raffles work – or in my view don’t work.

As the ASA pointed out, the second entry method was likely to increase the pool of entries in the prize draw, because those who would otherwise have had their entries rejected by answering incorrectly could keep on trying until they got an answer correct and thus achieved the right to enter. In other words, the change of entry mechanism was likely to have the effect of improving revenue – and I imagine that was crucial for House Raffle.

I’d venture that some house raffle promoters are looking to turn a profit, and on its web site it describes itself as a business and it looks like it has employees, so that probably includes House Raffle, but it’s very difficult to get it right and not breach the CAP Code. That’s why so many property raffles end in, at best, a cash prize being awarded or, at worst, no prize at all.

House raffle promoters need to sell a minimum number of tickets and bring in a certain level of revenue in order to avoid giving away a home for less than it’s worth. I’m not going to get into the vagaries of the housing market, but what a house is worth obviously varies anyway, depending on condition, location and ultimately what the vendor is willing to accept for it.

From what the promoter says online, I deduce that the prize in this draw, which is variously referred to as both a house and a flat, is considered to be worth £650,000 (which would be extremely cheap for a whole house in central London…). If you take that valuation at, er, face value, that would mean a gross profit of £100,000.

However, on 26 April this year, as the 30 June closing date approached, Raffle House announced that it had cut its minimum ticket threshold by a fifth, from 150,000 to 120,000. This, it said, was “So we can honour our promise of awarding a house as the prize to our competition and not cash. It’s a bold move, but we’re here to debunk the naysayers and negative press stories that have been clogging the news around our industry.”

Yes, I put my hands up to this. I am one of those naysayers. I don’t believe prize promotions can easily be structured to generate direct profit. Prize promotions are brilliant at encouraging customer engagement and promoting brands, but although you can quantify their impact, they only affect the bottom line indirectly.

Assuming it reached its minimum ticket threshold of 120,000 tickets sold, House Raffle would have generated £600,000, so giving away a property worth £650,000 looks like a loss to me – and that’s before the 5% of entry fees it promised to donate to charity is deducted. Of course, there are numerous financial factors which I am unaware of, including what was originally paid for the property, but from where I’m standing it doesn’t really seem to add up.

Judging by its online presence House Raffle looks like a professional operation and perhaps it has cracked the financial model. It says it conducted its first draw on 18 July, and that a winner has apparently been chosen and will be unveiled shortly. I await that news with interest.

Sarah Burns is Prizeology’s Chief Prizeologist. 

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