Can a Charity Hold a Raffle?

Two of my boys, Ted and Scott (visiting from London), and I recently enjoyed an exciting Los Angeles Kings’ victorious game at Staples Center.

We saw several things you’d expect at a Kings game: Numerous fans wearing Jonathan Quick’s No. 32 jersey; folks sporting hats in the shape of hockey pucks; and the Kings’ Ice Crew, the guys and gals who substitute for the Zamboni during the game’s three periods (interesting how the guys are wearing jackets but the gals are all bare-midriffed).

What I didn’t expect was a 50/50 raffle. I thought things like raffles and lotteries were pretty much illegal in California, except for those run by the state itself.

When I got home, I checked out California’s Attorney General (AG) website for an explanation. In 2016, the Legislature carved out an exception to the gambling prohibition. As long as the sports team pre-registers with the AG’s office, it can conduct raffles where 50 percent of the money raised from ticket purchases goes to one (or more, probably) lucky participant and 50 percent goes to a state-recognized charity. Nothing to the team.

So, how about regular charities? Can they do their own 50/50 raffle? Interestingly, no.

They are held to a higher standard than Philip Anschutz, owner of the Kings, or Magic Johnson, co-owner of the Dodgers.

Before holding any type of raffle (which can be a raffle for money, or for a home, or for a car, or just about anything else), the charity (and that includes organizations like the YMCA, Chamber of Commerce, or Moose Lodge, just to name a few) must register with the AG’s office. Hospitals, educational institutions, and religious charities are exempt from registration requirements.

That process is pretty simple. All the charity has to do is file Form CT-NRP-1, which is a one-page form available online at the AG’s website, for each year it is planning on holding a raffle. You put down the name of the charity, its address, what type of charity it is, and some taxpayer identification information. This is filed with the AG’s office, along with the form from the Franchise Tax Board that proves the organization is tax-exempt.

The registration year, which runs Sept. 1-Aug. 31, is somewhat analogous to a corporation’s fiscal year. So, for any raffles to be held after Sept. 1, the registration must be filed by no later than Sept. 1. Thus, if the charity is planning a raffle for June, the registration form must be filed by Sept. 1 of the preceding year.

Once you’ve registered (and the AG’s office has accepted your registration – not always a given) you can conduct your raffle, so long as the charity will receive 90 percent of all of the raffle proceeds. That’s why charities cannot legally have 50/50 drawings.

Failure to follow these rules and procedures can result in violations of the Penal Code, in other words, constitute a criminal offense. Also, care must be taken in paying for the expenses related to the raffle.

This is warning the AG’s office posts on its website for improper handling of a raffle, “The organization is not precluded from using funds from sources other than the sale of raffle tickets to pay for the administration or other costs of conducting the raffle. However, the organization must exercise due care in using other funds. The misuse of restricted assets or the use of unrestricted assets which results in losses to the corporation may subject the board of directors to personal liability for breach of fiduciary duty.”

There are exemptions from some of these rules and procedures, but charities are advised to proceed cautiously.

An editorial aside: It seems ridiculous that the Rams, Lakers and Dodgers can do a 50/50 drawing but the Boys & Girls Club can’t. But those are the rules. ©

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