Implementing 50/50 Raffles for Collegiate Athletics: A Comprehensive Guide

In the world of collegiate athletics, fundraising and fan engagement are critical components of supporting programs and athletes. One increasingly popular method is the 50/50 raffle, a simple and effective way to raise funds while offering participants a chance to win.

However, implementing a 50/50 raffle requires careful consideration of various factors — including tax responsibilities.

Understanding 50/50 Raffles

A 50/50 raffle is a fundraising activity in which tickets are sold and proceeds are split evenly between the winner and the organization. We’re seeing an uptick in the number of athletic programs who advertise these raffles for their sporting events — some even allowing participation from fans not attending the game.

This activity is permissible as long as it’s conducted within a qualified charity and your organization adheres to certain rules. These rules are often governed by state statutes and specific regulations in your county or other municipality.

For instance, in Florida, the state statute 849.0935 governs charitable drawings and raffles. Similarly, each county within Florida may have its own code, like the Hillsborough County code for games of chance and raffles.

Tax Implications and Reporting Requirements

When conducting a 50/50 raffle, it’s crucial to understand the tax implications and reporting requirements. According to the IRS instructions for W-2G, winnings from wagering pools, sweepstakes and lotteries must be reported if the winnings are at least 300 times the amount of the wager and total more than $600.

If the winnings minus the wager exceed $5,000, federal income tax must be withheld at a rate of 24%. This is referred to as regular gambling withholding. If the winner of reportable gambling winnings doesn’t provide a taxpayer identification number (TIN), backup withholding applies at the same rate of 24%.

For winnings that are not subject to regular gambling withholding, backup withholding applies if the winnings are at least $600 but not more than $5,000 and are at least 300 times the wager.

In the case of a 50/50 raffle, the type of wager would be entered on the form, along with the date of the winning transaction and the price of the wager. The winner’s TIN must also be provided.

Remember, these rules are subject to change. Always consult with a tax professional or attorney to ensure compliance with all applicable laws and regulations.

Fundraising and Tax-Exempt Status

When used for tax-exempt purposes, fundraising activities like a 50/50 raffle generally will not trigger unrelated business taxable income. However, the proceeds must be used to further your organization’s mission. To ensure this alignment, review your mission statement (typically found in Part III Box 1 of the Form 990). This will help determine whether the activity falls in line with your organization’s exempt purpose.

If your mission statement is grey (for example, you’re conducting the raffle through a university-affiliated tax-exempt organization formed to manage athletics-related facilities or financing), it may be changed without disrupting nonprofit status. The new mission must still qualify under the description for a tax-exempt status under 501(c)(3) of the tax code. Additionally, the IRS, your donors and members must be notified of this change, which can be done in the 990 and through a public announcement on your website. Consulting a nonprofit tax attorney to cover your bases is advisable.

Financial Management and Best Practices

We recommend setting up a separate bank account and GL account to track 50/50 raffle activity. This will help ensure transparency and ease of reporting. We also recommend transferring remaining funds to athletics as a contribution after the raffle. This is similar to how foundation money is treated.

You’ll also want to evaluate any fees or other equipment-related costs for conducting the raffle, and ensure you’re netting those against the raffle proceeds before awarding the grand prize. We have seen universities apply a maximum of 15% to cover these costs.

Advertising Your Rules, Terms, and Conditions

When conducting a 50/50 raffle, it’s essential to clearly communicate the rules, terms and conditions of the raffle to all participants. This not only ensures transparency and fairness but also serves as a safeguard for your organization. Include rules specific to eligibility and entry, drawing and notification of the prize winner, defining what the grand prize is, and other legal disclaimers.

If you partner with a vendor who hosts these raffles, ensure they have these terms and conditions defined. And, as always, consult with general counsel to ensure your rules are comprehensive and comply with all applicable laws and regulations.

Do you have any concerns about your responsibilities for 50/50 raffles? It is important to remember that you don’t need to navigate these complex issues alone. Your collegiate athletics CPAs can provide guidance to help ensure you’re meeting all tax reporting requirements for your organization.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.