Raffling homes is a growing trend among nonprofits. But if they're offered in Minnesota, buyer beware.
It seemed like a great way to land a free home: Plunk down $100 for a raffle ticket to help a charity, and cross your fingers.
That's what Steve Cayford thought when he bought a ticket to win a condo in Minneapolis this summer. But he soon learned that house raffles are illegal here -- and why.
"There was a lot of sketchiness around how it was set up,'' said Cayford, of St. Louis Park.
From million-dollar "dream homes'' in California to prefabricated houses in rural Wisconsin, house raffles have taken off. They're spurred by nonprofit groups' quests for creative fundraisers, by owners' needs to unload sagging real estate and by get-rich-quick dreams.
But the state of Minnesota is no fan of such games of chance. While house raffles do show up, state officials have tried to clamp down on them.
"House raffles are difficult to pull off,'' said Michael Ries, a vice president at the national Association of Fundraising Professionals. "Some are started and then stopped because they don't sell enough tickets. Some run into legal problems. It sounds good ... but there are many, many issues to consider.''
The charity behind Cayford's raffle ticket, the Aegis Foundation, is the most recent ill-fated attempt to raffle a house in Minnesota. William Panzarella, its executive director, said he decided to raffle off his south Minneapolis condo in April after hearing about a house raffle in Maryland that benefited a charity.
The idea was to sell 10,000 tickets at $100 a pop and raise $1 million, he said. About $300,0000 would pay off the mortgage and Realtor fees and $700,000 would go toward youth programs funded by the small nonprofit.
Aegis donated $16,800 to charity in 2010, according to Panzarella, who runs Aegis from his Minneapolis home on a volunteer basis.
Because such raffles are illegal in Minnesota, Panzarella said he decided to register it in California, where Aegis had just set up a fledgling chapter.
But the California attorney general denied the raffle request four months before it was launched because the Aegis Foundation wasn't registered as a charity in that state. The attorney general sent three letters to Panzarella over the past year, one as recently as Sept. 16, asking him to register Aegis as a charity and to file annual reports.
Panzarella said he does not recall such letters and that he believed the person starting Aegis' chapter in California was handling legal matters.
Even if the raffle had been registered in California, it would have violated that state's law. California requires that 90 percent of gross receipts go to charity, that no officers involved in the sponsoring nonprofit benefit from the raffle, and that all proceeds be spent on California charities.
Meanwhile, the Minnesota Department of Public Safety, Alcohol & Gambling Enforcement Division ordered Panzarella to shut down the raffle effective June 17.
The shutdown notice was posted on the foundation website Aug. 18. About 250 tickets had been sold, Panzarella said. Cayford and others received refunds.
Panzarella said he was unaware of all the irregularities until he talked to the state gambling enforcement division. "It was a great idea, but it didn't come to fruition,'' he said. "You pull a thread and the whole thing comes apart.''
Another attempt to pay off a Minneapolis mortgage and give the rest to a small charity run by the house owner went sour in 2008. The "Big Dream House Giveaway'' had participants pay $20 and guess how many nails, screws and bolts were in a chest to win a $1 million-plus Kenwood home.
The guessing game was not considered an illegal raffle because it didn't involve random selection of a winner. But weekly drawings for other prizes were deemed a form of gambling that needed to be conducted according to state and local rules.
If you see a house raffle for a charity in Minnesota, beware, said Tom Barrett, executive director of the state Gambling Control Board. "In Minnesota, the law says the maximum prize for a raffle is $50,000,'' he said. "You could raffle a house, but these days you don't get much house for $50,000.''
Other states have success
House raffles, particularly those run by large nonprofits, have been successful in nearby states. The raffles typically allow winners to choose between the house or an equivalent cash prize. All benefit charities and nonprofits.
Drive south of Chicago, for example, and find a raffle for a $1.2 million luxury home with four bedrooms, 4 1/2 baths, three fireplaces, a wine cellar and a "stunning living room and dining room.'' Tickets cost $150 and proceeds support the Hope Institute for Children and Families of Springfield. Since tickets went on sale in September, nearly 3,000 have been scooped up, organizers said. The goal is 35,000 by Jan. 20.
"This is a way people can invest in a great nonprofit, and also have an opportunity to win wonderful prizes in return for their donation,'' said Mark Schmidt, spokesman for Hope Institute. "Plus there's a lot of positive advertising for us.''
In Indiana, people are still excited about the 16th annual raffle drawing held Friday in Crown Point. The winner, selected by a blindfolded nun, is still deciding whether to take a cash prize of $225,000 or one of a half-dozen new homes.
The raffle not only offers the public a chance to win a small fortune, but it drives traffic to developers' model homes, organizers said. More than 4,700 tickets were sold at $150 each. The roughly $240,000 in proceeds will be shared by the Crossroads YMCA and St. Jude House domestic violence shelter, both in Crown Point.
"At the beginning, the winners would take the house,'' said Mary Govert, executive director of St. Jude House. "But in the past six years, with the bad economy, they've been taking the cash prize.''
In Wisconsin, the Greater Marshfield United Way raffles a prefab home, donated by the manufacturer, each spring. The $150 tickets are sold at area banks. The "Dare to Dream Raffle'' generates more than $110,000 a year for programs supported by United Way, said Paula Jero, executive director of the Marshfield United Way.
Back in Minnesota, Steve Cayford still is intrigued by housing raffles, but he said he won't buy any more tickets here. "It seemed too good to be true; I guess it was.''
Jean Hopfensperger • 612-673-4511