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Be Careful with Raffles.

Raffles are popular money making tools for many organizations in Texas, including FFA Chapters and related entities. Under Texas law, a “raffle” consists of the awarding of one or more prizes by chance at a single occasion among a single pool or group of persons. Raffles were illegal in Texas until 1989, even if the raffle was conducted by a charity. Certain qualified entities are now allowed to conduct raffles, but the legislature has placed strict conditions on the operation of such raffles. The provisions governing raffles are found in the Charitable Raffle Enabling Act, Chapter 2002 of the Texas Occupations Code. If a raffle does not meet the specific requirements set forth in the Occupations Code, it is illegal and participation, as a buyer or seller, creates the risk of criminal liability under the gambling provisions of Chapter 42 of the Texas Penal Code. 

Generally speaking, not-for-profit or charitable organizations that have been in existence for more than three years may qualify as “qualified entities” allowed to conduct raffles. However, given the potential criminal implications, any nonprofit organization should carefully consider the applicable regulations before commencing a raffle.

The restrictions on the promotion and sales of tickets are the most likely traps for the unwary. Organizations are not allowed, directly or indirectly, to use paid advertising to promote a raffle through “a medium of mass media,” such as television, radio, or newspaper. However, this prohibition does not seem to prohibit mass media sources from donating advertising to the organization. Another restriction is an organization is not allowed to promote or advertise a raffle statewide and is not allowed to sell or offer to sell tickets for the raffle statewide. The term “statewide” is not defined in the statute and caution suggests that a raffle should not be promoted or tickets sold through means that could arguably reach a statewide audience. Organizations are also prohibited from compensating a person, directly or indirectly, for organizing or conducting a raffle or for selling or offering to sell tickets to a raffle. Finally, an organization may not permit a person who is not a member of the organization or who is not authorized by the organization to sell or offer to sell raffle tickets. 

There are also restrictions on the timing and frequency in which an organization can hold a raffle. Only two raffles per calendar year are allowed and tickets can be sold for only one raffle at a time. Also, before selling or offering to sell tickets for a raffle, an organization must set a date for the prize or prizes to be awarded. If the prize is not awarded within the 30 days of the date, the organization must refund or offer to refund the amount paid by each person who purchased a ticket. Therefore, it is important to obtain the purchaser’s contact information should a refund become necessary. 

The raffle ticket itself must set forth certain disclosures. These include:
- The name of the organization conducting the raffle;
- The address of the organization or of a named officer of the organization;
- The ticket price;
- A general description of each prize having a value of more than $10 to be awarded in the raffle; and 
- The date the raffle prize or prizes will be awarded.

The value of the raffle prize cannot exceed $50,000.00 and the prize cannot be money. It is not clear whether the $50,000.00 limit applies to a single prize or to the value of all prizes that may be offered in the raffle. Also, the term “money” does not mean just coins and currency. The Texas Attorney General has ruled that the term “money” includes negotiable instruments that are equivalent to money, such as certificates of deposit. The courts and the Attorney General have yet to address whether gift certificates, vouchers or similar prizes are allowed under the statute. Further, before an organization commences a raffle it must either (1) have the prize to be offered in its possession or ownership, or (2) post bond with the county clerk of the county in which the raffle is to be held for the full amount of the money value of the prize.

All proceeds from the sale of tickets for a raffle must be spent for the charitable purpose of the organization. “Charitable purpose” is defined broadly enough to take in many FFA activities and specifically includes “benefiting needy or deserving persons in this state… by enhancing their opportunities for…educational advancement.” An organization may use a portion of raffle proceeds to pay the reasonable, incidental, and necessary expenses of conducting the raffle from which the proceeds were raised, but ordinarily no raffle proceeds may be used to fund subsequent raffles. 

Although it is not clear whether the raffle provisions are being strictly enforced and prosecuted, the potential consequences violators face should be taken seriously. The Charitable Raffle Enabling Act allows local prosecutors or the Attorney General to bring action to enjoin conduct involving a raffle that violates state gambling laws. Further, under the Penal Code, a person commits an offense if he or she intentionally or knowingly, for gain, sells or offers to sell or knowingly possesses for transfer, or transfers any card, stub, ticket, check, or other device designed to serve as evidence of participation in an illegal lottery. A violation of this provision is a Class A misdemeanor. Under Texas law, a person sells or offers to sell a raffle ticket “for gain” even if ticket proceeds are used solely for charitable purposes.

Do not assume that your organization’s raffle complies with the law. “We’ve been doing it that way for years” will not be a valid defense should law enforcement pursue criminal action against you or the organization for violations of the Charitable Raffle Enabling Act. While raffles remain a viable and effective fundraising option for not-for-profit organizations, great care should be taken to review the provisions and restrictions of the Charitable Raffle Enabling Act before each raffle is commenced. Better yet, retain competent legal counsel to advise you on such matters. The profit made from an illegal raffle will never be enough to compensate you or your organization should your raffle be the one selected for criminal prosecution.

   
 
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