Also in this report:

– Fundraisers must balance creativity against costs p.31

Government cutbacks, increased demand for services, lower response rates to traditional fundraising appeals – the pressure on non-profit organizations to develop additional sources of revenue has never been greater

Cashing in on the legal gambling craze that has swept the land, many non-profits have chosen to launch so-called ‘mega lotteries’ – the sort that offer millions of dollars in prizes at highly attractive odds, all for the price of a $100 ticket.

The lotteries operate on the theory that consumers will be more inclined than usual to buy tickets because the money goes directly to a good cause. While there is little hard evidence to suggest that charity lottery players are indeed motivated more by benevolence than by sheer naked greed, the fact remains that these games are now tremendously popular with consumers.

Mega lotteries are not new in Canada. Hospital foundations and other non-profit organizations in b.c. and Alberta have been running them for more than a decade, in the wake of early rounds of government cost-cutting in those provinces.

Within the last several months, however, the phenomenon has taken off dramatically in Ontario. Toronto, in particular, has seen more than its share of mega lotteries, launched via a barrage of direct response media.

Among the first to appear in the Toronto market were the Hospital for Sick Children’s Wishing Well Lottery and Mount Sinai Hospital’s Lucky Star Lottery, both of which were launched with considerable success in early 1996.

Others to arrive since then include efforts from North York General Hospital, the United Way of Peel Region, the Heart and Stroke Foundation of Ontario, Princess Margaret Hospital, Sunnybrook Health Science Centre and, most recently, a joint initiative by the Easter Seal Society and the Canadian Opera Company.

Gordon Floyd, director of public affairs with the Canadian Centre for Philanthropy (ccp), says it appears that the Ontario-based charities are attempting to emulate the success of the lotteries out west.

‘Everybody in the not-for-profit world is looking for ways to replace lost government funding,’ Floyd says. The growing popularity of charity lotteries may, however, be leading to saturation in the Ontario market.

Because they offer a tremendous array of expensive prizes – such as houses, cars and vacations – that must be paid for in advance, mega lotteries pose a significant financial risk to the sponsor organization.

Factor in guaranteed odds of winning that range anywhere from one in 10 to one in 99, plus the requisite mass-scale direct response advertising budgets, and the operation begins to resemble more of a high-risk gamble than an investment.

‘Clearly with these lotteries, you need to have a very sophisticated marketing and distribution plan,’ Floyd says. ‘And you need to know that there’s a constituency committed to your organization.’

Properly executed from the outset, however, lotteries can generate millions of dollars in quick cash for their operators.

The Heart and Stroke Foundation’s Multi-Million Dollar Lottery, for example, had generated approximately $6 million in profit by the end of its five-week run.

‘It was a huge amount of money relative to any other single fundraising event that we undertake,’ says Rick Gallop, president of the Heart and Stroke Foundation of Ontario.

The lottery, he adds, ‘was one of the most nerve-wracking ventures I’ve been involved with in my fairly lengthy not-for-profit career. There’s a huge up-front investment with these things, and once the first ticket is bought, you’re committed.’

Gallop says a great deal of time was spent researching the potential market for the lottery and determining what the optimum packaging and price structure should be. The organization also conducted focus groups to find out if a lottery might offend donors or cannibalize existing revenue streams.

‘We felt we had battened down everything as much as we reasonably could ahead of time,’ he says.

Launched in January with a multi-million-dollar direct response campaign executed by SMW Advertising of Toronto, the Heart and Stroke mega lottery offered ticket buyers a one in 28 chance to win a share of more than $7 million in cash and car prizes. All 185,000 tickets were sold out three weeks prior to the scheduled final draw on March 7.

‘There’s no question that if you hit your target for ticket sales, you stand to make a lot of money,’ says smw account director Helen Flaherty. ‘It’s a high-risk, high-gain venture.’

Every move of the Heart and Stroke campaign, she says, was plotted with the knowledge that there was widespread competition in the marketplace.

‘All the elements of the campaign were integrated. There was a lot of effort put into the branding and a lot of emphasis on the direct response phone number,’ Flaherty adds. Direct response television, print and radio were used, along with two separate unaddressed brochures that went out to as many as four million Ontario households.

‘We think we stood out in the market simply by following the right advertising strategy,’ she says.

‘In the lottery category, the creative style is very `retaily,’ with a lot of supers and tons of information thrown in your face. Our concept was very different from the others, because it was more of a branding campaign.’

At the other end of the spectrum is the Way Better Lottery, launched in January by the United Way of Peel Region.

Instead of bringing in the anticipated flood of revenue, the lottery – which chapter President Roy Spooner admits was poorly planned and executed – ended up costing the charity money.

‘We did a lot of research before we did the lottery,’ Spooner says. ‘But when we rolled it out, it didn’t work. The difference was that in the time between when we got our lottery licence and when we actually ran the lottery, the marketplace had changed significantly.’

Launched in mid-January, the Way Better Lottery had 120,000 tickets available at $50 each, with a $1-million grand prize, for projected gross revenues of $6 million. The chances of winning a cash prize were one in 99.

‘By the time we rolled it out, other lotteries were coming out with one in 20 and one in 10 chances of winning,’ Spooner says. ‘We just couldn’t compete.’

Compounding the problem, he says, is that because other lotteries were selling more tickets at a higher price, they were able to offer many more prizes and spend much more on advertising.

The accepted formula for charity lotteries is to spend approximately one-third of anticipated gross sales on advertising and marketing. Spooner says his organization spent between $1.5 million and $2 million on direct response tactics, with a roughly equal amount going toward the cost of prizes and distribution.

‘If we were going to do it now and feel comfortable that we were competitive with the lotteries that have been in the marketplace over the last several months, I think we would have to risk between $10 million and $15 million overall,’ he says.

Although he doesn’t expect his organization to try another mega lottery in the near future, Spooner says they are a good way for charities to raise money – if they have the capital to risk.

‘The reason our lottery didn’t work is that we made mistakes. We weren’t big enough. We didn’t have enough market presence. We just weren’t competitive.’

Reporting mixed results with mega lotteries are the Sunnybrook Health Science Centre and Princess Margaret Hospital foundations, both of which stepped up consumer appeals right to the final day of their most recent campaigns, which wrapped up earlier this month.

Nicholas Locke, president of the Princess Margaret Hospital Foundation, says it’s getting tougher to sell tickets for the hospital’s Home Lottery, which was launched with great success last spring.

With that initial effort, the hospital sold every one of its 165,000 tickets in 21 days. For the second program, in the fall, they planned to sell 300,000, but managed only 254,000.

‘This year’s spring program is the toughest yet,’ says Locke. ‘We trimmed it back to 250,000 tickets, and while we’re still on track to sell out, it’s definitely tougher and slower than it was last year.’

Noting the proliferation of contest and sweepstakes promotions in all sectors of the consumer market, Locke says the challenge for the foundation and its marketing agency (Saskatoon-based Asher Group) is to make its lottery stand out in the crowd.

‘Running lotteries is a business. It’s not a philanthropy,’ he says. ‘You have to establish a market position and you have to beat out everybody else before you can settle down into a comfortable program.’

The key to success, he adds, is operating a lottery program that offers high value to consumers, both in terms of the prizes that are up for grabs, and by the way in which customers are serviced.

‘Secondary to everything is the cause,’ Locke says. ‘There’s no question that the people who buy tickets are gamblers. They’re drawn in by the prospect of winning big and fulfilling a dream.’

Although he doesn’t entirely disagree with Locke’s assessment of lottery players, Dan King, executive director of the Sunnybrook Foundation, says he believes that some of the motivations that spur people to buy tickets are changing – with the cause itself taking a more prominent role.

The problem, he says, is that there isn’t much hard data that would enable one to say with any certainty whether mega lotteries ‘are just a passing fancy or whether they’re real good stuff and are here to stay.’

King says that when Sunnybrook launched its Fortunes and Fantasies Lottery in February, it hoped to be able to ride the wave of popularity surrounding such ventures.

Although he declines to offer sales figures, King is quick to note that he’s not planning to disband any of his other fundraising programs in favor of lotteries any time soon.

‘The execution of the lottery is far more all-encompassing than I ever thought it would be,’ he says. ‘It’s quite a task.

‘The rules of the game have changed. You have to have really deep pockets. The marketing strategy these days seems to be that you spend whatever it takes to sell out. Media people are simply rubbing their hands with glee at the phenomenal budgets that are coming out of these lotteries.’

Vectra Marketing of Richmond Hill, Ont. is the agency that helped Sunnybrook devise the Fortunes and Fantasies Lottery.

When it launched its Dream of a Lifetime Lottery six years ago, the Children’s Hospital of Eastern Ontario Foundation in Ottawa became one of the first non-profit organizations in the province to do so.

Although it sold only 10,000 tickets in its first effort, cheo has since come to depend a great deal on lotteries as a revenue source. Last year, for instance, the foundation ran three separate lotteries under different banners.

‘We’ve raised more than $5 million over the last few years, a lot of which helped us build a state-of-the-art research institute here at the hospital,’ says Alan Roberts, cheo’s director of communications.

Unlike those organizations that view their lotteries as standing entirely apart from their more traditional fundraising activities, cheo – which manages all of its fundraising without an agency – has a strategy of ‘cross-pollinating’ its lottery programs with traditional fundraising appeals.

‘The lottery affords us the opportunity to have a pool of 20,000 new names to mail to for our annual telethon or other direct response purposes,’ says Roberts. ‘The impact on our fundraising appeals hasn’t been incredible, but it does allow us to grow a little more each year.’

So what’s the prognosis for mega lotteries in Ontario?

‘There may be a bit of a life cycle to this kind of fundraising that will require groups here in Ontario to adapt their strategy after a while,’ says the ccp’s Floyd.

Community-based organizations like hospital foundations, he suggests, may have to think increasingly about joining forces with similar groups to offset the costs – and risks – of running a lottery.