If you have watched YouTube… at all… in the last year or so you have no doubt know
what Omaze is…
For the few of you who don’t, they are an organisation that promotes lotteries for all
manner of different items and experiences, ranging anywhere from a chance to win a Lamborghini
all the way to an exclusive Star Wars set tour before it hit theatres.
This all sounds very cool especially when it is revealed that all of the proceeds from
these lotteries go on to support charities.
To date the company has raised over 130 MILLLION DOLLARS for charities that do everything from
providing scholarships to orphaned children, to installing solar power in remote African
communities.
Surely it would be pretty hard to hate on an organisation like this right?
Well…
You see despite this chirpy exterior of flashy cars and warm fuzzies, Omaze is hiding a pretty
dark secret.
So it’s time to learn how your money works in these raffled because also reveals a lot
about how an alarming amount of charitable organisations conduct themselves in the modern
day.
So before we go any further the first thing you need to know about Omaze is that it is
a For Profit Institution, which means that its primary goal is not to feed the homeless
or save the spotted owl, it’s to make money…
It makes this money by representing organisations that are themselves non profits, but they
are not one themselves.
Now there is nothing fundamentally wrong with this, if feeding America held a charity gala
in a Hilton Hotel nobody would have any issues with Hilton hotels later going on to turn
a profit that’s fine.
Where Omaze starts to push it’s luck though is that it really doesn’t make any effort
to stress this relationship.
Just think, when your favourite youtuber was talking about a car giveaway, they probably
spoke a lot about Omaze, and the great work it was doing, but just think, do you remember
any of the charities that these charities were actually meant to fund?
If you do, you certainly have a better memory than me.
This is no accident.
The company spends millions of dollars on marketing every year and trust me if they
wanted you to hear about the actual non-profits, you would have heard about the actual non-profits.
The company would instead like for you to conflate Omaze with saving the children, more
so than running lotteries to make fat stacks, and trust me they do make fat stacks.
Gambling is bad.
It’s a vice,
and like most vices it’s heavily regulated… gambling of any kind is illegal in most states
of the USA, and the same goes for a healthy selection of countries around the world.
So how is it that this for-profit company is able is able to run what is essentially
a for profit lottery?
Well again they use this guise of charity work to get through on a technicality.
You see technically it is the charities running these lotteries, Omaze is simply marketing
them, and that IS allowed.
Of course, when these laws were written most lawmakers expected that this exemption would
be used for gift basket charities at a local bowling club rather than high valued international
lotteries, but ce la vie I suppose…
It’s telling that the origin story of the company is a tale of how the two founders,
Matthew Pohlson, and Ryan Cummins went to every law professor at their respective universities
until they found one to agree that their business plan was “technically legal”.
Now despite the entire organisation jumping through loopholes like an Olympic gymnast
you might be thinking, who cares…
most people watching these adds would be forgiven for thinking there was any add charity involved
at all.
Some people just really love the idea of one day owning a Lamborghini and just the thrill
of having a chance is worth the bet… and sure, look gambling is bad, but it’s also
fun, and if you can somehow convince yourself that this is all for a good cause along the
way all the better right?
Well the issue here is that these Omaze lotteries are just a really bad bet…
To demonstrate this we have to look at the risk to reward of these lotteries, which is
also a really good excuse to properly understand how this business model works under the hood.
So if you put $1 down on one of these lotteries how much should you expect to get back?
It is still gambling after all so it will be less than the dollar that you put in, that’s
fair enough?
Well blackjack for example will normally return you about 96% of the money that you put into
it, assuming that you play perfectly an play and indefinite amount of hands.
You regular state lottery normally has a payout of about 90% on average again assuming that
you play this indefinitely.
And at the bottom of the barrel you have things like scratch lotteries which normally pay
out about 85% of what you put into them, a fact that has been beautifully visualised
a few times by Mr Beast on his channel.
I wonder if he made those videos just for the statistics nerds like me.
Now it must be recognised that scratch off lotteries are normally seen as the worst type
of gambling considering their absolutely fucking awful expected return…
But Omaze on the other hand, well that has an expected payout of only 70 cents for every
that is put in.
We know this because they break it down on their website.
For every $10 you contribute $7 typically goes towards sourcing and shipping the prize
and paying for credit card fees and taxes and MARKETING… so this statistic could actually
(and likely will be) a lot worse.
Now for the sake of this demonstration we have ignored their “experiences” because
it really is hard to hard to say how much a person values a dinner party with George
Clooney in lake Como.
But for what it’s worth, the payout value is actually even worse for these types of
lotteries.
Now you gotta ask, well if $7 out of every 10 I put into this scheme is used for actually
sourcing the prize and marketing the lottery, where is everything else going?
Well $1.50 goes to Omaze, that is how they make their profits, because remember that
$1.50 is paid after everything else has been covered including the sponsor dollars they
will pay to your favourite youtubers, so their margins are pretty fat on this…
The remaining $1.50 goes to the charity itself.
So if you were thinking this was for a good cause just remember that at best only 15%
of what you contribute is actually going to good use, and if you didn’t care about the
charity aspect and just wanted a chance to win a cool car, well as we have seen statistically
your money would be better spent elsewhere.
So all of this begs the question, why would charities agree to participate in this kind
of scheme?
It looks to only be operating to build up a massive online for profit casino with only
a sliver of the money going to them, so why not just ask for donations to good old fashioned
way?
You know, guilting people with TV adds.
Surely the potential hit to the charities reputation couldn’t be worth this right?
Well the answer to this question is revealed once again by looking at Omaze’s website.
Here we will find two possible solutions to this little conundrum.
The marketing approved answer
Annnnndddd
The correct answer
The marketing approved answer is that Omaze can leverage their branding power to raise
more money than these charities ever could.
The company argues that 15% of a million dollars is better than 90% of $50,000, which is likely
what these other non profits would raise through more traditional methods.
And sure, Omaze is going to take a cut along the way but isn’t that only fair since it
simply gives these charities have more money to do good with?
Well this is where we get into correct answer…
While you are looking through this website you may notice that you don’t…
really… recognise… any of these charities…
Part of the reason that these charities would find it so difficult to raise money without
the use of thinly veiled online casino’s is that they are just not that substantial.
Now I am going to sound like the grinch for saying this, but so far as charities go that
is often a really bad sign…
Now I am not going to say that every charity on the website is like this, and certainly
there are hundreds of charities out there that are like this that are NOT on Omaze.
What I mean by “like this” is being less interested in doing good and funding worthy
causes, and more interested in making their founders wealthy and influential.
But this doesn’t make sense, how can charities make people wealthy?
It say’s it right there in the title “not for profit” that means no profit right?
Well that’s right, but there is more than one way to get money out of an organisation.
It’s very easy for charity founders to appoint themselves or a close association to the position
of CEO in the organisations and draw a nice fat salary as compensation.
On top of that they can pay lot’s of money to run fancy event’s to entertain “potential
donors” all on the organisations budget.
If anything this helps them towards becoming a non profit because salaries and marketing
are all expenses which takes away from… well… profit.
Of course these charities do still need to put some money towards what they say they
will, but in many cases this can be less than 10% of what the organisation brings in, which
means the other 90% is used for all of this other stuff.
Now the one problem is that if this becomes public knowledge people are much less likely
to donate to your charity, which means you will have no income to divert into paying
for your lavish salary and boozy golf days.
This simply won’t do… which is where Omaze comes in again.
You see the average person giving money to omaze doesn’t really do much research on
the charities that they are representing.
Whereas a wealthy donor might have their lawyer look over financial statements for month on
end and perhaps even introduce pledging requirements before writing a 1 million dollar check, the
average person on the Omaze website is more likely to look for the car that they like
best and will just be happy to know that some money is going to charity.
How much?
Well as we have seen, it’s only going to be a fraction of a fraction.
So should youtubers and people like George Clooney stop promoting this service?
Aahhhh it really is hard to say… on one hand the company itself is downright slimey,
but I do have to agree with the major point that they made, which is that more money for
good causes is always a worthwhile thing.
It’s likely that this money would not be raised without these questionable tactics
and even if only 15% is going to a charity which will only use 10% of that money to put
towards charity work, well that’s still 1.5 percent of millions of dollars doing some
good.
So no, this is not an attack on George Clooney (how could I ever stay mad at him) and it’s
not an attack on the youtubers taking sponsorship deals either, if anything this is an attack
on you, the people that keep making this scheme possible by giving it money.
So now that you have learnt how this money works, youll know that if you want to gamble,
go to vegas, if you want to give money to a charity, give money to a charity, don’t
half ass both and convince yourself that you are a going to be a lambo driving saint, because
your not going to be either.
Now if you do wanna see me throwdown with some much larger and more successful youtubers
then go and watch my video on why personal finance influences like graham Stephan might
be doing more harm than good to their impressionable audience.
In the meantime please consider liking and subscribing to keep on learning how money
works.