Luxury fundraiser Omaze confronts ‘illegal lottery’ allegations

Fundraising giant Omaze is facing the threat of a class-action lawsuit that accuses it of operating “illegal lotteries” and misleading the public about its fundraising credentials.

A multimillion-dollar company operating in the U.S. and U.K., Omaze raises money by selling tickets for massive prize draws — offering players the chance to win luxury houses, holidays, or celebrity experiences.

Charities including UNICEF, Save the Children, and Comic Relief US are among those to have benefited from the hundreds of millions of dollars it has raised since 2012.

However, its for-profit model — under which a large proportion of the proceeds from ticket sales are used to cover costs, with the remaining profit being split between Omaze and NGOs — means that, in many cases, only a small proportion of the income ends up in the hands of charitable causes.

For example, 15% of the money from tickets for a chance to win a dream vacation to the Maldives will go to the International Medical Corps. For a prize like this, around 65%-75% will typically be used to cover costs, such as the prize, advertising, and payment processing fees, while Omaze takes the remainder in profit. As a result, the charity will see only $1.50 from a $10 donation.

While supporters say Omaze has proven itself as an effective model of fundraising, and many charities are keen to work with it, it is also controversial.

Earlier this year, a class-action lawsuit was filed against it in the Northern District of California alleging fraud, false advertising, and unjust enrichment.

According to the complaint, the plaintiffs want “to stop Omaze from continuing to operate illegal lotteries and mislead the general public into believing (among other things) that most, if not all, of their ‘donations’ are going to charity when, in fact, the overwhelming majority of their ‘donations’ are pocketed by Omaze.”

Omaze has filed a motion to dismiss the case, with its lawyers arguing there are no grounds in the complaint for legal action. A case management hearing is scheduled for later in the year.

Class action lawsuits in the U.S. must be “certified” by a court and rarely progress to trial. However, it is not the first time Omaze has run into trouble over the nature of its prize draws.

In both the U.S. and U.K., lotteries cannot be run for private gain. Omaze giveaways are instead classed as “free prize draws” or “sweepstakes.” That means people must be able to enter the prize draws for free, and this option must be clearly advertised.

Although Omaze does offer free entry options, it has been accused of failing to meet these conditions on several occasions.

In 2019, it was investigated by the California attorney general over whether its fundraising activities constituted an illegal lottery or “raffle” under California law, where lotteries are only allowed if at least 90% of gross receipts go to charity. Omaze settled the claims in January 2020, paying $90,000 toward the cost of the investigation and $30,000 in late fees and penalties “for operating without being properly registered.” Omaze also agreed to abide by several terms, including to “prominently disclose, in a clear and conspicuous manner, that no payment is required to participate in a campaign.”

The settlement states that it does not “constitute an admission of wrongdoing by Omaze.” Omaze spokesperson Megan Reilly added that the settlement “was not the outcome of any case, complaint, or litigation” but “arose out of an informal inquiry” from the attorney general’s office.

Meanwhile, just months after Omaze’s U.K. launch last year, the Advertising Standards Agency upheld complaints that its promotion of a house raffle was misleading “because the free entry route was not explained clearly and prominently.”

ASA said the promotion must not appear again in the same form. Omaze has since made changes to how the free entry option is promoted on its U.K. website.

In an emailed statement, Reilly told Devex that the website “clearly states the exact amount that will go to the designated grantee” and that the option to “enter without contributing” is “presented with equal prominence to the paid options.”

With regard to the class action suit, she noted that no class of plaintiffs “has been recognized or certified at this time. Omaze believes these allegations do not have merit and has filed a Motion to Dismiss the claims.”

With regard to the ASA ruling, Omaze U.K. spokesperson Andrew Olley said the organization “immediately took steps ... to ensure that the no-purchase necessary route was explained even more clearly” when the issue was raised. “Both Omaze and the ASA now consider the matter resolved.”