What is Omaze?
If you’ve spent any time watching YouTube in the last year or so, you definitely know Omaze. For the few folks who haven’t seen their stuff, they run online lotteries for all sorts of cool items and experiences. We’re talking everything from a shot at winning a Lamborghini to getting an exclusive tour of a Star Wars set before it even hit theaters.
Sounds pretty neat, right? Especially when they tell you that all the money raised from these lotteries goes to support charities.
The Good They Claim to Do
They’ve actually raised a pile of cash – over $130 MILLION DOLLARS to date. This money goes to charities that do all sorts of good things, like:
- Providing scholarships for orphaned children.
- Installing solar power in remote African communities.
With that kind of impact, you’d think it’d be impossible to find fault with them.
The “Dark Secret”
But hold up. Despite all the flashy cars and warm feelings they project, Omaze has a bit of a hidden side. To understand it, you need to see how your money really works in these raffles. It also tells you a lot about how an alarming number of charities operate nowadays.
Here’s the first big thing you must know about Omaze: It’s a For-Profit Institution.
This means their main goal isn’t to feed the homeless or save some rare animal. Their main goal is to make money.
They make their money by representing organizations that are non-profits, but Omaze itself is not one. Now, there’s nothing automatically wrong with a for-profit company working with a non-profit. If a charity like Feeding America held a fancy fundraiser at a Hilton Hotel, nobody would bat an eye if Hilton later made a profit. That’s fine.
Where Omaze Pushes Its Luck (Marketing)
Where Omaze gets a bit tricky is that they really don’t go out of their way to make this relationship clear.
Think back to when your favorite Youtuber talked about an Omaze car giveaway. They probably talked a lot about Omaze and how great they were. But honestly, do you remember the actual names of the charities those giveaways were supposed to help? If you do, you’ve got a better memory than me.
This isn’t an accident. Omaze spends millions of dollars on marketing every single year. Trust me, if they wanted you to know about the actual non-profits, they would make sure you heard about them loud and clear.
Instead, the company wants you to mix up Omaze with “saving the children,” rather than associating them with running lotteries to make “fat stacks” (which, yes, they absolutely do make).
How They Handle the Law (The Loophole)
Okay, let’s talk about gambling. It’s a vice, and like most vices, it’s heavily regulated. Gambling of any kind is illegal in most US states, and in quite a few other countries around the world too.
So, how can this for-profit company run what is essentially a for-profit lottery?
Again, they use the angle of charity work to get through on a technicality.
The trick is: technically, it’s the charities that are running these lotteries. Omaze is just marketing them. And that is allowed.
Now, when these laws were first written, most lawmakers probably expected this exemption to be used for stuff like small gift basket raffles at a local bowling club, not huge international lotteries for expensive prizes. But, as they say, c’est la vie (that’s life), I guess.
It’s pretty telling that the company’s origin story involves the two founders, Matthew Pohlson and Ryan Cummins, going to every law professor at their universities until they found one who would agree that their business plan was “technically legal.”
Is it Worth It? The Bad Bet
Even with the whole organization doing gymnastics through legal loopholes, you might think, “Who cares?” Most people watching these ads could easily think there is a ton of charity involved. Some folks just really want a chance to win a Lamborghini, and the thrill of that possibility feels worth the cost. Sure, gambling is bad, but it can also be fun. And if you can tell yourself it’s for a good cause along the way, all the better, right?
Well, here’s the main issue: these Omaze lotteries are just a really bad bet.
To show you this, we need to look at the risk versus reward, also known as the expected payout. This is also a good way to really understand how Omaze’s business model works under the hood.
Expected Payout Comparison:
Let’s say you put 1, which seems fair enough. But let’s compare:
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Blackjack: If you play perfectly and over many hands, you’ll typically get back about 96% of the money you put in.
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Regular State Lottery: On average, playing indefinitely, you’re looking at about a 90% payout.
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Scratch Lotteries: These are often seen as some of the worst gambling because of their terrible expected return. They normally pay out about 85% of what you put in. (MrBeast has shown this beautifully a few times on his channel, perhaps for stats nerds like me!).
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Omaze: This is where it gets rough. Omaze has an expected payout of only about 70 cents for every dollar you put in.
Where We Get the Omaze Payout Number:
Omaze actually breaks this down on their website. For every $10 you contribute:
- $7 typically goes towards covering things like:
- Sourcing and shipping the prize.
- Credit card fees and taxes.
- Marketing (Yes, marketing!).
This $7 figure is just what Omaze says. Because marketing costs are included, the actual payout might be even worse.
Note: We’re leaving out the “experiences” prizes in this comparison because it’s tough to put a dollar value on something like dinner with George Clooney in Lake Como. But just so you know, the payout value is often even worse for those experience lotteries.
Where Does Your Money Go? The $10 Breakdown
So, if 10 goes to the prize, fees, and marketing, where does the rest go?
Let’s look at that same $10 contribution again:
- $7 = Prize, fees, taxes, and marketing (as mentioned above).
- **1.50 is after everything else is covered, including paying your favorite Youtubers for sponsorships. So, their profit margins are quite high on this.
- $1.50 = Goes to the charity itself.
The Charity’s Cut:
If you thought you were contributing to a good cause, remember that at best, only 15% of the money you contribute actually goes to the charity.
If you didn’t care about the charity part and just wanted a shot at a cool car, statistically, your money would be much better spent on almost any other type of gambling.
Why Do Charities Work With Omaze?
This is the big question. Why would charities agree to be part of a setup that seems designed mainly to build a huge online for-profit casino, with only a tiny bit of money actually reaching them? Why not just ask for donations the old-fashioned way, maybe guilt-tripping people with TV ads? Surely the potential damage to the charity’s reputation isn’t worth that small slice, right?
The answer, again, can be found by looking at the Omaze website. It gives you two possible explanations:
- The Marketing-Approved Answer
- The Correct Answer
The Marketing-Approved Answer:
Omaze says they can use their brand power and marketing muscle to raise a lot more money than these charities could ever raise on their own. They argue that 15% of a million dollars is better than getting 90% of $50,000, which is probably what many of these non-profits would raise through traditional fundraising. Sure, Omaze takes a cut, but isn’t that fair if it helps the charities get significantly more money to do good things with?
The Correct Answer: (Spoiler Alert: It’s a Bit Cynical)
While browsing the Omaze website, you might notice something: you probably don’t recognize most of the charities listed.
Part of the reason these charities might struggle to raise money without using something like thinly veiled online casinos is… well, they’re just not that substantial.
Now, I might sound like the Grinch saying this, but for a charity, often that’s a really bad sign.
I’m not saying every single charity on Omaze is like this, and plenty of similar charities exist that are not on Omaze. But what I mean by “like this” are charities that seem less focused on genuinely doing good work and funding worthy causes, and more interested in making their founders wealthy and important.
How Do “Not-for-Profit” Charities Make People Wealthy?
“But wait,” you might say, “it says ‘not for profit’! Doesn’t that mean no one makes money?”
That’s right, it means no profit in the technical sense. But there are other ways to get money out of an organization.
It’s surprisingly easy for charity founders to:
- Appoint themselves or their friends/family to high-paying positions like CEO. They can then draw a nice, fat salary as “compensation.”
- Spend lots of the organization’s money on fancy events to entertain “potential donors.”
These expenses, like salaries and marketing events, actually help the organization stay “not for profit” because they count against the income, reducing the taxable “profit.”
Of course, these charities do still have to put some money towards the charitable work they claim to do. But in many cases, this can be less than 10% of the total money the organization brings in. The other 90% can be used for all that other stuff (salaries, events, etc.).
The problem is, if the public found out about this, people would be much less likely to donate. And that would cut off the income stream needed to fund the lavish salaries and “boozy golf days.” That just won’t do!
This is where Omaze comes back in.
Why Omaze Works for Shady Charities:
The average person giving money through Omaze usually doesn’t do much research on the charities involved.
Contrast this with a wealthy donor who might have their lawyer pour over financial statements for months or demand specific promises before writing a million-dollar check.
The average person on the Omaze website is much more likely to:
- Just look for the car they like best.
- Be happy knowing that some money is going to charity.
How much money actually goes to charity? As we’ve seen, it’s only a fraction of a fraction.
The Bottom Line: Who’s to Blame?
So, should Youtubers and people like George Clooney stop promoting Omaze? Ahhh, that’s a tough call.
On one hand, the company itself does seem pretty slimy. But I have to agree with their main point: getting more money for good causes is always a worthwhile goal. It’s likely that this money wouldn’t be raised at all without these questionable tactics.
Even if only 15% of the contribution goes to a charity, and that charity then only uses 10% of that money for actual charitable work, that’s still 1.5% (15% of 10%) of millions of dollars actually doing some good somewhere.
So, no, this isn’t 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 who keep making this whole system possible by giving it your money.
Now you know how this money works. If you want to gamble, go to Vegas. If you want to give money to a charity, give money directly to a charity you’ve researched. Don’t try to do half of both and convince yourself you’re going to be a Lambo-driving saint, because you’re not going to be either one.
If you want to see me talk about other stuff, like maybe me taking on some bigger Youtubers, check out my video on why personal finance folks like Graham Stephan might actually be hurting their younger, easily influenced audiences.
In the meantime, please consider liking this or subscribing to the channel if you want to keep learning how money really works.