The number of win a house competitions in 2020 has shot up in recent weeks. Bouyed by the success of a number of competitions including one on the Raffall platform, other home owners have been quick to jump on the bandwagon. Their reasons for running their competitions vary! Some have had trouble selling due to the Covid-19 crisis whilst others are acting more noble and want to help people get on the property ladder for the price of a coffee.
Revenue Breakdown
On Tuesday The Daily Mail ran an article on the latest Raffle House competition. Lucy and James Mieville have enlisted the services of the platform to giveaway their two bedroomed London property worth £750,000. They need to sell 650,000 tickets at £2 a piece which makes an income of £1.3million. This fact isn’t lost on some of the commentators who question the numbers and profit. So are win a house promoters being greedy? Let’s start with Raffle House because they’ve actually given a breakdown of why they need to sell 650,000 tickets. According to their blog 60% of the income is taken up by the property and stamp duty costs. As the property is owned by the ‘Bean Counter’ of Raffle House there may be some wiggle room with respect to the £785,000 assigned to the home. A further £25,500 is assigned to extra prizes including the £1000 a week prize draw that runs for 16 weeks.
Marketing Costs
Another chunk of the cash, £300,000 in fact, is for marketing costs. Raffle House are one of the most active brands in this market although other properties such as Shrubbery Farm have completed with less ad costs and quicker turn arounds. Operational costs are charitable donations add more pounds to the balance sheet which according to Raffle House leaves a profit of around £40,000. This is obviously a lot less than the £750K speculated about by The Daily Mail commentators. Yet as the property owner works for the company they may potentially benefit by more than the speculated profit. On the Raffall platform the numbers are a little more straightforward. If you put an item up as a prize on this service then you’ll incur a 10% charge if the competition completes. Therefore to achieve the full value for a £200,000 property you’d need to sell £220,000 worth of tickets on Raffall. Of course this doesn’t account for any marketing costs, charitable donations and legal fees that may have to be included. This is why you’ll often see the gross ticket sale amount exceeding the value of the property. It’s also worth noting that if the raffle fails then the promoter gets nothing from the income whilst Raffall takes 25%.
£4million Of Ticket Sales
That said there are some Raffall competitions that are absurd in their set-up. Win A Property Portfolio is aiming to sell 400,000 tickets at £10 each for the chance to win a property business. There’s value in terms of the property and potential annual income but the promoter in this case is aiming to generate £4million before the prize is released. Likewise the Low Fell Semi Detached is hoping to sell £1million of tickets for their property in Gateshead. Both promoters are being greedy and it’d be a surprise if either succeeded. Because win a house competitions often fail and a cash alternative paid out it’s always important to look at the percentage offered. On average most competitions offer 70-80% of ticket sales. The remainder is kept for admin and marketing costs. One new competition, Winton House, is a bit of a conundrum. The Portsmouth property is valued at £3.2million and the owner wants to sell £3.2million worth of tickets. This leaves no wiggle room for those admin costs, payment costs and marketing costs unless the home is seriously over-valued or the owner hasn’t factored in these costs?
Cash Alternatives
However if this competition fails to sell the 320,000 £10 tickets a cash alternative of just 50% will be paid out. The “homeowner will be entitled to retain 50% of the Entry Fees to cover Administration and Marketing expenditure”. But as the ticket sales are only covering the cost of the property advertised at £3.2million where is this expenditure coming from? This doesn’t suggest Winton House are doing anything wrong but when you look at Raffle House’s breakdown of costs it is a little confusing. That said we do think 50% as a cash alternative is shockingly low. Of course everything in black and white isn’t always black and white. Raffle House offer a 90% cash alternative if their prize competition fails. However this isn’t 90% of the money taken because they’re burning through money for advertising and operational costs. The positive for Raffle House is that tickets are only £2 each and they are proactive in trying to develop their business as well as giveaway properties.
Greed Is Not Good
Transparency is key with win a house competitions and as we’ve seen in the past with Win A Mega Home taking most of the money of punters for ‘expenses’ doesn’t go down well. Furthermore raffling a home isn’t always the pathway to big money. The owners of Fred Dibnah’s home closed their competition early because they were losing cash. We suspect a number of Raffall promoters could potentially be out of pocket if they’ve paid for marketing but their competitions close without success. So are win a home competition promoters greedy? Yes some are and we always see the same cycles. A competition is successful, others jump on the bandwagon and then the ticket prices increase along with the aimed income. Promoter X sees that a house in Wakefield has sold and thinks “i’ll do this and make a million for my home”! No you won’t! This ie because greedy home competition promoters can easily be stopped by not entrants choosing not to enter promotions with over zealous ticket ambitions and low cash alternative percentages.