Not-For-Profit Fundraising with Sports Betting: It's a Gamble

Not-For-Profit Fundraising with Sports Betting: It’s a Gamble

Betting on sports, especially around big events like the Super Bowl, college football rivalries, or college basketball’s March Madness tournament, has become a staple in many workplaces, including not-for-profits. They’re seen as a fun way to engage employees and foster a sense of community. They’ve even been used as a fundraiser for some organizations – and you may be considering this approach for your organization. However, before you agree to this creative fundraising approach, you should know that beneath the surface of these seemingly harmless activities, there are potential risks that nonprofit organizations need to know.

Understanding Sports Betting as a Fundraiser: Legal, Financial, and Ethical Concerns

A sports betting pool is essentially a form of gambling where participants wager on the outcome of a sports event, with the winnings either distributed among those with the best results or split between winners and a beneficiary organization, like a not-for-profit. While it’s a popular pastime during major sports events, the legal implications of these activities can be complex, especially for not-for-profit organizations using this approach to raise money. 

Not-for-profit organizations in the US are granted tax-exempt status by the Internal Revenue Service (IRS) based on their commitment to serving a charitable, educational, or other exempt purpose. Engaging in activities that are perceived as gambling can raise legal concerns because the IRS has strict guidelines regarding the types of activities that tax-exempt organizations can participate in. If gaming activities are regularly held, this could fall under regulations for Unrelated Business Income Tax (UBIT). (Note: If gaming is an insubstantial part of activities and income, there is a limited risk.) In not-for-profits, the stakes are high as their tax-exempt status could be jeopardized if they engage in activities construed as gambling.  

At the heart of the issue is how this strategy of fundraising intersects with gambling laws, which vary significantly by state. Not-for-profit organizations must understand the legal landscape and ensure that any activities, even those meant for fun, don’t skirt the law, even unintentionally. Please note: while sports betting is now legal in several states, it is heavily restricted to specific, regulated gaming organizations. 

Aside from legal concerns, financial and ethical risks are also a significant consideration. Participating in, or benefiting from, sports betting pools as an organization can also raise questions dealing with values, ethics, or other considerations of various stakeholders. Engaging in activities that could be perceived as gambling might harm their reputation and erode donor confidence. With their tight budgets and accountability to donors, not-for-profits must be especially cautious.  

Best Practices for Not-for-profits

For not-for-profits considering sports betting pools or similar activities as fundraisers, here are some best practices: 

  • Stay Informed: Understand the legal implications and ensure compliance with state laws. 
  • Create Clear Policies: Develop and enforce policies that define what’s acceptable in your organization. For example, minimizing the number of these events and minimizing total dollars raised compared to total operating budgets is a good way to avoid negative consequences. 
  • Promote Transparency: Ensure financial activities are transparent and above board. 
  • Ethical Considerations: Weigh the ethical implications and how they align with your organization’s values, as well as the values of your potential donors and organizational stakeholders. 

Betting on sports, while popular, can be a minefield for not-for-profits. Exercise caution and due diligence when considering sports betting as a fundraiser. It is essential to assess the legal implications, align fundraising activities with the organization’s mission, and prioritize maintaining public trust and compliance with tax-exempt status requirements. If you have questions about navigating your state’s requirements or creating clear policies for your organization, contact your Rea advisor. We’re here to help. 

By: Adam Schultz (Avon)