From paypal:
What gambling activities does PayPal prohibit?
Question :
Answer :
PayPal prohibits transactions for gambling activities by merchants and account holders in the U.S. and any jurisdiction where gambling activities are illegal, and by merchants whose services are accessible to account holders in the U.S.
PayPal allows approved gambling merchants to use our service in certain jurisdictions where gambling activities are legal. To be approved by PayPal, merchants must demonstrate to PayPal's satisfaction that they have the ability to block gambling activities for account holders in the U.S. and any jurisdiction where gambling activities may be illegal.
Unless the merchant has been approved by PayPal, account holders may not use PayPal to send or receive payments for any form of gambling activities, including but not limited to payments for wagers, gambling debts, and gambling winnings, whether conducted online, in person, or through any other means of communication. Gambling includes placing, accepting, recording, or registering bets; participating in lotteries; or otherwise carrying on a game of chance for money, property, or other things of value.
PayPal prohibits the following activities, even where the specific activity is lawful and/or is not legally defined as gambling, unless the transactions are associated with an approved merchant.
Lottery tickets ?Include the purchase or sale of any opportunity to participate in a raffle, drawing, sweepstake, pool, or any other form of game or contest involving the distribution of prizes or monetary compensation.
This account is likely going to stay frozen a while. Best bet might be to refund anyone who paid in under the raffle deal and hope a pray paypal doesn't take 6 months to let the money go.