Pete Sullivan was born into a family of gamblers. His grandmother was known as the “Lotto Queen” in her neighborhood of Greenpoint, Brooklyn. “She went to all the bingo halls, played scratchers and always played different numbers,” says Sullivan. “And that got distilled down to my father and his brothers and sisters.”
Sullivan’s dad, who worked for the New York City Transit Authority, just as his father and grandfather did before him, carried on the family tradition and bought a Pick 3 and Pick 4 ticket every day before getting to work in the Bronx. “We busted on my dad about how much he would talk about the lottery—he would see a license plate and say how he’d play it, every time he checked into a hotel he would play the room number, or he’d go to the doctor and play the address,” Sullivan recalls.
When his dad, known as “Big Pete,” became the coach for his grammar school basketball team, the duo would usually be late for games because the elder Sullivan had to get his numbers in. “For me, there was always a major inconvenience in our life around the lottery,” says Sullivan. “I grew up just being annoyed with the lottery.”
“We're nine years into this,” says Jackpocket founder Pete Sullivan, “and we're halfway to becoming an overnight success.”
But in December 2012, the inconvenience of his father’s lottery habit gave Sullivan an idea to profit from the everyman dream to get rich quick. The family was driving to a Christmas party when Big Pete said he had to make a stop at a bodega. He came out with a two-liter bottle of Coca-Cola and a lottery ticket in his pocket. He pulled out his new iPhone 5 and texted his sister, explaining how they’d be a few minutes late and Sullivan asked his dad: “Why can’t we order a lottery ticket on your phone?”
Sullivan, who had previously launched a failed startup in the travel industry, reached out to his network of investors and pitched an idea: “An Uber for the lottery,” which he called Jackpocket. (As in a potential jackpot in your pocket.) His first investor introduced him to the CEO of Scientific Games—which prints scratch-off tickets and runs a handful of state lotteries—who thought the idea was smart. After the meeting, Sullivan borrowed a modest sum from his mother to buy the Jackpocket domain name.
Numbers, Please: Jackpocket's biggest payout to date was $9.4 million in 2021.
JACKPOCKET
Over nearly a decade, Jackpocket has expanded into 11 states and Washington, D.C., despite an arduous process of convincing state legislators to change laws or local lottery commissions to update regulations to allow for third-party mobile apps to buy tickets for players. Thus far, Jackpocket has raised nearly $200 million from Left Lane Capital, Santa Barbara Venture Partners, Conductive Ventures, DCM and celebrities like Kevin Hart, Whitney Cummings, and billionaire Mark Cuban. The company is currently valued at $620 million.
“We're nine years into this, and we're halfway to becoming an overnight success,” Sullivan jokes. “It’s a highly regulated industry—we have to go through so much compliance to operate.”
The modern-day lottery started in New Hampshire in the 1960s, but humans have been playing similar games throughout history—the 13 colonies were funded, in part, by lottery revenue. Today it is big business for most states, which protect their tax-generating institutions with a fortress of legislation, regulation, and bureaucracy. It is estimated that nearly 50% of Americans will buy a lottery ticket in a given year. In 2020, $83 billion was spent on lottery tickets across the 45 states that operate them. The lottery isn’t as glamorous as, say, playing baccarat in Las Vegas, but drawings bring in considerably more than the $53 billion in gambling revenue the country’s casinos generated last year.
Mobile lottery, by comparison, is currently legal in seven states. In order to allow for mobile lottery apps, state law or lottery regulations must be changed. The industry is still very old school so Jackpocket is required to buy a physical ticket from a kiosk at a retail store, scan it, and upload it to the app. (Players can see their actual ticket in the app and if they win more than $600, Jackpocket mails the ticket to them to cash it in themselves.) Technically, Jackpocket isn’t an online lottery game, so it’s been able to expand beyond the seven states that allow it.
But Sullivan has needed some help getting Jackpocket to market. Bill Pascrell III, a partner at Princeton Public Affairs Group, a New Jersey-based lobbying firm, helped Jackpocket enter the Garden State by lobbying to get legislation passed to allow for third-party companies to register to sell lottery tickets online. Pascrell says his pitch to legislators was simple: you'll grow your revenue by bringing a new product to the state lottery that can ensure a stream of new, younger, tech-savvy customers as your historical demographic ages out. Right now, the average age of the lottery player is around 45.
“It's an explosive industry,” Pascrell says. “Twenty-somethings are not going to buy a lottery ticket at a local 7-11, a bodega, or Wawa; they find it much more convenient to buy online.”
Sullivan says 70% of his millions of players are under 45 and his company has grown its annual sales by over 400% two years in a row. (Jackpocket charges a 9% convenience fee when players fund their account but doesn’t take a cut of winnings.)
Machines Bring In Billions, So Why Are So Many Casinos Removing Them? Jackpocket is the market leader in mobile lottery apps, mainly because there is little competition. New Jersey-based Lotto.com, founded by Thomas Metzger, who worked for Scientific Games, is available in three states: Colorado, New Jersey and Texas.
The first-mover advantage in a hyper-regulated industry is what attracted Dan Engel, the founder and managing partner at Santa Barbara Venture Partners, to invest in Sullivan’s company. Engel sees the lottery industry as a long-ignored space with billions of dollars up for grabs. The upside is enormous: it is estimated that 90% of lottery players still go into the store to buy their tickets. “He’s sitting on a potential goldmine and he’s sitting there alone, and we like that,” says Engel. “He’s a racehorse you want to bet on, not the kind you want to compete against.”
Lottery Royalty: Jackpocket founder Pete Sullivan's grandmother was known as the "Lotto Queen" in her Brooklyn neighborhood.
Harley Miller, founder and managing partner at Left Lane Capital, says his firm invested about $50 million in Jackpocket because state lotteries are “inherently mass market” products that attract 50% of the U.S. population. He also recognized that Jackpocket was the first company to be transforming the “offline, analog world” of physical lottery tickets into a “digital-first world.”
But what really caught his attention is how Sullivan was operating his company in a highly-regulated market where making a mistake could result in fines or more serious punishment. Sullivan wasn’t moving fast and breaking things like the previous era of venture-backed Silicon Valley companies focused on disrupting stogy industries.
“The difference here,” says Miller, “is that unlike an Uber and Airbnb, which went directly against regulators, going through the back door and then asking for forgiveness, Jackpocket has taken the long road and gone in with permission.”
And Jackpocket will soon expand beyond state lotteries. The company just got a casino license in New Jersey, through a deal with Caesars Interactive Entertainment, and will be launching iGaming products, including digital slot machines and real-money bingo, by next year. Sullivan says he sees Jackpocket as a mall—the “anchor tenant is the lottery” that attracts everyone, but he will have slots, table games and more. Sullivan has also inked an affiliate deal with WynnBet and partnerships with professional sports teams, including the New York Jets, Colorado Rockies and the Texas Rangers.
One of Sullivan’s guiding principles for the company has always been: “Can Big Pete use it?” His father was recently in the hospital in Delaware, where Jackpocket is not operating, so Big Pete had to ask his wife to go to the store every day to put his numbers in. “My mom is texting me: ‘Can you believe your father? He's got a tube up his nose, but he's still telling me to go get the numbers. It's ridiculous.’”
Jackpocket is hoping to expand to three more states this summer. For Big Pete’s sake, hopefully, one of them is Delaware.
https://www.forbes.com/sites/willyakowicz/2022/06/17/meet-jackpocket-the-mobile-app-winning-big-in-the-83-billion-us-lottery-market/?sh=565b2fd020c3