With support from Mark Cuban and Kevin Hart, and a partnership with Caesars and professional sports teams, Pete Sullivan has turned his mobile lottery business into a $620 million juggernaut.
Pete Sullivan was born into a family of gamblers. Her grandmother was known as “Lotto Queen” in her neighborhood of Greenpoint, Brooklyn. “She went to all the bingo halls, played scratchers and always played different numbers,” Sullivan explains. “And that was distilled down to my father and his siblings.”
Sullivan’s father, who worked for the New York City Transit Authority, like his father and grandfather before him, carried on the family tradition and bought a Pick 3 and Pick 4 ticket every day before heading to the work in the Bronx. “We asked my dad how much he talked about the lottery – he saw a license plate and said how he would play it, every time he came to a hotel he played the room number, or he would go to the doctor and play the skill,” Sullivan recalled.
When his father, known as “Big Pete”, became the coach of his high school basketball team, the duo was usually late for games because the eldest Sullivan had to enter his numbers. “For me, there was always a major downside in our life around the lottery,” Sullivan says. “I grew up just being annoyed by the lottery.”
“We’ve been here for nine years,” says Jackpocket founder Pete Sullivan, “and we’re halfway to becoming an overnight success.
But in December 2013, the inconvenience of his father’s lottery habit gave Sullivan the idea to cash in on everyone’s get-rich-quick dream. The family were driving to a Christmas party when Big Pete said he had to stop at a bodega. He walked 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 that they would 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. (Like in a potential jackpot in your pocket.) His first investor introduced him to the CEO of Scientific Games — which prints scratch tickets and runs a handful of state lotteries — who thought the idea was a smart one. After the meeting, Sullivan borrowed a modest one from her mother to buy the Jackpocket domain name.
In nearly a decade, Jackpocket has expanded to 11 states and Washington, D.C., despite an arduous process of convincing state lawmakers to change laws or local lottery commissions to update regulations to allow third-party mobile applications to purchase tickets for players. So 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’ve been on the verge of becoming an overnight hit for nine years,” Sullivan jokes. “It’s a highly regulated industry – we have to go through so much compliance to operate.”
The modern lottery began in New Hampshire in the 1960s, but humans have played similar games throughout history – all 13 settlements were funded, in part, by lottery revenue. Today, that’s 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 purchase a lottery ticket in any given year. In 2020, $83 billion was spent on lottery tickets in the 45 states that operate them. The lottery isn’t as glamorous as, say, playing baccarat in Las Vegas, but the draws bring in far more than the $53 billion in gambling revenue casinos across the country generated last year.
The mobile lottery, by comparison, is currently legal in seven states. In order to allow mobile lottery apps, state law or lottery regulations must be changed. The industry is still very old, so Jackpocket has to buy a physical ticket from a kiosk in 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 will mail the ticket to them to redeem themselves.) Technically, Jackpocket is not a lottery game online, so it was able to expand beyond the seven states that allow it.
But Sullivan needed help marketing Jackpocket. Bill Pascrell, a partner at Princeton Public Affairs Group, a New Jersey-based lobbying firm, helped Jackpocket enter the Garden State by pushing for legislation to allow third-party companies to register to sell tickets. online lottery. Pascrell says his pitch to lawmakers was simple: You’ll increase your revenue by bringing a new product to the state lottery that can ensure a flow of new, younger, tech-savvy customers as your historic demographics age. Currently, the average lottery player age is around 45 years old.
“It’s an explosive industry,” says Pascrell. “People in their twenties won’t buy a lottery ticket at a local 7-11, bodega or Wawa; they find it much more convenient to shop online.
Sullivan says 70% of his millions of gamers are under the age of 45, and his company has increased annual sales by more than 400% two years in a row. (Jackpocket charges a 9% convenience fee when players fund their account, but takes no share of winnings.)
Jackpocket is the market leader in mobile lottery applications, 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 prompted Dan Engel, founder and managing partner of 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 advantage is enormous: it is estimated that 90% of lottery players still go to the store to buy their tickets. “He’s sitting on a potential gold mine and he’s sitting there alone, and we like that,” Engel says. “It’s a racehorse you want to bet on, not the kind you want to compete against.”
Harley Miller, founder and managing partner of Left Lane Capital, says his firm has invested around $50 million in Jackpot because state lotteries are “inherently mass” products that appeal to 50% of the US population. He also credited Jackpocket as the first company to transform the “offline analogue world” of physical lottery tickets into a “digital first world”.
But what really caught his eye was how Sullivan operated his business in a highly regulated market where a mistake could result in more severe fines or penalties. Sullivan was not moving fast and breaking things like the previous era of venture capitalist-backed Silicon Valley companies that focused on disrupting heavy industries.
“The difference here,” says Miller, “is that unlike Uber and Airbnb, which went straight against regulators, going through the backdoor and then asking for forgiveness, Jackpocket took the long way and got 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 launch iGaming products, including digital slots and real-money bingo, by next year . Sullivan says he sees Jackpocket as a mall – the “main tenant is the lottery” which attracts everyone, but it will have slots, table games and more. Sullivan has also signed an affiliate agreement with WynnBet and partnerships with professional sports teams including the New York Jets, Colorado Rockies and Texas Rangers.
One of Sullivan’s guiding principles for the company has always been, “Can Big Pete use it?” His father was recently at the hospital in Delaware, where Jackpocket does not operate, so Big Pete had to ask his wife to go to the store every day to enter his numbers. ? He’s got a tube up his nose, but he always tells me to get the numbers. It’s ridiculous.'”
Jackpocket hopes to expand to three more states this summer. For Big Pete’s sake, I hope one of them is Delaware.