Digital Lottery Looks Like Next Big Sports Sponsorship Category
Jackpocket, a licensed third-party lottery app, was recently named the Official Digital Lottery Partner of the Colorado Rockies. The tie-up is the company’s eighth across the NFL, NBA, NHL, MLB and college sports since 2021 (see: New York Jets, Devils, Islanders, Rutgers Athletics, Mavericks, Twins, Texas Rangers).
Industry insiders say those deals are just the start of what could become sports’ next big sponsorship category, in part because of all the venture capital flowing into the space. One executive who did an early partnership deal with Jackpocket said he could envision digital lottery companies embarking on a competitive land grab reminiscent of DraftKings and FanDuel circa 2015-16. “We’re not there yet. But that could be where this goes.”
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Larry Mann (partner, rEvolution) was not prepared to go that far. But he did say the momentum “mirrors the growth in crypto or sports betting. [Official partnerships] are definitely among the top emerging categories to keep an eye on.”
JWS’ Take: Jackpocket founder and CEO Peter Sullivan describes it as “Uber Eats for lottery tickets.” Players can order official state lottery tickets (think: Mega Millions or Powerball) through the company’s app. The company then goes out and fulfills those orders. Using patented technology—including robotics and optical character recognition technology—Jackpocket transforms the paper tickets into a digital format, matches the tickets back to the player and then stores the physical copy of the ticket until the drawing has been completed.
Jackpocket is the digital lottery market leader. By the end of H1 ‘22, the company hopes to be live in 14 states. But it is not the only “courier” attempting to expand state lottery offerings and grow the pool of potential players. Jackpot is also chasing the opportunity. The U.K. based company announced a $35 million Series A round, co-led by Courtside Ventures and Accomplice, last week. Jackpot’s product is not yet available stateside.
While Jackpocket has been in business since 2013, it spent much of the last decade building technology, developing a regulatory framework around the digital lottery business and working to get legislation passed. As recently as 2020, most states did not permit the online sale of lottery tickets.
The states’ viewpoint on digital offerings shifted during the pandemic, when ticket sales began to dwindle. States get a sizable chunk of public funding from the lottery, so with players locked down, the need to legalize online sales became obvious.
Jackpocket has rapidly expanded since getting licensed in its first state (New Jersey) two years ago, and consumer awareness has picked up over the last six months. (A YouGov survey indicated 53% of New Yorkers are now aware they can play the lottery on a smartphone; 37% stated they were familiar with Jackpocket.) The timing makes sense considering Jackpocket closed on a $120 million Series D round in November. “We’ve definitely been upping our advertising [since],” Sullivan said. Mark Cuban, Josh Harris, David Blitzer and Jon Ledecky all participated in the recent round.
Some of the money raised has gone towards signing team partnerships (like the one with the Rockies), but Sullivan made it sound as if plenty more will be spent on the strategy. He said the company is “just getting started” naming sports partners. “We have a ton [of other deals] in the pipeline now… We’re trying to work with all the teams in [every licensed] region.”
There are several reasons why Jackpocket has elected to make sports the focal point of its marketing strategy (and why competitors focused on scale are likely to do the same). “As we go state by state, it’s really hard to find influencers who have a geographical focus,” Sullivan said. Sports organizations have large, localized, captivated fan bases.
Sullivan’s logic checks out. Operators are largely limited to selling lottery tickets within the state in which they operate. But it should be noted Powerball and Mega Millions—games that span 44 states and three territories—represent a meaningful portion of all tickets sold nationwide. So, digital lottery companies are not limited to local campaigns.
Sports team tie-ups provide Jackpocket with a level of credibility amongst fans, too. “Working with these teams provides legitimacy to our [new] product,” Sullivan said. “The first time someone hears or sees an ad that they can buy official state lottery tickets on their phone, and they’re not sure if it is real or not, knowing that we’re the official [team] partner and have gone through the vetting process with one of these brands is huge.”
Sports teams also reach a wide demographic, which is attractive to a company selling a product that cuts across all gender, ethnic, household income and geographic lines. Roughly 53% of Americans bought a lottery ticket last year, and 13% of people discovered Jackpocket via sports-team promotions.
The emergence of a new sponsorship category (or at least a new carve out), particularly one that includes companies flush with cash, is undoubtedly a win for the teams. SponsorUnited data indicates 48% of clubs do not currently have a state lottery or digital lottery partner.
But the sports partnerships Jackpocket has signed to date should benefit fans of the organization too. Sullivan explained that each lottery ticket ordered through the app will give the player a chance to win VIP experiences (think: player meet and greet) and giveaways (tickets, memorabilia). Fans in attendance at partner stadiums will also have opportunities to get a free Powerball or Mega Millions ticket.
Venture capital is pouring into digital lottery companies now because they see the state lottery as “one of the last really large industries yet to innovate with consumer facing technology,” Sullivan said. “When we started [in New Jersey in 2020], states that had attempted to go online [prior] were seeing 1, 2, 3% saturations. If you look at the movie or concert industry, 60, 70, 80% [of sales] now are digital first.” Plenty of room for adoption remains.
To put the potential opportunity in perspective, “Americans spend more money on lottery tickets than all sporting event tickets, concert tickets, movie tickets, video games and books combined,” Sullivan said. The figure is closing in on $90 billion nationwide. New York alone sells more than $10 billion worth of lotto tickets annually.
Investors are also increasingly recognizing the potential the lottery has to be a part of the solution for struggling sportsbook operators. “Sportsbooks are getting killed. The unit economics aren’t there. Other forms of gaming are being seen as an attractive avenue,” Sullivan said. Lottery games could potentially help to differentiate a sportsbook from competitors offering similar products.
Sullivan envisions Jackpocket’s digital lottery service as the anchor tenant to a gambling “mall.” “Lottery is the most common form of real money gaming in the U.S. So you can cast a really wide net,” he said. The company is still trying to figure out if it will operate the stores within the mall (like sports betting, online casino, fantasy sports, bingo and raffles) or simply pass the customers along to an affiliate.
Americans can start playing the lottery at the age of 18 (versus 21 for sports betting or casino gambling). Sullivan says that should enable his company to “build a database at a much lower cost than any of the sportsbooks or casinos can.”
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