The digital lottery looks like the next big category in sports sponsorship

Jackpocket, a licensed third-party lottery app, was recently named an Official Partner of the Colorado Rockies Digital Lottery. This is the company’s eighth tie-up in NFL, NBA, NHL, MLB and college sports since 2021 (see: New York Jets, Devils, Islanders, Rutgers Athletics, Mavericks, Twins, Texas Rangers).

Industry insiders say these deals are just the start of what could become the next big category of sports sponsorship, in part because of all the venture capital flowing into the space. An executive who struck a first partnership deal with Jackpocket said he could imagine digital lottery companies engaging in a competitive land grab reminiscent of DraftKings and FanDuel circa 2015-16. “We are not there yet. But that could be where it leads.

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Larry Mann (partner, rEvolution) was not ready to go that far. But he said the momentum “reflects growth in crypto or sports betting. [Official partnerships] are definitely among the best emerging categories to watch.

JWS review: Jackpocket founder and CEO Peter Sullivan describes it as “Uber Eats for lottery tickets.” Players can order official 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 paper tickets into a digital format, matches the tickets to the player, and then stores the physical copy of the ticket until until the drawing is finished.

Jackpocket is the market leader in digital lottery. By the end of the first half of 22, the company hopes to be active in 14 states. But this is not the only “courier” trying to expand state lottery offers and expand the pool of potential players. Jackpot is also chasing the opportunity. The UK-based company last week announced a $35 million Series A funding round, co-led by Courtside Ventures and Accomplice. The Jackpot product is not yet available in the United States.

While Jackpocket has been in business since 2013, it has spent much of the last decade developing the technology, developing a regulatory framework around digital lottery activity, and working to pass legislation. As of 2020, most states did not allow online lottery ticket sales.

States’ views on digital offerings changed during the pandemic, when ticket sales began to decline. States receive a significant portion of public funding for the lottery, so with players locked in, the need to legalize online sales has become apparent.

Jackpocket has grown rapidly since being licensed in its first state (New Jersey) two years ago, and consumer awareness has accelerated over the past six months. (A YouGov survey indicated that 53% of New Yorkers now know they can play the lottery on a smartphone; 37% said they were aware of Jackpocket.) The timing makes sense given that Jackpocket closed a round $120 million Series D deal in November. “We have definitely increased our advertising [since]said Sullivan. Mark Cuban, Josh Harris, David Blitzer and Jon Ledecky all competed in the recent round.

Some of the money raised went toward signing team partnerships (like the one with the Rockies), but Sullivan hinted that a lot more would be spent on strategy. He said the company is “just getting started” appointing sports partners. “We have a ton [of other deals] in the pipeline now… We try to work with all the teams of [every licensed] Region.”

There are several reasons Jackpocket has chosen to make sports the focus of its marketing strategy (and why scale-focused competitors are likely to do the same). “As we go state by state, it’s really hard to find influencers that are geographically oriented,” Sullivan said. Sports organizations have large, localized and captivated fan bases.

Sullivan’s logic checks out. Operators are largely limited to selling lottery tickets in the state in which they operate. But it’s worth noting that Powerball and Mega Millions, games that span 44 states and three territories, account for a significant portion of all tickets sold nationally. Thus, digital lottery companies are not limited to local campaigns.

Sports team associations also give Jackpocket a level of credibility with fans. “Working with these teams gives 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 don’t know if it’s real or not, knowing that we’re there. ‘official [team] partner and going through the verification process with one of these brands is huge.

Sports teams also reach large audiences, which is attractive for a company selling a product that spans all genders, ethnicities, household incomes, and geographic lines. About 53% of Americans bought a lottery ticket last year, and 13% of people discovered Jackpocket through sports team promotions.

The emergence of a new category of sponsorship (or at least a new carve out), in particular that bringing together companies on edge, is undoubtedly a victory for the teams. Data from SponsorUnited indicates that 48% of clubs currently do not have a state lottery or digital lottery partner.

But the sports partnerships Jackpocket has signed to date should also benefit fans of the organization. Sullivan explained that each lottery ticket ordered through the app will give the player a chance to win VIP experiences (think: meet and greet players) and gifts (tickets, souvenirs). Fans at partner stadiums will also have the option of getting a free Powerball or Mega Millions ticket.

Venture capital is now flowing into digital lottery companies because they view the state lottery as “one of the last really big industries to still innovate with consumer-facing technology,” Sullivan said. “When we started [in New Jersey in 2020]States that had attempted to connect [prior] saw 1, 2, 3% saturations. If you look at the movie or concert industry, 60, 70, 80% [of sales] are now digital first. There is still plenty of room for adoption.

To put the potential opportunity into 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 closer to $90 billion nationally. New York alone sells over $10 billion worth of lotto tickets per year.

Investors are also increasingly recognizing the potential that the lottery has to be part of the solution for struggling sports betting operators. “Sports betting is getting killed. The unit economy is not there. Other forms of gambling are seen as an attractive avenue,” Sullivan said. Lottery games could potentially help differentiate a bookmaker of competitors offering similar products.

Sullivan envisions Jackpocket’s digital lottery service as the anchor tenant of a gambling “mall”. “The lottery is the most common form of real-money gambling in the United States, so you can expand your network,” he said. The company is still trying to figure out whether it will operate the mall’s stores (like sportsbook, online casino, fantasy sports, bingo, and raffles) or just pass customers on to an affiliate.

Americans can start playing the lottery at the age of 18 (versus 21 for sports betting or casino games). Sullivan says this should allow his company to “build a database at a much lower cost than any sportsbook or casino.”

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