Digitizing the Lottery: How to Partner With The Government w/ Peter Sullivan, CEO of Jackpocket

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June 10, 2021

On today’s episode I sit down with Peter Sullivan, the Founder and CEO of Jackpocket. Jackpocket is digitizing the lottery - allowing everyone to play the lottery from their phone.

Peter shares his epic entrepreneurial tale that I think will one day become startup folklore. He persevered through an extremely long development cycle - during which he put it all on the line - only to emerge with a company that is going to be a unicorn.

I am an investor in Jackpocket so I’ve had the opportunity to watch this journey first hand. I think this is going to be one for the ages.

The lottery industry is GIGANTIC and states heavily rely on the revenue generated from lottery ticket sales. Roughly 30-40% of every lottery ticket sold goes to state programs, such as education, job creation, veteran care, and outdoor recreation and preservation.

As you might suspect, this means dealing with a TON of governmental red tape, which is both a challenge and a great way to create a competitive barrier.

During our chat, Peter shares mind blowing stats about the lottery, teaches us how to think about partnering with governments, details his crazy entrepreneurial journey and much more.

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Transcript

MPD: Pete. Thanks for being here today.

Peter Sullivan: Thanks for having me. It's been a while since we had a moment to chat, so I'm super excited. It'll be great to catch up

MPD: [00:02:49] before we jump in. I want to actually start by introducing you. I find that, uh, when I do the intros, I get to say all the nice things about people.

They might not brag about themselves when they're asked to do it. So let me, if you don't mind, I'll start off. Uh, Pete Sullivan, Peter Sullivan is the co-founder and CEO of Jack pocket, a mobile app that allows you to play the real lottery digitally. He'll articulate it better than that than I will in a few minutes.

Interplay helped incubate this company and it's becoming very, very successful. We're really excited about being involved. Peter is a unique founder. I think you're going to see that as we start talking, he's a rare combination of having natural product and sales skills. Those two things don't always go together.

He's also definitively one of the scrappiest entrepreneurs I've ever known or worked with. And I think his journey through Jack pocket is going to be one for the history books. So I'm looking forward to diving in today and helping to share that story. I think it's going to inspire a lot of entrepreneurs listening.

So with that, Pete, let's jump in, man. Do you want to start it? I want to start with just an overview of what

Peter Sullivan: [00:03:51] Jack pocket is. Yeah. So I think you kind of hit it on the head. Jack pocket is the first and only officially licensed app in the United States that allows customers to order and play lottery games that they know and love that are official from the state lotteries.

So obviously everyone knows the mega millions and Powerball, but here in New York, we have the New York lottery, the big three, the big four. So we support all those, um, games and allow people to play from the comfort of their home or anywhere within the state. And, uh, we do all the compliance and heavy lifting as you know, it's a heavy regulated industry.

So, um, we've worked really hard with both the lotteries, the regulators to ensure that, uh, we can provide the service to customers that want it to

MPD: [00:04:37] how many States does this live in now?

Peter Sullivan: [00:04:39] We're currently live in 10 States, but, uh, this quarter we hope to launch a few more. And, uh, by the end of the year, we're projecting to be, you know, 15 States or above.

Um, but you know, we're going after some really big States. So we hope with the next few States, we'll be able to say that we're addressing 50% of the adult population in the U S market.

MPD: [00:05:01] That's fantastic. And, uh, you know, w we had, uh, Ryan Smith from leaf link on talking about the cannabis industry a little while ago.

And it seems like there's a little bit of a domino effect. States get nervous to be first, and then other people look at the other States and then they start to topple over. Is that picking up momentum here or there, you know, as you get 10 States and is it easy to get the next 10

Peter Sullivan: [00:05:23] for sure. It's uh, the, the joke inside the lottery industry was that everyone wants to be there.

No one wants to be first, second, even scary, but there. There'll be okay with, and it's funny out of those 10 States that were alive. I think we did six States last year and then including New York this January. And so the dominoes have started, you know, toppling over inbound requests is really interesting right now.

I think we've shown that we can work with some really big States and show incremental revenue, but, um, I think what people. Forget about is how long it took to set up those dominoes. Right. And so, you know, we're eight years into this. I always say, I always joke. We're halfway to becoming an overnight success.

And now that everyone is seeing some major traction and growth, um, everyone thinks it just happened, but you know, it's taken a long time to get there and you know, most of that story.

MPD: [00:06:20] Yeah. Blood, sweat, and tears. I actually want to recap a little bit of that story today. So how many people are using it. Do you mind sharing that some sort of usage stats to get people a sense of the scale of this?

Cause I think it's a pretty big monster at this.

Peter Sullivan: [00:06:31] Well, in terms of scale, I can say this, we launched New York in the month of January. And in terms of mega millions and Powerball sales, we were passing 7% of all the sales of those games on particular drugs were being sold through the app. Um, in January.

MPD: [00:06:53] Distributor. Yeah.

Peter Sullivan: [00:06:56] Yeah. We're the biggest in every state that we operate, we are by far the biggest retailer in every jurisdiction we're live in today.

MPD: [00:07:05] How has COVID impact of this head? Imagine this is a counter COVID business where everyone's stuck at home, not going to the places where they would normally buy their lottery tickets.

So

Peter Sullivan: [00:07:14] it's interesting in two ways, um, you know, in 2020, every entrepreneur was told to have. A COVID slide in their deck. Um, we obviously are convenience play, right? So it's easy. If you don't have to go out to be able to order your tickets. There were a lot of industries that boomed because essentially the way that you could do something previously was totally, you know, not available.

However, you know, Places where you could buy lottery. Tickets were all deemed essential businesses. So there's other pharmacies, grocery stores, convenience stores. Um, so typically people still had access yet. They weren't, you know, there were times when people were told not to leave their house. So obviously we saw an increase, but I think the other side of the coin that people didn't really understand was that States rely on the revenue that's being generated from, from lottery tickets and about 30 some States up to 40%.

Uh, every lottery ticket sold is going to, uh, cause, um, a beneficiary within that state. And that could be state education in Oregon. It's literally called job creation. Um, in, you know, some other States it's veteran care in States like Colorado. It's awesome. It's actually outdoor recreation and preservation and you know what we're seeing our budgets being dramatically affected this year.

And so. The state governments are looking for ways to increase revenue without having to increase taxes. So there's been a demand and there's also been most of the lottery, um, departments. We're seeing it widespread across the country. We're seeing their marketing budgets cut. So where they used to be able to do TV spend, um, or maybe those billboards they're, they're really doing drilling down on what they can do and, and that's where we come in as well.

MPD: [00:09:01] So that's driven more demand for your solution. I'd imagine.

Peter Sullivan: [00:09:05] Ton of demand from both the state side and obviously consumers, like, you know, if you can play without having to leave your house, you're going to play, um, without leaving your house. So COVID definitely helped, but it wasn't this, this moment where like, you know, all of a sudden, if you take away, COVID the business dead, it's actually it's shown, um, that convenience is King and that States have to, you know, think about how they can provide more distribution to more people.

But, um, You know, I think the key takeaway here is that we can help generate more revenue for States. And that's, that's due to the fact that it's incremental revenue. You have people that are playing more that were traditional players, but we're also getting new tech savvy, younger players that traditionally didn't play.

MPD: [00:09:49] That's fascinating because I think most people aren't aware how important lotteries are to the functioning and the financial livelihood of the States. Right. It sounds like, you know, these States, we, we all hear the narrative that they're cash strapped and. They're in financial trouble and to, to knock out one of the legs of how a revenue other than taxes is probably super tough.

How I know, I know the answer to this next question, a little bit leading, but I think it's fascinating. I've always been shocked by how big the lottery industry is when compared to other industries, would you share that for the folks listening?

Peter Sullivan: [00:10:21] Yeah. So, you know, to all the entrepreneurs out there too, it's funny.

If you look at our series seats, seed deck all the way through our recent series seed deck, we always start with one slide, which shows a tan, right? The total addressable market and the backstory by the way, is that my dad was an everyday lottery player that we joked about. He was a guy that worked at the MTA.

I was born in Brooklyn. He moved us out to Jersey and we joked because he became an everyday. New York player in and everyday New Jersey player. And I only had this really narrow viewpoint of my dad's a lottery player, but maybe it's not as widespread. Well, it turns out it, it, so, so the answer to your question is American spend more on moderate tickets and this is pre COVID.

Then all concert tickets, movie tickets, sporting event, tickets, video games and books combined, uh, as of 2018, it's an $85 billion industry in terms of ticket sales. New York sells over $10 billion a year. And of that, uh, New York basically makes a contribution of $3 billion to New York state education.

And that's critical right now. Um, education is getting them beating and they need more revenue. And so, you know, people, I don't think they think about it, you know, when they buy a lottery ticket as a, as a charity position, but really they are kind of giving back to their local community.

MPD: [00:11:40] So it's interesting because, you know, look, the internet and mobile mobile has been around in kind of a meaningful way.

And it's the, the last decade, I guess now it's a twin it's 21, I guess, two decades ago. That's crazy. Um, and it's, it's shocking that lottery, hasn't gone mobile a long time ago and you're kind of bringing that to America and maybe beyond,

Peter Sullivan: [00:12:04] well, there's a few reasons for that. So if you think about lottery, it's one of these.

Archaic industry is that is government led. Right? And so, um, some, when we were getting into this, we saw one state, Illinois was the first state to attempt to do online. The problem is if you look at it, even through the last eight years, they're still only doing two to 3% of all the sales online. And that's due to the fact, there's a several reasons for that.

One is they have to create a siloed app for that state. To the idea of build it, enable com um, as you know, you need to be doing marketing a lot of digital marketing, which means a lot of spend from the state three to create a compelling digital product. You need to have amazing engineers, designers, UI, UX, um, ex you know, designers, uh, people that understand bleeding edge technology, because everyone's trying to get this millennial, you know, younger tech savvy demo.

But if you pick up an app within the first 20 seconds, if you don't like the way it feels or it doesn't feel up to date, um, people drop it. And so the state lotteries, and it's not a fault of their own, but it's due to the fact that they're, they're restricted and you know, the amount of capital that can deploy for human capital and you know, who they can hire.

It's hard for them to build a complete tech team. Um, within the state bureaucracy program. Right? And then on top of that, what Jack pocket's able to do is we're able to work with a national brand. We've done a global partnership with circle K. Um, we've worked with a bunch of national partners. We're going to roll out a whole bunch more.

And also every time we build a new feature or a new part of the product, a new enhancement for the user, um, We're able to get kind of economies of scale in the sense of we deployed across all the state channels, right? So that tweak that fix that, you know, we've done an AB test and we decided to change something for onboarding.

It's going to affect every single state. Whereas other States have to create siloed products. Now there is another big issue is that a lot of States through legislation or regulation are restricted from doing it. So California is a great example. Where everyone thinks silicone Valley is the number one place for technology, right?

And then you have California, huge state, not that big in terms of, um, per capita spend on lottery and due to the fact that it actually was a lottery that was established later established in 1985, I believe. And when they established a lottery, they introduced a rule that says you cannot have any distribution channel.

That wasn't around when this lottery was created. So that inhibits the lottery from introducing internet channels, and we see that a lot. And so the only way they could do that is going through legislation to make that change. And then in the case of California, they tried to do that. Then you're going to have the tribes, the card rooms, a lot of, um, people start coming into that picture and want to, you know, manipulate political very fast, very fast.

So that's also been difficult for States is to get sometimes just the political support to be able to do so in a single state. And by the way, that's where we come in really nicely. And, you know, rather than retailers being able to say, Hey, you've created a product. That's, we've been your, you know, your bread and butter for so long.

We we've, we've actually created all these sales for you. Now you're going to create a program that's going to take away instead of a lottery start to lean in on third-party apps. They can say, Hey, listen, it's a free market system. And if you retailers want to go and make sure that you create a highly compliant, um, application through a highly regulated market, go ahead and do so.

And so that allows them to take the onus off themselves as well.

MPD: [00:15:54] So, you know, look, we, we hear a lot about the companies that are generally disrupting the deeper rooted fabric of the system. We hear about Uber and the taxi commissions we hear about. Airbnb and conflict with hotels, you're changing and disrupting something.

I think we're generally better for everybody, uh, by bringing the lottery to more folks. But it's, it's one of the companies that I've been involved with where I've seen there's more regulatory involvement. Typically when entrepreneurs show up, they hire a team, they raise money and they launch something.

It's a different game because your partner is the government. What have you learned for other entrepreneurs who are waking up right now? Thinking, all right, we've got an idea. Man. There's a lot of frictions, a lot of red tape because it's a government regulated or government operated business. Yep. What do you, what do you tell them?

How do they, I mean, you had to learn this playbook. What's the playbook for people to kind of get from zero to being in market and being successful.

Peter Sullivan: [00:16:55] So the first rule is don't use that word disruptive because what you're trying to do is, is not disrupt them. What you're trying to do is teach, right.

You're trying to. Showcase, you're trying to, um, educate, uh, lawmakers, regulators, existing systems, that there is an alternative, and there's a solution that you found. And what we learned was to do things right. There were no shortcuts and that's, that's tough as an entrepreneur. But the number one thing is persistence, you know, through this all, it's the number one trait of any entrepreneur, I think is the idea of persistence and what our approach was, was twofold.

We needed to approach the lotteries and let them know who we were and that we wanted to be a good player in the space and that we wanted to be there for the long run and establish ourselves at the same time we needed just like you need to show an investor, some traction, we needed to show some traction.

And so we, we needed to find an in an innovative way that was legal. So I think that's super important is doing things that are illegal. Um, but, but that could actually show some traction. And so what we did was we created a solution where Jack pocket was the intermediate party and essentially a digital courier for consumer.

So we went to the. State lottery. We answered an RFI for the state lottery and we didn't hear anything clarifies a request for

MPD: [00:18:31] information, right?

Peter Sullivan: [00:18:32] Exactly. It's both. Yeah. It's before RFP, usually there's an RFI where a government agency is collecting information about a problem that they're looking to solve.

And then the RFP is actually when you're actually putting in a bid as a contractor, but we knew we didn't want to be that white label solution. We actually thought there was a better structure that was going to mimic, kind of have casinos are aware. You know, the state gives out casino licenses that generate some type of revenue potentially for the state.

And there can be, you know, third party, private companies that can apply for that. And that's the framework that we were looking for. But with New York, when we didn't hear anything back, we said, well, you know, there are retailers that are selling tickets right now. And I can text my friend to go pick me up a ticket.

That's totally legal. So what if we actually scaled that concept? And, uh, it's almost like the founder of Zappos. When, you know, he didn't have an online, uh, or inventory store. He would actually the story that I've heard, at least as he would go around to shoe stores and take pictures and then post them online and then people would buy them and he'd buy them from the store.

And our approach was the same. Could we ensuring that we had age verification and geo verification, which were the necessary, um, Compliance requirements along with some others, but could we actually showcase that, you know, through this third party, we can actually get people playing a lottery. And so, um, we actually went out and purchased a retailer out in Queens.

Um, To be able to have full oversight of that retailer. Because at first we were actually purchasing tickets from the corner of a, we worked down in one 75 Varick street and we got so close to that retailer that, you know, we still have a great relationship today, but as we started to scale, and then we could go back to the ladder and say, Hey, look, we have demand for this.

People want to do it. So I think you need to make a, you know, with data showcased that this is possible and that there's traction and there's interest. Um, And then you don't want to swim upstream. We learned that too. You know, these, these people are gonna be your partners and it's a little bit different when you look at Airbnb and you look at Uber when they fought, when they won, they didn't have to then talk to those hotel chains every day.

Right. If we were going to fight a lottery in any sense, then the next day we'd be starting that relationship off on a bad foot. Right? Uncomfortable. Yeah, definitely.

MPD: [00:20:48] Okay. Yeah. There's an interesting parallel here. We just had John Stein on, uh, one of the founders of betterment. It was CEO of the company for more than a dozen years.

And one of his big takeaways and lessons, which is funny, it seems so trite and trivial, probably to normal business people, but to entrepreneurs it's significant. It's not, you know, going cutting corners when you're operating in a heavily regulated compliance space. It's doing it right. Everything buttoned up, I's dotted.

T's crossed. I know you've done that. Betterment did that. Uh, and I think that's an investment that a lot of entrepreneurs are kind of told more or less not to make, uh, because you just want to candidly, fuck it, ship it, get in market and start doing business. Yeah. But, uh, I think in these spaces where the government is super involved, there's a different strategy here.

And I think that's a big insight for folks.

Peter Sullivan: [00:21:42] Well, the strategy is when regulation is really hairy and difficult and hard to be compliant with. If you're able to do so. And you're actually, you know, when we, when we provided some input and we still do to this day and on how regulations could be written or best practices that we're seeing, or different sort of certifications and compliance and banking and all this stuff, I mean, you go from the way that we hold player funds to the way we do transactions and the way we randomize numbers.

I mean, everything has to be audited by third parties. It takes a long time. It takes an initial investment. But that also builds a barrier to entry and that becomes your moat is actually doing things the right way. And now there is, there's a difficulty there too, because when you're so small, it's hard to run these processes.

So it was, it was really interesting when we were going through the regulatory process and some of the big States like New York and New Jersey, there were things that we were suggesting that ended up, um, You know, being part of the regulations and, and, you know, there's an input period where you have public comments on the regulations that we knew we hadn't built yet, but we could build.

And we were on that path to building and would also be at the end of the day. It's it all has to go back to consumers. Are you protecting consumers? But we also felt, Hey, listen, if you want to be a great company and you want to show that you have controls on this, cause this actually matters to consumers like then, and.

It's tedious and tough and hard. Well, anyone that else that wants to enter space is going to have to do it too. So let them figure it out. And we took that approach and that's enabled us to, uh, have a major first mover advantage in these markets. And then the other part of that is then you can talk to the establishment and show and with pride, say, We hold our heads high because we care about compliance and we care about crossing the T's and dotting the I's.

And it's, we're not going to, you can trust us. We're not going to ship something. That's not compliant.

MPD: [00:23:52] Peter. I want to rewind a little bit and kind of go chronologically through your journey because I think it's fascinating. And I think if we had you on the show and didn't share this with the world, it would be a mistake.

Yeah, I think it's one of the more aggressive, incredible journeys that I think entrepreneur, you know, I feel like it's, it's almost the stereotype of what people imagine. It's really like the most people it's not this hard for and not this impressive. So we met during your prior venture, will you start by just giving kind of a one-liner on what the company was?

You know, what you learned about that? What do you learn from that? Yeah, so

Peter Sullivan: [00:24:26] I was a college rep and I, I found, uh, that the. Country of Sweden was giving away a free education for masters programs, if you qualified. Um, and I found this out while traveling around Europe and I applied, I was living in San Francisco.

I applied, I got in and, um, first day of business school met the person that would become my founder, started a company in, in, in Sweden that was around social travel. Um, ended up getting venture capital here in the U S which was. Really tough because at this early stage had to like do this reverse stock swap thing.

And, and I had all these employees that were Swedish and then we brought them here for an accelerator program. Went through that, uh, pivoted and the company became basically showcasing where all your friends were traveling, uh, through a new perspective. At first it was around connecting travelers. Um, but then showing kind of where all your friends were traveling.

And it's funny that the Facebook API change that happened when they, when they stopped using the graph would have killed the company anyway, but the company died. But from that, I learned how to build a team, raise venture capital ship, product, ship, a mobile product. And I was doing everything. You know, I was a designer.

I was designing, I was raising money. I was doing it all. So definitely had a chip on my shoulder and then was looking for, uh, something big and spent a lot of time seeking coffees with. Um, VCs and angel investors about some concepts. I had them. One of them was lottery idea. I'd saw that the New Jersey lottery was the third state, privatized a lottery.

And I thought, this is interesting. Like, can this go online? This would be a huge industry. If we can and make this happen, uh, ended up, um, meeting a family that was quite prolific in the lottery industry. And at the time they couldn't invest, but they were like, we love that name. And at that time I didn't even have the domain locked in yet.

So I had to borrow some money for my mom, locked the domain in, we started building heads down. You helped raise some of the initial angel checks that we could, I could actually hire people and we built like a prototype. And then it turns out that family left the company that they were essentially, uh, major executives at.

And so we want to invest. And then, um, went through a process where they ended up not investing. We were looking and, uh, you introduced me to Barry silver, actually from digital currency group. I actually ended up, uh, helping raise some capital. And we finally were able to raise a seed level and it was a tough time, but we finally built a product.

Got it out. And we were going to launch in New York and we, we hired. A lobbying firm here in New York who communicated with New York that, Hey, listen, these guys are going to be launching. We, we answered that RFI. So they knew who we were, but they, I don't think they were thought how much it was going to catch fire.

And, um, I had always thought that if we were able to get this thing live, it was going to be huge. And we submit it to Apple. And I mean, we got rejected like 16 times. It was months of being rejected. Money was dwindling. Again, we didn't know what to do

MPD: [00:27:39] any big lesson learned about how to get through the Apple.

Peter Sullivan: [00:27:42] Process. Um, what I learned

MPD: [00:27:45] was you were getting with Jack, I remember a lot of regulatory, legal language around lotteries and gambling and whatnot

Peter Sullivan: [00:27:52] seen this model before. So explaining how this model works. So it was funny. One thing I, okay. One, one thing I would tell entrepreneurs is I was a scared for a while to get a legal opinion.

Because I didn't want it to come out. You know, I didn't want to hear you're building something. You don't want to hear something that says, wow, what you're doing is legal. And finally we had to lean in and get it and just go through it. And we, we actually learned, and there were things that we had to change in the product that said, Oh, if we just tweak this or tweak this, actually there were solutions that could be found.

And so don't be scared of your own shadow in a sense, like, you know, you have to go out and just say, Hey, let's, let's get that legal opinion and make sure that we can stand on two feet and be proud of what we're building through Apple. I think what we learned is Apple is a hard nut to crack. And I bet every entrepreneur that you bring on it's, if I'll tell you this, if you can get a good communication channel there, keep it, um, it's really tough.

We've managed to do have some along the way, but you know, sometimes people leave and it's, it's hard to reestablish them, but. That was a nightmare going through that. And then, because we didn't know, and we actually built non natively at that point, our, our Android app was native, but it was weird Android until this Marx didn't allow for real money gaming inside the app store.

So they just did it. And we just got approved for New York and we're live ACCE and Android, uh, and the Google play store. So we're super excited with that where Apple actually took. Thanks. It's huge. I mean, it's. Uh, 50% of the addressable market, we haven't been able to advertise to essentially, but with Apple, it was weird.

They took a more liberal approach to gambling. Um, but remember, if you get rejected from Apple and you're a native app, you can't distribute that app. You're you're done. So we actually built it using a hybrid approach. We're now fully native and we've been for quite some time, but we had to make a real decision that, okay, we're going to.

Put in a wrap app and if it gets rejected, we could at least have a mobile web version. So through, back and forth, back and forth, we finally, we are able to get it approved. So now we're just waiting on what day and making sure that everything is compliant and we release it in the app store. And we just get a little uptick, little uptick just from like kind of organic traffic and our payment processor.

This is like days before we're trying to set up this big press release. Shuts us down and they go, Hey, what are you guys doing? And we'd like, we were very clear what we were doing. We we've had multiple conversations. So we finally get them a day before. We're about to launch that say, okay, we're going to let you keep going.

And we see that what you're doing is legal. And then we tell New York we're going to be launching this date and we let them aware. And they basically say, we're going to take a neutral position. And we ended up working with, um,