Jackpot Rewards: An Online “Economic Engine for the Common Good”

2/20/08Follow @wroush

The idea of sponsoring a weekly $1 million sweepstakes isn’t exactly high-tech. Neither is the idea of giving consumers cash rewards for their purchases, or the concept of committing a portion of your company’s profits to kids’ charities. But mash these things together—and put the whole thing on the Internet, where viral marketing and other network effects can really kick in—and you’ve got an intriguing Web 2.0 business plan that just might end up generating a lot of money for children’s health and education.

That’s the hope at Jackpot Rewards, a Newton, MA-based startup launching today with backing from some of the region’s most notable business leaders and philanthropists, including former Fidelity Magellan fund manager Peter Lynch and Hill Holliday founder Jack Connors. The basic pitch to users is simple: In return for a $3-per-week membership fee, users get quarterly checks amounting to 12 percent of their purchases at more than 550 participating online retailers, such as Best Buy, Barnes & Noble, GAP, Land’s End, Nike, Overstock.com, and Target. As an enticement to join, members also get to pick Lotto-style numbers that are entered into a thrice-weekly drawing for a progressive jackpot worth $100 million to $150 million. If at least two of their six numbers come up in a Monday, Wednesday, or Friday drawing, members are also entered into a Sunday drawing where someone is guaranteed to win $1 million—a prize paid out in the form of an annuity financed by the aforementioned membership fees.

Those are the mechanics, anyway. If a Visa or a Publishers Clearinghouse came out with a similar cash-back/sweepstakes program, the world would probably yawn. But Jackpot Rewards has an intriguing backstory that may increase both its appeal to consumers and its chances of success. Frankly, it’s one of those sounds-to-good-to-be-true tales that activated all of my skeptical journalistic instincts when I first heard about the program—but after getting the whole story last week from CEO Jim Miller, a former telecom entrepreneur with a history of raising scholarship money for at-risk inner-city youth, I’ve adopted an attitude of watchful optimism.

It all centers around two facts: One, that Jackpot Rewards will donate half of its after-tax profits to children’s charities, and two, that everything about the company, from the structure of the rewards program to the rules of its sweepstakes, is designed to maximize the amount the company is able to give away. In that sense, Jackpot Rewards is part of a corporate-philanthropy and social-entrepreneurship movement that goes back decades. But few social entrepreneurs in history have hatched schemes as high-stakes or as brazenly consumer-oriented as the Jackpot Rewards program, which has been four years in the making.

“What we were looking for was a way to create an economic engine for the common good,” says Miller. “So we asked ourselves, what is something that can create a massive network effect that will drive large numbers of consumers to participate? Well, you will find that over 50 percent of consumers participate in some kind of rewards program, whether it’s a cash-back card like the Discover card or one of the frequent-flier-miles credit cards that a lot of people carry. And sweepstakes are considered one of the most effective marketing mechanisms in the world. So we took what we thought would be these two very compelling offers for consumers and pursued them on a new scale.”

To get the program off the ground, Jackpot Rewards has raised $16.7 million in Series A financing from a group of individual investors including Lynch, Connors, Chuck Clough (the CEO of Boston’s Clough Capital Partners and a former Merrill Lynch global investment strategist), and Tom McDonnell (the CEO of Kansas City, MO-based DST Systems).

“I do think we ended up with a particular type of investor,” says Miller. “Imagine going out to raise money and telling investors that you are going to give half of it away. You have to find an investor who is passionate about giving—and we’ve attracted people whose business acumen is only exceeded by their generosity.”

Indeed, Lynch, who is famous for driving the Fidelity Magellan mutual fund to unheard-of returns in the 1980s and 1990s, has long had a charitable foundation (worth a reported $74 million as of 2003) that funds Boston-area religious, educational, and recreational projects from Catholic-school scholarships to skateboarding parks. Miller says that when he went courting Lynch and the other investors, “To a man, their first question was ‘How can I help you?’ rather than ‘What’s in it for me?’ They’ve all made it in life, and they are all passionate about giving back.”

It was Lynch, in fact, who spearheaded the planning process four years ago that led to the company’s creation, Miller says. “Peter got leaders in the business community together to look for new and innovative ways to raise money for charities,” Miller recounts. “We had all these people around the table with incredible business acumen, but we all found it incredibly difficult to raise money, so I said, ‘Why don’t we built a company where 50 percent of the profit goes to charity.’ That was interesting to them.”

But while the company’s giving—to be conducted through a separate, non-profit organization called the Jackpot Rewards Charitable Foundation—was always the keystone of the business plan, its most visible activity, the sweepstakes, isn’t just a marketing ploy. That, too, reflects the core philosophy of the founders and funders, Miller says.

The sweepstakes idea “grew in many ways out of the transformational experiences we had as young people, and how those inspired us,” he says. “Winning a million dollars would change just about everyone’s lives. It would allow you to pay off the mortgage, get completely out of debt, save money for the kids’ college, and set aside money for retirement—basically, to achieve the American dream. But what would you do with $100 million? That’s a very different question. Most people move very quickly from ‘How can I change my life?’ to ‘How can I change the world?’ We want to create an environment where people are thinking about those big dreams.”

“Dream Big,” in fact, is the Jackpot Rewards tag line. And it would be easy enough to write that off as advertising hokum, except for the programs Jackpot Rewards has created to encourage sweepstakes winners to become philanthropists in their own right. Members are allowed to create “Jackpot Groups” that split the jackpot equally if any member has the winning numbers for the progressive $100 million-plus jackpot or the weekly $1 million jackpot. If a jackpot group designates itself a Charity Group, Jackpot Rewards will give 50 percent of any jackpot that group wins to the charity of its choice, as long as it’s been screened by GuideStar, a clearinghouse for information about tax-exempt non-profits groups. “If you’re passionate about giving back, we help you make the same commitment to charity that we make,” says Miller. “We think there can be a profound social networking effect there.”

Social networking is actually one of the other keys to Jackpot Rewards’ business plan. Miller believes that membership in the rewards program will balloon quickly thanks to the company’s refer-a-friend policy. “If you refer one friend, you double your chances of making it to the weekly $1 million drawing for as long as your friend remains a member,” Miller explains. If you refer two friends, you triple your chances, and so forth. Miller expects referrals to spread virally via e-mail, at a speed that only the Internet could allow. “Ten years ago, you would not have been able to do this in a really substantive way,” Miller says. “The company lives in large measure online because consumers are migrating online in droves.”

Of course, most members will never win a jackpot, no matter how many friends they recruit—so the company’s real value proposition is the 12-percent cash-back program. And whether that’s a value for you depends entirely on how much money you spend online. At $3 per week, Jackpot Rewards membership will cost you roughly $156 per year. To make back that much in rewards, you’d need to spend $1,300 per year at participating e-retailers (most of which were selected as Jackpot Rewards partners because they already have affiliate programs that pay commissions to the owners of sites that send them customers).

“With one smart buy, membership pays for itself,” says Miller. Well, maybe—if your one buy is a 42-inch plasma HDTV. It seems likely that Jackpot Rewards will earn at least some money from members who fail to buy enough stuff at approved e-retailers to earn back their membership fee. (Or who accidentally start their shopping expeditions at a merchant’s website without going to the Jackpot Rewards site first. Says the company’s shopping FAQ: “In order to receive cash back from Jackpot Rewards, you must begin your shopping at Jackpot Shopping every time. It’s the only way we can track your purchases.”)

Whether $3 per week per member is enough to cover the weekly $1 million prizes, pay the company’s overhead, and leave enough after-tax profits to make a difference for needy kids depends on how many people sign up. But according to Miller, “The company is structured in a such a way, and has sufficient funding, so that even if we grow at a glacial pace that’s far below what any model of the marketplace would predict, we will still be able to fund the weekly $1 million jackpots for almost as far as the eye can see.” And regardless of the company’s bottom-line performance, Miller has already promised to donate at least $1 million in 2008.

As for the huge $100 million jackpots: if some member or group is fortunate enough to match all six numbers, Miller says the winnings will be covered at least initially through the insurance policies the company has purchased. Now, if someone would just start an insurance company that gives away half of its earnings—that would be real revolution in social entrepreneurship.

Addendum 9:20 a.m., February 20: Carolyn Johnson at The Boston Globe has a piece today about Jackpot Rewards that’s a good bit more skeptical than my take. She points out one thing I missed: to comply with laws against non-government lotteries, Jackpot Rewards does allow you to enter its sweepstakes without becoming a member or purchasing anything, by sending in a postcard. The sweepstakes rules are here.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • http://www.RecruiterGuy.com Bill Humbert

    What an interesting idea! It is important that good people with great ideas have the wherewithal to give back to their communities. This seems to be one of those great ideas. I wish them good luck!

  • Julie McCann

    To paraphrase a famous quote, “ordinary people can do extraoridnary things.” Jackpot Rewards is saying to dream big and you can maybe change the world. If ordinary people don’t try then who will. I hope they can spur some excitement in others about charitable giving. Good luck!

  • Lisa

    good people doing great things for the world! LOVE IT!

  • Rona W

    This sounds like a very exciting opportunity … dreaming big while helping others less fortunate. Bravo to the Jackpot Rewards crew and GOOD LUCK!

  • Scott Tierney

    This is an idea that really has value, especially in our society today. Jackpot Rewards really has hit the Jackpot… with their site, their commitment to charity, their shopping program (who gives 100% of the rebates to the consumer) and their people. If more of today’s business leaders were of the caliber of Peter Lynch and the other Jackpot partner just imagine what our corporate landscape would look like. I signed up and making my first purchases through the site today.
    Go Jackpot. What a great story. Good luck.

  • Wade Roush

    Okay folks — I’m glad you all like Jackpot Rewards. But if one more person ends their comment by saying “good luck,” I’m going to start thinking that it’s some kind of creepy conspiracy or orchestrated comment spam.

  • Leib Aaronson

    To the author – this sure looks like paid advertising article, just disclose it. It’s a lottery. All this talk about charity is only a coverup for the lottery commisioner attorney general and the lawmakers, just to pass through the government monopolized Lottery Laws scrutiny. Who in the right mind will be sending the postcards (first class mail – read Rules) when you can subscribe and automatically be entered in, rather then sending the postcard every time the drawing is held.
    Also, take a look at the odds of winning ~ 1:850,000,000 (that is 1 to almost a billion) – that is 7 (seven) times less possible to win than the Mega Millions lottery (odds there are ~1:175,000,000), yet your single day entry still cost a $1 ($3 weekly for 3 drawings a week). As for the prices – same (or better) you get from those online retailers allowing JR to be online affiliate. Online classified listings are not unique – all RSS feeds from other sites.
    Do not want to bash it – but it does seem that most commenters here are with some interest as Wade said seem to be “some kind of creepy conspiracy or orchestrated comment spam”.
    Good luck.

  • Wade Roush

    @Leib: Very funny.

  • Jason G.

    I agree with Leib, you’ll never win.
    The odds of winning is 1:52*52*52*52*52*52 -> 1:19770609664 (1:19 billion) :), I don’t think so. They’re just like other cashback sites.

    Enjoy

  • http://http:www.capitalchaos.com Steven

    We covered this story on capitalchaos.com and the people behind the transaction and these guys have a pretty strong team behind them. The model works really well and should appear to a very broad audience.

    While the odds may be high to win the bigger jackpot, the $1M is attainable.

  • Alisa

    may be you’ll never win, but somebody will. They Guarantee a winner. I will try my luck. I’m trying a first week for free, but I don’t mind to stay there for longer. There is not bad deals. I was excited to see my favorite webs there like ebay and expedia and hotels…etc… and because I love to travel, I’ll get more discounts even on those cheap deals!
    Heh, I am saying GOOD LUCK to myself!

  • Alisa

    and….charity…. I will be happy to feel myself as a part of the charity. I hope they will tell the members when they will give money for charity. I wouldn’t mind if some of the charity they would give to help animals and shelters…

  • webshopper

    ok, so i took a flyer on this site. did the one week free and purchased my normal stuff through jackpot’s shopping mall. My rewards account now has about $38 in rebate dollars in it, and I have not even been charged my $12 fee yet. itunes rebate paid. ebay rebate paid. hotel.com rebate paid. apple rebate paid. Oh, AND I got to play on the guaranteed $1million sunday drawing.
    No Alisa, GOOD LUCK to me. Steven, don’t tell those other lugs that the million is attainable. No need to share this with them.

  • suspicous

    I find it odd that 3 of the 4 weekly million winners so far are from MA, where jackpotrewards happens to be located. Its also odd that the weekly million winning number does not get posted on the site anywhere.

  • Makes me wonder

    And we have yet to see or hear from the one that was not from MA (he’s from Santa Barbara, CA the site says) that just happened to be in Mumbai, India when he won. LOL

  • Math Major

    Look at the terms. The “million” dollars is a lot less than that. Cash payout is only $250,000 before taxes. If you take the annuity, you get $10,000 a year before taxes for 40 years & then $600,000 in year 41.

    How can these guys stay in business?

  • huh?

    Where are you getting your info Math Major?

    From the site:
    The Prize will be awarded in U.S. Dollars. If the $1 Million prize is won it will be awarded in the form of a 40 year annuity without interest paid out in 41 equal payments over 40 years. In lieu of an annuity, a winner may elect to accept the prize in the form of a check in a lump sum cash payment equal to $420,000. If the $1,000 prize is won, it will be awarded to the winner in the form of a check. If the winning entry is a Group entry in accordance with the Official Rules of the Jackpot Rewards Super Jackpot Sweepstakes, then all eligible members of that Group will share the prize equally. If the winning entry is a Charity Group entry in accordance with the Official Rules of the Jackpot Rewards’ Super Jackpot Sweepstakes, 50% of the prize will be awarded directly to the Charity and all eligible members of the Group will share the remaining 50% of the prize equally

  • Hmmmm

    As of April 6, 2008 they are no longer “guaranteeing” a 1 million dollar winner every week. I found this info in a barely noticeable post in the weekly newsletter that I almost deleted without looking at it. Can’t seem to find this same info on the website. I have cancelled my membership, as I think it is a dishonest way to conduct a business.

  • suspicious

    yep “There was no winner this week.”…the 2 winners since my last post were from MA also. they are posting the winning number now tho. which has changed from a 4 digit number that to a 6 digit number. They went from drawing the numbers that were assigned to every person entered into the weekend drawing, to a true lottery draw like the main jackpot. Odds go from how many entered into the weekend drawing to 40 billion to 1 or whatever the 6 digit odds are.

  • I agree

    I thought in the beginning, a weekly million dollar winner was a guarantee. Not anymore. Hmmm, I am not feeling so good about this. I mean I know things would change after they got more subscribers, but I just don’t feel comfortable about this.

  • Math Major

    Huh?

    The information I posted about a $250,000 payout was on the website.

    The information you posted about a $420,000 payout wasplaced on the website after my post when they decided to do away with the guareneed weekly winner.

    Since the winner is no longer guarenteed, they can offer the higher cash payout an have it covered by insurance since it’s not guarenteed.

    Not a customer friendly way to run things.

  • Cancelled membership

    I cancelled my membership. If there are changes in the official rules, members should you notified by email about that.

  • http://google Don Louderback

    I have been trying to register for the triple awards program and am unable to register because of some boxes for address are not viable.

  • Cheri Hertel

    I just received a large check and letter saying I won a larger sum of money from Jackpot Rewards (check is to cover taxes/fees). I have never signed up for anything and I’m gun-shy on what to do, or if this is getting me into something deep or off-center. Anysight on how to proceed? It is a large sum. Thanks and regards

  • Be Care

    Cheri, that is a scam!!! There is info about that on the FAQ page on the Jackpot rewards site.

  • http://www.ppicash.com/ structured settlements

    Sure sounds like a great idea, but definitely sounds way to good to be true?!

  • Kola

    Why do u always request information about someone credit card. Cant it be done and the person determine means of crediting his/her accounts instead of compulsory it

    Thanks

  • http://Bradenton Dee

    In yesterday’s local newspaper, The Bradenton Herald, there was an article about a Bradenton family, The Hangs, who won $100,000 from JackPot Rewards and were presented a check by the company at their home on Thursday. So I guess, like they say at Publisher’s Clearing House, you really can win!
    I hadn’t heard about Jackpot Rewards before, so I think I’ll be looking into it.

  • Debbie

    I became a member and also sent in mail in entries for the $145 million that was supposed to be given away at the end of the last promotion. Did anyone win it? Then the rules changed- lost my confidence in the promotion and Jackpot rewards lost my membership. With all the people now un-employed, including myself- the best advertising would have been to actually give the millions away… anyone else confused?