Jackpot Rewards Drops Guaranteed $1 Million Weekly Prize; Explanation Fuzzy

4/7/08Follow @wroush

Less than seven weeks after it made a big media splash by promising to donate half its profits to children’s charities, Jackpot Rewards, the Newton, MA, customer-rewards and sweepstakes startup backed by Boston investing legend Peter Lynch, has put an end to what was perhaps the most unusual (and most expensive) part of its part of its sales proposition: a weekly $1 million prize drawing with a guaranteed winner.

In an e-mail newsletter circulated to program members last week, the company said that, “In order to create more winners, we’ve decided to make some changes. Beginning April 6, we will continue to hold a $1 Million Jackpot drawing on Sundays; however, there will not be a guaranteed winner each week.”

The change has upset some customers, and seems to represent a reversal of what had been one of the company’s most audacious and distinctive marketing promises. “When you look at most sweepstakes that have a large prize, it’s either illusory in which no one wins, or like Publishers Clearinghouse they take six months telling you that they’re going to give away a million dollars,” Jackpot Rewards CEO Jim Miller told Xconomy in February, when we covered the company’s launch. “Our philosophy is rather than telling you what we’re going to do, let’s just go out and start doing it. Ten days after we launch we’ll be giving away our first million-dollar jackpot and then each week thereafter.”

The company did give away five $1 million prizes before shifting this week to a random drawing system with no guaranteed winner. It was not immediately clear how this change in the company’s procedures would “create more winners,” in the newsletter’s words, rather than the same number or fewer. Jackpot Rewards executives did not respond to Xconomy’s requests for comment in time for this article.

Jackpot Rewards charges $3 per week for membership in its customer rewards program, which offers cash-back rewards of varying percentages when members shop at a selection of several hundred online retailers. The sweepstakes portion of the company’s program is designed as an incentive for consumers to join the shopping-rewards program—and to recruit others into the Jackpot fold (if friends join, members get more entries in the sweepstakes).

As the sweepstakes program was originally presented, the company promised to select at least one million-dollar winner each Sunday from a pool of members who qualified by matching the numbers on at least two out of five white balls or one white ball and one red ball in thrice-weekly, Lotto-style drawings for a progressive $100 to $150 million mega-jackpot. The odds that a member with matching numbers could win the million dollars were therefore determined by the number of other qualifying entries—and according to the company, only 464 people qualified for the first $1 million drawing on March 2, while 1,300 qualified for the March 9 drawing, and 1,726 qualified for the March 16 drawing.

Under the new rules for the weekly sweepstakes, published on the company’s website, the chances of winning the weekly $1 million prize are much smaller than that. In fact, it’s possible, perhaps even likely, for the new process to produce no big winner at all. Under the new rules, members who qualify for the million-dollar sweepstakes through the thrice-weekly drawings are now assigned a unique number between 0 and 249,999. The company then selects a random number in that range, and if there is an entry matching that number, that member wins. (The $1 million prize is payable as a lump sum of $420,000 up front, or in 41 equal payments of about $24,390 over 40 years, according to the rules). If there’s no matching entry, the company picks one of the qualifying entries at random for a $1,000 prize.

In effect, then, the company has replaced its $1 million guaranteed prize with a $1,000 guaranteed prize. “The $1 Million drawing will continue to have the best odds to win $1 Million of any sweepstakes and in the coming weeks we will be offering more prizes and deals,” the company said in the e-mail newsletter.

It is not clear what provoked the change. When I asked Miller in February how long the company could go on funding a million-dollar weekly prize, his answer was as follows: “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.”

The eye must not have been able to see very far, and at least one customer is not happy about it. Leslie Sault of Virginia Beach, VA, says she cancelled her Jackpot Rewards membership last week after reading about the change in the newsletter. “I am no expert, but for some reason the term ‘Bait and Switch’ comes to mind,” Saul told Xconomy.

Jackpot Rewards launched with $16.7 million in financing, with Fidelity Magellan Fund legend and philanthropist Lynch as one of the leading backers. The company’s own philanthropic intentions are a big part of its marketing pitch. According to Miller, the idea for Jackpot Rewards came up in discussions among a group of Boston area businesspeople, including Lynch and himself, who had set out to create new models for raising money for charities. “What we were looking for was a way to create an economic engine for the common good,” Miller said in February.

Update, April 8, 2008: We’ve published a followup interview with Jackpot Rewards CEO Jim Miller, who says the company is scaling back the weekly jackpot in order to spend more subsidizing the product discounts available to program members.

Also, I spoke with Richard McGowan, a Boston College statistics professor and an expert on the gaming and lottery industries. He says that even with the recent changes, the odds of winning the Jackpot Rewards million-dollar drawing are still “a lot better” than the state lottery.

“In terms of lotteries, [Jackpot Rewards] is the best thing going,” McGowan says. “The odds are not great, but most people play their dreams, and when you think about it, this gets you a lot closer to your dreams than some other sweepstakes.”

Update, April 9, 2008: The Jackpot Rewards story has now been picked up by the Boston Globe, the Boston Herald, and Mass High Tech. The Herald‘s story is the best, observing: “…although it’s backed by former Fidelity money management guru Peter Lynch and former Boston advertising ace Jack Connors—and it promised to donate half of its profits to children’s charities—it was the hype of a weekly $1 million winner that garnered media attention for Jackpot Rewards….Its reversal calls into question whether that lucrative incentive was a marketing ploy to attract members, but Miller says the policy change is a matter of a young company adjusting to customer requests.”

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

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  • dallas c

    i think you should give away more prizes of a1,000 dollars andmabye a few 5,000-10,000 dollar prizes so everone can have a chance to win something.

  • bill harper

    As of a month ago I could not pick my numbers, only the quick pick works now on the site. Sent 12 emails to support with no answer whatsoever, getting ready to cancel my membership .