What is legendary investor Peter Lynch doing involved with a sweepstakes Website that guarantees giving out $1 million a week, and offers jackpots as large as $100 million or more? Lynch is an investor in Jackpot Rewards, a site that mixes retail discounts, giveaways, and charity. The company has raised a $16.7 million series A financing from Lynch and other Boston-area captains of finance, including Chuck Clough (the former chief global investment strategist of Merrill Lynch), advertising man Jack Connors, and DST Systems CEO Tom McDonnell.
“The company grew out of a strategic planning mission for charity,” says CEO Jim Miller. It is a for-profit company that will give 50 percent of its profits to education and children’s health charities.
The site launches today. You sign up and get up to 10 percent cash back for purchases at 550 retailers, including Apple, Barnes & Noble, Best Buy, Land’s End and Target. The company makes money by driving sales to the retailers. It gets a commission for each sale. But instead of pocketing the commission, it passes on the savings to its members. This may sound like iWon redux, but it is really quite different. Jackpot Rewards is not ad-supported. To participate, members need to subscribe and pay $3 a week. That’s right. You’ve got to pay to play.
Is Peter Lynch crazy? Nobody subscribes to anything on the Web (except the WSJ and Consumer Reports). That is where the $1 million jackpot comes in. While you would have to spend $30 a week ($120 a month) online to break even on the rewards program, there are plenty of people who spend more than $3 a week on lottery tickets. This lottery ticket actually comes with fringe benefits like retail discounts and the knowledge that half your money is going to charity. When I spoke to Miller, he seemed sincere enough:
What goes on typically in sweepstakes is that if it is a huge prize, it is an illusory prize where nobody will win it. Even most million-dollar offers are rarely won. We are building in large jackpots we will give away in rapid succession—one million dollars a week.
Those are guaranteed, he says, every week. But there is also a bigger jackpot that keeps growing and has very miniscule odds (1 in 847 million). But when it hits $150 million, the company guarantees giving that away as well. It is all based on how many subscribers it can attract. Since the jackpots are paid out as a 40-year annuity (or a much smaller up-front cash payment of about $420,000 for each $1 million), the cash outlays could become manageable. Miller figures he needs only 150,000 subscribers ($23.4 million a year in subscription fees) to do okay. At 300,000 subscribers ($46.8 million), the business becomes a nice cash machine. And at 1 million subscribers ($156 million), it really takes off.