Ok, but you missed out a few bits.
Referral fees go up 5 levels so the pay out isn't £1 per member but £2 (£1+4*25p).
This means that its £59 of the cash, after ticket purchases, goes to VWD, and £98 goes to affiliates.
Obviously running your own closed syndicate is going to be more profitable than one managed by someone else as any 'management fee' taken out could have been used for ticket purchases.
But most people here are interested in it as an affiliate opportunity, rather than a way to win the lottery. For example, one member of the forum has introduced over a hundered members. He will be making over £4,940 per year (+2nd,3rd,4th,5th tier income).
As far as the legal side goes, I'm not sure whether VWD actually buy any lottery tickets. If they have the capital to handle large payouts it would obviously be more cost efective for them to pay out themselves.
You will never win on the lottery, unless you win more than you have ever paid in and then stop playing. You know that less than 50% of the ticket sales goes to prizes, so on average spending £1,000,000 on tickets would get you under £500,000 in return.
With VWD you 'win' if you can refer 5 people.
(or if you managed to refer Matt

I didn't)