A lottery bond guarantees that sellers of lottery tickets and operators of lottery equipment will abide by all applicable state regulations and operate in a completely lawful and ethical manner. Learn more about this type of bond below, or contact our experienced surety agents for assistance with any questions you may have.
What Are Lottery Bonds?
Also known as lotto bonds or lottery machine bonds, lottery bonds protect the state and the public from a lottery business’s failure to pay lottery winners as required or to remit taxes due on the sale of lottery tickets, among other illegal or unethical acts.
Who Needs Them?
Both businesses and individuals licensed to operate lottery equipment or sell lottery tickets are required by most states to purchase a lottery surety bond.
How Do They Work?
In most states, the obligee requiring the purchase of the bond is the state’s Lottery Agency, Lottery Commission, Lottery Corporation, or similar agency operating under the auspices of the Department of Revenue. The two other parties to the bond agreement are the principal (the individual or business required to purchase the bond) and the surety (the underwriter that guarantees and issues the bond).
The terms of a lottery bond establish the grounds for filing a claim against the bond. Those terms will spell out exactly what laws and regulations apply, such as:
- Paying the proper taxes
- Setting aside a certain amount of money that will be available to pay lottery (higher amounts than that are paid by the state, not by the bond principal)
- Providing certain brochures or other information about gaming to the public
- Making the necessary notifications in the event of a lottery equipment malfunction
If the principal to a lottery bond misappropriates lottery funds or otherwise violates the terms and causes financial harm to the public, the parties suffering a financial loss can file a claim. The surety will validate any claim before paying it, but the principal must then reimburse the surety for the amount paid to any claimant.
What Do They Cost?
Every state establishes the lottery bond amount required in that state. This amount is typically anywhere from $3,000 to $20,000+. The principal, however, will pay only a small percentage of that amount as the premium.
The surety will establish the specific premium rate for each applicant based on such factors as the applicant’s personal credit score and personal and business finances. The “standard” market rate for applicants with good credit is anywhere from 1-4% of the required bond amount.
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