Lottery Bonds

Lottery bonds are required in most states for lottery ticket sellers or those who plan to offer lottery machines. These types of bonds are also called lotto bonds or lottery machine bonds. States require them to protect the public from fraud and abuse surrounding lottery games or winnings.

Qualifying for a lottery bond is normally a quick and easy process, taking less time to approve than many other types of bonds. Applicants usually apply for these bonds while establishing or renewing a lottery retailer license. Although costs vary by state, those with better credit profiles receive the best rates.

What is a lottery bond?

A lottery bond, lotto bond, or lottery machine bond is a type of commercial surety bond that ensures lottery sellers are paying taxes on lottery sales, are not mishandling funds, and are not tampering with lottery games or machinery. This type of bond is required of lottery sellers in most states where lottery tickets are sold. These bonds are legal agreements that are normally required at the time of license renewal for lottery sellers in most states.

How do they work?

If the individual or organization that purchased the surety fails to perform as promised and does not adhere to applicable laws and regulations, a claim can be made on the surety bond by the requiring party, in this case, by the state. The surety company will then pay the state, provided the claim is found to be valid. The bond purchaser is then responsible for repaying the surety company for the claim that was paid.

For instance, if a lottery ticket seller misappropriates lottery monies, fails to pay taxes, or tampers with lottery games or machinery, the state can file a claim on the bond. If the claim is deemed to be valid, then the bonding company will pay the state up to the full face value of a bond. The seller is then responsible for replaying the bonding company.

Of course, it is always best to avoid claims. Besides the possible legal repercussions for tampering with lottery sales or equipment, bonds will become more expensive when claims have been made in the past with the same company. If enough claims are validated, then it could become impossible to become bonded under the same company name.

What could cause a claim on a bond lottery?

Lottery machine bonds ensure that the lotto is fair for everyone and that all relevant lottery regulations are being followed by the seller. Failure to adhere to applicable regulations or failure to pay taxes is the most common reason for state to make a claim.

For example, sellers are often required to provide informational materials to consumers. Failure to do so, where required, could result in an unnecessary claim being made against the bond. Failure to let consumers know when a lotto machine is malfunctioning could also lead to a potential claim on a bond.

In addition, sellers are required to allocate and maintain a certain amount of funds to be able to pay lottery winners, up to a certain amount. If a consumer cannot cash in on a lotto ticket within that amount, due to the seller not having allocated funds, then the consumer can report this to the state’s lottery commission. The state can then make a claim on the bond for full payment.

Sellers are also required to pay certain taxes on lottery sales. Failure to do so can result in claims being filed by your state.

How much does a lottery bond cost?

The total cost of a bond depends on the credit profile of a company or individual, the financial strength of the business and the total bond amount required by your state. Better credit profiles and companies with solid track records will receive lower rates (bonds will cost a lower percentage of the surety amount).

Lottery bonds prices are a percentage of the total bond amount. This is the equivalent of paying a premium on an insurance policy. The full bond amount required is set by state authorities and varies by state. Contact NFP or your state’s lottery commission to find out the full bond amount required by your state.

With good credit and a solid business, customers can qualify for rates as low as 1 percent of the total bond amount. Standard market rates vary between one and four percent. This means that, on a $20,000 bond, the purchaser will pay from $200 – $800 to obtain a lottery bond.

What about bad credit lottery bonds?

NFP issues bonds for all credit ratings, even for those rebuilding credit or with no credit. Applicants with challenged credit can expect bond prices to range from 5 percent – 15 percent of the full bond amount. Bonds might cost slightly more than someone with a stronger credit profile, but better rates typically become available at renewal if credit improves.

Who needs a lottery bond?

Typical customers who need a lottery bond are gas stations and convenience stores. In states where they are required, anyone who plans to sell lottery tickets or install lottery machinery must obtain a lottery bond before selling tickets or operating the lotto machinery.

Although bonds are required in most states, not all states require one. Call us at 800.863.3210 or contact your state lottery commission to find out whether a lotto bond is required.

How do I get bonded?

Contact our team for all your lottery bond needs. You simply complete a brief questionnaire and we evaluate your personal or business credit. Then we shop your bond with dozens of underwriters to find you the best rate for your profile. Bonds can usually be issued within 24 – 48 hours of applying.

How long is a lottery bond good for?

Lottery bonds are normally renewed every several years as the lottery retailer license is renewed. The amount of time varies by state. At the time of renewal, we will evaluate your bond history and credit and find the best solution for your needs.