Lottery Bond 101

Lottery Bond 101

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Who doesn’t daydream about playing the lottery and winning big from time to time? While most of us will never get our lucky pay day, businesses that sell lottery tickets can cash in on those hopes and dreams all year round. 

Businesses that want to sell lottery tickets (such as gas stations and convenience stores) need to obtain a license to sell state lottery tickets. Most states require a lottery bond if a business wants to obtain the license they need to offer lottery machines to their customers. 

Lottery bonds—also known as lotto bonds or lottery machine bonds—help protect consumers from fraud and abuse surrounding lottery games and winnings. Read on for more insight into what a lottery bond is, how this type of surety bond works, and what it may cost you to obtain one. 

What is a Lottery Bond?

A lottery bond is simply a type of surety bond designed to protect consumers from fraudulent lottery issues, as well as ensuring that lottery ticket sellers pay their taxes on lottery sales, don’t mishandle funds, and don’t tamper with lottery games or machines. Most states require this type of bond in order to sell lottery tickets and usually you must have one of these bonds in order to obtain or renew the license you need to sell lottery tickets. 

How Does a Lottery Bond Work?

Lottery bonds work similarly to any type of surety bond. In this case the principal is the business owner who wants to sell lottery tickets. The obligee is the state requiring the lottery bond. The surety is the company who issues the lottery bond and pays out any claims filed against the bond. The principal (aka the business that purchased the bond) is then responsible for paying the surety back for the claim they paid. 

Here’s a few examples of lottery bond amounts in different states—you can see how greatly these amounts can vary. 

Connecticut: $12,000

Georgia: 12,000

Ohio: $20,000

Usually, lottery bonds have to be renewed every few years whenever the business needs to renew their lottery retailer license. 

Who Needs a Lottery Bond?

So, what types of businesses need to purchase a lottery bond? Any business that wants to sell lottery tickets likely needs to do this (although all states have varying rules regarding lottery bonds). Usually gas stations and convenience stores require this type of bond as it’s more common for them to sell lotto tickets. 

How Claims Against a Lottery Bond Work

Ideally, your business will follow all rules and regulations surrounding lottery bonds and won’t ever have to worry about having a claim filed against your lottery bond. If someone has too many claims filed against their lottery bond, not only will this cost them a lot of money, but it will be harder for them to secure lottery bonds in the future.

Lottery bonds exist to protect consumers and the state. It’s important that the principal follow any necessary rules surrounding their bond so they can avoid a claim. For example, in some states lottery ticket sellers are required to provide informational materials to consumers. If they fail to provide this information, they may end up with a bond filed against them. Another opportunity for a claim to be filed is if the business doesn’t have enough cash available to pay out lottery winnings. If someone can’t cash their lotto ticket (up to a certain amount) because the business didn’t allocate funds properly, the consumer can report this to the state’s lottery commission and then the state can then make a claim on the bond for full payment. The state can also file a claim if you fail to pay certain taxes. 

How Much Does a Lottery Bond Cost?

So, how much will it cost you to obtain a lottery bond? There’s no one answer to this question as multiple factors can affect the cost of a lottery bond.

Bonding capacity. Usually, the price of a lottery bond is a certain percentage of the bonding capacity (aka the highest amount someone can claim against the bond). Each state has varying requirements for what lottery bond capacities are.

Credit profile. The personal credit score of the business owner or the businesses’ credit score is taken into account when determining pricing. The higher the credit score, the less the bond will cost. 

Business experience and history. The longer a business has been running successfully, the better rates they’ll be offered. 

All of that being said, if someone has a good credit score and strong business history, then they may qualify for rates as low as 1% of the bonding capacity. So if the lottery bond costs $10,000 and they are offered a rate of 1%, they’ll only pay $100 to secure the bond they need to get their license. 

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