January 15th, 2021
Hedging Super Bowl Bets? Sports Wagering Bond Spells Opportunity for Insurance Agents
Sports wagering, or betting, has always been a popular activity among fans. However, many bettors have historically been severely limited in regards to the avenues where they can legally place wagers on sports games. Until recently, Nevada was the only state to allow the practice of sports wagering, forcing out of state bettors to comply with Nevada regulations when placing their bets. However, many states have recently legalized, or are in the process of legalizing, sports wagering within their borders. So what does this mean for insurance agents? Well, most states that have legalized sports wagering are requiring betting operators to purchase a surety bond as a guarantee that operators have the required reserves to pay all winnings for sports bets accepted, calculated, and settled by the Sports Wagering Operation. In this article, we provide insurance agents with the information needed to efficiently obtain a sports wagering surety bond for their customers.
Why are States Legalizing Sports Betting?
In 1992, congress passed the Professional and Amateur Sports Protection Act which prohibited the further legalization of sports wagering in states. Nevada, having legalized sports wagering in 1942, was grandfathered into the law, thus making it the the only state where sports wagering could be conducted legally (Oregon, Delaware and Montana were also grandfathered in, but did not have any sports wagering operations in place). In May of 2018, the supreme court ruled that the Professional and Amateur Sports Protection Act violated the 10th amendment, therefore overturning the law and allowing states to the freedom to set their own rules and standards for sports wagering. Numerous states have since begun to legalize the practice of sports betting, or at the very minimum have lessened restrictions.
Who is Required to be Licensed?
Each state has their own separate licensing requirements for sports wagering operators, but the general rule of thumb is that business entities who provide a platform, either online or in person, for consumers to place wagers on sporting events are required to obtain a license in each state they operate in. Some states, such as New Jersey, require sports wagering operators and companies who support their platforms (web developers, payment processors etc) to become affiliated with a casino prior to conducting business operations. Individual bettors placing wages do not need to obtain a license.
What is a Sports Wagering Surety Bond?
A sports wagering bond is a government required surety bond that sports wagering operators must purchase as a prerequisite for licensure. The bond protects the public from financial harm if the sports wagering operator fails to comply with licensing regulations or doesn’t have sufficient reserves to pay all winnings to those sports bets accepted, calculated, and settled by the sports betting operation. Surety bonds contain an indemnity agreement, meaning sports wagering operators will need to repay the surety company for losses resulting from a claim made against the bond.
The following states require sports wagering operators to purchase a surety bond:
| State | Regulatory Agency | Bond Limit |
|---|---|---|
| Delaware | Delaware State Lottery Commission | Determined on a case by case basis |
| District of Columbia | DC Office of Lottery and Gaming | Determined on a case by case basis |
| Illinois | Illinois Gaming Board | $200,000 |
| Indiana | Indiana Gaming Commission | Equal to the amount of prize money owed to participants |
| Iowa | Iowa Racing and Gaming Commission | Determined on a case by case basis |
| Michigan | Michigan Gaming Control Board | Determined on a case by case basis |
| Mississippi | Mississippi Gaming Commission | Determined on a case by case basis |
| Montana | Montana Lottery and Sports Wagering Commission | Determined on a case by case basis |
| Nevada | Nevada State Gaming Control Board | Equal to the amount of prize money owed to participants |
| New Hampshire | New Hampshire Lottery Commission | $1,000,000 |
| Pennsylvania | Pennsylvania Gaming Control Board | Equal to the amount of prize money owed to participants |
| Rhode Island | The Rhode Island Lottery | Determined on a case by case basis |
| Tennessee | Tennessee Gaming Commission | Equal to the amount of prize money owed to participants |
| Virginia | The Virginia Lottery Board | Determined on a case by case basis |
| West Virginia | West Virginia Lottery Commission | Determined on a case by case basis |
How Much Does a Sports Wagering Surety Bond Cost?
Sports wagering bonds will generally cost between 1% to 10% of the bond amount per year. Surety companies will examine factors such as the credit score and years of business experience of the owners of the sports wagering company when determining the premium rate. Bond applicants with high credit scores and multiple years of business experience can expect to receive the lowest premium rates. The credit check is a “soft hit”, meaning that the credit check will not affect the applicant’s credit.
How do Sports Wagering Operators File Their Bond?
Surety bond companies will provide operators with a completed surety bond to be filed with the relevant government agency. Most states require the original bond with a raised surety company seal to be filed by mail. Applicant’s should refer to their license application instructions to determine when and how to file the bond. Most states will require the sports wagering bond to be filed along with the license application.
What Actions can Cause a Claim Against the Bond?
Each state has their own specific statutes outlying what actions constitute a bond claim, and bond applicants should check with the proper licensing authority for what specific actions can cause claims. As a general rule of thumb, sports wagering operators should adhere to the following guidelines to avoid claims made against the bond:
- Pay all required taxes and fees
- Ensure the payment of all winnings to patrons of your platform
- Do not engage in any acts of fraud
How Can an Insurance Agent Obtain a Sports Wagering Surety Bond?
BondExchange makes obtaining a Sports Wagering Bond easy. Simply give us a call at (800) 438-1162 and we will walk you through the bonding process. Our friendly underwriting staff is available from 7:30 AM to 7:00 PM EST to assist you.
At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
What other Insurance Products can Agents Offer Sports Wagering Operators?
Many sports wagering operators will seek to obtain liability insurance to protect themselves from financial harm if an unforeseen event were to occur. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.
What’s Next For the Sports Wagering Industry?
Many states have legalized, or are currently debating legalizing, sports wagering. However, the industry is still heavily regulated, and bettors are oftentimes required to be physically present at a casino when placing their bets. The Coronavirus pandemic has forced numerous casinos around the country to halt, or severely limit, all in-person activities. The loss of revenue caused by these shutdowns is causing states to consider allowing bettors to place their bets online, a move that many in the gaming industry would gladly welcome.
