Sports Wagering Bonds
June 7, 2022
In this blog post we will discuss the growing sports betting industry and its bonding requirements. First, a little background. In 1992, congress passed the Professional and Amateur Sports Protection Act (“Act”) that prohibited the further legalization of sports wagering in the United States. States like Nevada, Oregon, Delaware and Montana that already had legalized sports wagering were grandfathered into the law. In May of 2018, the Supreme Court, in the case of Murphy v. National Collegiate Athletic Association, issued a decision holding that the Act violated the 10th amendment and was therefore unconstitutional. By striking down the law, the decision allowed states to set their own rules and standards for sports wagering.
The sports betting industry has really grown since the Murphy decision. Sports betting is currently live and legal in 30 U.S. States. The market for legalized sports betting in the U.S. exploded in 2021, doubling in size as Americans wagered more than $52.7 billion throughout the year. The increase of sports betting in 2021 was due in large part to the launch of legal wagering in 11 new states and more than $1 billion invested in marketing and advertising by some of the country’s largest sportsbooks, like FanDuel and DraftKings. With legalization, however, comes regulation, and one regulation seen across states is the requirement that entities seeking a sports betting license must post a surety bond.
These sports wagering bonds are typically required by or authorized to be required in the governing statutes and regulations permitting sports wagering. In this way, it is similar to a motor vehicle dealer bond or other commercial bonds. The bond is generally intended to protect the public in the event the sports betting operator fails to comply with licensure requirements or fails to pay out winning wagers that were placed and settled with the operator. In Virginia, for example, the relevant regulation states: “A bond shall be for the benefit of the Commonwealth for the faithful performance of the requirements imposed by the laws of Virginia and this chapter, shall be renewable annually, and may not be canceled without at least 30 days written notice submitted to the director.” 11VAC5-70-100(C). The maximum bond amount for a sports betting permit holder is $5 million. In Iowa, the sports wagering statute states that a bond is required before a license may be issued in an amount to be determined by the Commission. The bond is to be “used to guarantee that the licensee faithfully makes the payments, keeps its books and records and makes reports, and conducts its gambling games and sports wagering in conformity with [the statute] and the rules adopted by the Commission.” Iowa Code, Chapter 99 F.8. If a bond is canceled and the licensee fails to file a new bond with the Iowa Commission in the required amount on or before the effective date of cancellation, the licensee’s license will be revoked. Id.
As the industry continues to grow and expand and states get a handle on regulation of sports betting, it will be interesting to see how sports wagering bonds will grow among surety portfolios and outstanding bonds. It will also be noteworthy to see how bonding requirements differ among different jurisdictions and how the language of particular bonds will read. With more states likely poised to legalize sports betting, there remains potential for more growth, and therefore more potential claims, in this bond setting. It is a category of surety bonds worth keeping an eye on.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact any member of the WCS Surety and Fidelity Practice Group.
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