South Dakota Lottery Bond: A Comprehensive Guide

December 8, 2021

South Dakota Lottery Bond

This guide provides information for insurance agents to help their customers obtain a South Dakota Lottery Bond

At a Glance:

  • Average Cost: Between 1.5% to 2% of the bond amount per year based on the applicant’s credit
  • Bond Amount: Determined on a case by case basis (more on this later)
  • Who Needs it: All video lottery operators in South Dakota
  • Purpose: To ensure the public will receive compensation if the operator fails to remit all funds owed to the lottery commission
  • Who Regulates Video Lottery Operators in South Dakota: The South Dakota Lottery Commission

Background

South Dakota statute 48:02:03 requires all video lottery operators in the state to obtain a license with the lottery commission prior to selling tickets. The South Dakota legislature enacted the licensing laws and regulations to ensure that operators engage in ethical business practices. To provide financial security for the enforcement of the licensing law, video lottery operators must purchase and maintain a surety bond to be eligible for licensure.

What is the Purpose of the South Dakota Lottery Bond?

South Dakota requires video lottery operators to purchase a surety bond as part of the application process to obtain a lottery license. The bond ensures that the public will receive compensation for financial harm if the operator fails to comply with the regulations set forth in South Dakota statutes 48:02. Specifically, the bond protects the public in the event the operator fails to remit all funds owed to the lottery commission. In short, the bond is a type of insurance that protects the public if the video operator violates licensing law.

South Dakota Lottery Bond Form

South Dakota Lottery Bond Form

How Can an Insurance Agent Obtain a South Dakota Lottery Bond?

BondExchange makes obtaining a South Dakota Lottery surety bond easy. Simply log in to your account and use our keyword search to find the “lottery” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone at (800) 438-1162, email, or chat 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.

How is the Bond Amount Determined?

South Dakota statute 48:02:05:04 dictates that the bond amount must be equal to one-eighteenth of the state’s share of estimated annual net machine income derived from the operator’s video lottery machines.

Is a Credit Check Required for the South Dakota Lottery Bond?

Surety companies will run a credit check on the owners of the video operating company to determine eligibility and pricing for the South Dakota Lottery bond. Owners with excellent credit and work experience can expect to receive the best rates. Owners with poor credit will likely be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the owner’s credit.

How Much Does the South Dakota Lottery Bond Cost?

The South Dakota Lottery surety bond can cost anywhere between 1.5% to 2% of the bond amount per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on a $10,000 bond requirement.

$10,000 Lottery Bond Cost

Credit Score Bond Cost (1 year)
800+ $150
799 or lower $200

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

Who is Required to Purchase a Bond?

South Dakota requires all applicants for the Video Lottery Operator License to purchase a surety bond during the application process. South Dakota statute 48:02:01:01 defines a video lottery operator as any individual or business entity who places video lottery machines or other associated equipment for public use.

How do Operators Apply for a Lottery License in South Dakota?

Video lottery operators in South Dakota must navigate several steps to secure their licenses. Below are the general guidelines, but applicants should refer to the application instructions for details on the process.

License Period – The South Dakota Video Lottery License expires on July 31 of each year and must be renewed before the expiration date

Step 1 – Determine the License Classification

South Dakota requires video lottery license applicants to obtain specific license classifications corresponding to the nature in which the applicant’s business operates. Below are the different classifications for the South Dakota Video Lottery License.

    • Distributor: Distributes/sells video lottery machines
    • Operator: Purchases video lottery machines for placement
    • Establishment: Business with an on-sale alcoholic beverage license where video lottery machines are placed

The remainder of this section will focus solely on how to obtain a lottery operator license, as that is the only license classification with a bond requirement

Step 2 – Purchase a Surety Bond

Operators must purchase a surety bond in an amount equal to one-eighteenth of the state’s share of estimated annual net machine income derived from the operator’s video lottery machines.

Step 3 – Complete the Application

All South Dakota Video Lottery Operator license applications can be completed online here. Operators must complete the application in its entirety, and submit the following items:

Operators must pay a $50 fee when submitting their license application.

How Do South Dakota Video Lottery Operators Renew Their License?

Operators can renew their licenses online here. The South Dakota Video Lottery License expires on July 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for South Dakota Video Lottery Operators?

South Dakota does not require video operators to obtain any form of liability insurance as a prerequisite to obtaining a lottery license. Operators must purchase a surety bond in an amount equal to one-eighteenth of the state’s share of estimated annual net machine income derived from the operator’s video lottery machines.

How Do South Dakota Video Lottery Operators File Their Bond?

Operators should submit their completed bond form, including the power of attorney, electronically here. The South Dakota Lottery surety bond requires signatures from both the surety company that issues the bond and a representative from the video operating organization. The surety company should include the following information on the bond form:

  • Legal name and address entity/individual(s) buying the bond
  • Surety company’s name and address
  • Bond amount
  • Date the bond goes into effect
  • Date the bond is signed

What Can South Dakota Video Lottery Operators Do to Avoid Claims Against Their Bond?

To avoid claims against their bond, video lottery operators in South Dakota must ensure that they remit all funds owed to the lottery commission.

What Other Insurance Products Can Agents Offer Video Lottery Operators in South Dakota?

South Dakota does not require video lottery operators to obtain any form of liability insurance as a prerequisite to obtaining a lottery license. However, most reputable businesses will seek to obtain this insurance anyway. 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.

How Can Insurance Agents Prospect for South Dakota Video Lottery Operator Customers?

South Dakota conveniently provides a public list to search for active video lottery operators in the state. The list can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2021-12-28T15:16:59-05:00