The legalization of sports betting in the United States has transformed the landscape of online sports betting. Since the Supreme Court's decision in 2018 to strike down the Professional and Amateur Sports Protection Act (PASPA), states have been given the autonomy to regulate sports betting within their jurisdictions. This has led to a surge in the number of states legalizing sports betting, creating new opportunities and challenges for operators.
Reserve Requirement
To ensure the protection of patrons' funds held in wagering accounts, most states that have legalized online sports betting require operators to maintain a reserve. This reserve can be made in the form of cash, an irrevocable letter of credit, or a bond, and must be held by a federally insured financial institution or a regulated insurance carrier. Traditionally, operators have met this requirement by segregating accounts in each state they operate in. This approach, however, demands significant time and resources for the reconciliation of funds across multiple states and accounts, diverting attention from more value-added activities essential to sportsbook operations.
Benefits of Utilizing Surety Bonds
- Capital Efficiency: Surety bonds free up operating capital held in segregated trust accounts, allowing for better allocation of financial resources.
- Regulatory Compliance: Surety bonds are recognized by nearly all state regulators to meet safeguarding requirements.
- Cost Predictability: Surety bonds offer predictable premiums versus the opportunity cost of idle funds.
- Operational Simplicity: Surety bonds avoid complex trust/escrow structures, making administration and auditing easier.
Why WTW
The WTW Surety team provides measurable results for our clients by:
- Leveraging our industry-specific expertise to advise clients throughout the process and structure a surety strategy specific to each operator.
- Maximizing surety capacity via broad market reach and long-term relationships with surety carriers that understand the gaming industry.
- Negotiating market-leading surety terms and conditions for clients at various levels of credit quality.
- Leading program administration and back-office services to ensure efficiency and accuracy.
Our team of surety experts have experience syndicating an excess of $1 Billion of surety capacity for sportsbook reserves with top operators in the gaming industry. We create tremendous financial flexibility for our gaming clients to maximize credit utilization and working capital allocation.
