Pennsylvania House Bill 2497 was recently introduced and has gone to the House Gaming Oversight Committee. Introduced by Rep Danilo Burgess, the bill seeks to regulate prediction markets under the oversight of the Pennsylvania Gaming Control Board (PGCB). These markets are currently federally regulated by the Commodity Futures Trading Commission (CFTC). Sports prediction markets say their products aren’t ‘gambling’ but rather financial derivatives. The PGCB is afraid that the rapid escalation of prediction markets will undermine years of careful gambling oversight.
What the bill would require
State-regulated sports betting operators in Pennsylvania face significant financial and regulatory requirements. The objection to federal regulation of prediction markets is that they function similarly to PA sports betting at online sportsbooks, but don’t have to comply with Pennsylvania’s gaming regulations.
The bill classifies sports wagering bets, such as parlays and under/over bets, as forms of ‘event outcome prediction wagering,’ showing the similarity to what the prediction markets offer. State regulators see little difference between event contracts and traditional sports wagers. They feel that allowing prediction markets to operate under the CFTC undermines state authority and gives them an unfair advantage.
Pennsylvanian regulators say the CFTC is primarily a financial markets regulator. It would take years for it to create the regulatory system and gaming oversight that state gaming authorities already have in place.
The bill would require all prediction market operators to be licensed and audited by the PGCB, which would help to ensure they aren’t manipulated. In Pennsylvania, licenses cost about a million dollars and another million each year for annual renewal. The bill would also implement state taxes on revenue to use for public interest projects in Pennsylvania.
Consumer protection measures
As prediction markets aren’t regulated by state gaming boards, they don’t have to offer the consumer protection measures that these boards require. Pennsylvanian regulators believe that this endangers a highly vulnerable demographic of young adults. Dressing the wagers up as financial instruments does not preempt state gaming or criminal law.
The current bill includes various consumer protection measures. The prediction markets would have to use the same Know-Your-Customer (KYC) protocols that regulated sportsbooks in the state use. Participants would have to be 21 years or older to use prediction markets, whereas they are now able to use them if they are 18 years of age or older. Data shows that prediction platform Kalshi takes more trades on college football than on the NFL or NBA.
The legislation would prohibit wagering tied to any criminal activities, such as insider trading or money laundering. The PGCB would have the authority to restrict wagering on sensitive economic, social, or political events.
Pennsylvanian regulators believe that if users see prediction markets as not having tight controls like the sportsbooks regulated by states, it could amplify concerns about misuse of insider information or match-fixing. This could erode the trust that is essential within the sports betting ecosystem.
One of the provisions in the bill is for a three-day cooling-off period, wherein participants could cancel an event contract after signing it. Operators would also have to clearly disclose the rights of participants, their fees, and complaint procedures. They would also need to offer self-exclusion options and deposit and loss-limit tools.
Pennsylvania joins a broader battle
When looking at Polymarket vs. Kalshi, the two main players in the prediction market, Polymarket has trading volume in both politics and sports, and Kalshi has most of its trading volume in sports. State gaming regulators across the United States are challenging these prediction market operators. They argue that sports event contracts function in a similar way to sports wagering products already regulated by states. Sports prediction markets are no more than sports wagering under a different name.
Under federal regulation, prediction markets like Kalshi can bypass licensing standards and taxation requirements. If House Bill 2497 is enacted, prediction markets in the state would be regulated by the PGCB. This means operators would require a state license and must pay tax to the state.
As several states have formally challenged prediction markets in court, different rulings are almost inevitable. It could eventually be up to the Supreme Court to come up with a final verdict.
