New Jersey joined a growing list of states seeking to regulate prediction markets with new legislation.
Key Takeaways
- The bill would require operators to pay 29.75% in taxes.
- Prediction markets involving elections, deaths, and certain disaster-related events would be banned.
- New Jersey unsuccessfully attempted to enforce a cease-and-desist order against Kalshi.
Sen. Nicholas Scutari (D-22) submitted S4447 to the New Jersey legislature last Saturday. It was sent to the Senate Budget and Appropriations Committee but has not been scheduled for a hearing.
“The bill requires all prediction markets to meet basic standards, including that the prediction markets disclose the source of information used to settle a market and take practical steps to limit potential manipulation, insider trading, or fraud in violation of State law,” the bill reads.
In addition to regulating sports event contracts, the bill would prohibit prediction markets involving political elections, deaths, and fatal or nonfatal disasters.
Approved sports event contracts would only be permitted for operators who received licensing from the Division of Gaming Enforcement. Operators would be required to pay New Jersey's 19.75% sportsbook tax, plus an additional 10% surcharge.
Additionally, the bill would establish responsible gaming measures for prediction operators, as well as punishments for unlicensed operators. Violators would face fourth-degree criminal penalties and fines of up to $25,000. For entities classified as "unnatural persons," fines could reach $100,000.
Current and prospective public officials and campaign staff would also be banned from buying and selling contracts in political markets. The purpose of this would be to preserve the integrity of prediction markets and to ensure customers were treated to the fairest experience possible.
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New Jersey cracking down on prediction markets
New Jersey has already had its share of legal drama with prediction operators.
The state previously issued a cease-and-desist order directing Kalshi to halt its prediction market operations in New Jersey. Kalshi responded by seeking a preliminary injunction against the state.
The U.S. Court of Appeals for the Third Circuit granted Kalshi's preliminary injunction, finding that federal law likely preempts New Jersey's attempt to regulate the platform.
New Jersey’s newest piece of legislation would grant its attorney general the right to seek a preliminary injunction against any operator that does not comply with its regulations. Operators that fail to comply would face fines of up to $1 million per day.
In other words, after suffering a setback in court, New Jersey lawmakers are attempting to establish statutory authority to regulate prediction market operators and enforce those rules.
Continuing legal battles
New Jersey is one of several states that have taken part in the broader state-level battle over prediction markets.
Minnesota in May passed a total ban on prediction markets, making it the first state to take such action. The CFTC responded by seeking a preliminary injunction to block the prohibition.
In recent prediction market news, Illinois on Tuesday finalized a $56-billion budget plan that includes a tax for prediction operators. According to the budget, a 1.75% charge would be added to companies’ first 5 million transactions, and a 3.5% charge would apply to transactions beyond the first 5 million.
Kentucky also passed a 14.25% excise tax on operators’ transaction fees, which is set to go into effect Jan. 1, 2027. A coalition representing the top prediction operators, such as Kalshi and Polymarket, already filed a lawsuit challenging its legality.
