Pennsylvania lawmakers are considering a different approach to prediction markets and sports event contracts.
Rep. Tarik Khan introduced HB 2711 on Wednesday, a bill that would create a regulatory framework for platforms like Kalshi and Polymarket.
Key Takeaways
- Twenty-four House members sponsored Pennsylvania’s bipartisan bill.
- The proposed legislation would create consumer protections and integrity measures, similar to sports betting.
- Sports event contracts are not under the proposed prohibited list.
Other states have attempted to ban prediction markets or tax trading exchanges operating in their jurisdictions, even though these platforms are federally regulated by the Commodity Futures Trading Commission (CFTC).
The bipartisan bill is sponsored by 20 Democrats and four Republicans. It was referred to the Consumer Protection, Technology & Utilities Committee for a reading and vote.
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Consumer, integrity protections
Similar to sports betting, the proposed legislation would add consumer protections and integrity measures to prediction markets. Operators would be required to offer self-exclusion programs, detect market manipulation involving employees with access to nonpublic information, and inform the state of potential insider trading.
HB 2711 would require traders to be at least 21 years old. The bill would prohibit contracts involving high school or minors sports, as well as individual health-status and death markets, which include assassinations, attempts, and mass casualty events.
While most of these restrictions don’t apply to sports betting, the bill states, “A provider may not offer a prediction market in this Commonwealth if the prediction market includes, as a liquidity provider or market maker, a person that knowingly engages in a gaming activity in the ordinary course of business.”
This would likely prevent DraftKings and FanDuel, both licensed sportsbooks in Pennsylvania, from operating their prediction market platforms there.
Introducing penalties
The proposed legislation would also give the state the ability to impose civil penalties for violations of the regulatory framework. Punishments include a fine up to $10,000 for each violation. Persistent breaches of regulation concerning market making, participation exclusions, and nonpublic information trading could result in a $50,000 penalty.
Individual liability infringement penalties could exceed $50,000 or twice the amount of profits gained or losses avoided. The Pennsylvania attorney general could also seek to ban an operator with numerous violations through a court action. Ignoring a court order and operating anyway could result in a fine of $1 million per day.
Unique proposition
HB 2711 still has a long way to go to become law in a state with established sports betting, but it presents a unique proposal. Kalshi, Polymarket, and other prediction market platforms are currently involved in multiple lawsuits with legal sports betting states.
Even the CFTC is suing states, including Illinois, which recently approved a tax on prediction market operators in its budget. The federal agency and the CFTC-approved trading exchanges argue they are exempt from following state laws.
It’s unknown whether they will support Pennsylvania’s attempt to create a regulatory framework or take legal action against a state trying to tell them how to operate. North Carolina recently approved a 6% tax on prediction market operators, but the state said it would allow them to offer sports contracts without a license.
