Pennsylvania Proposes Bill to Regulate Prediction Markets and Limit Sportsbook Involvement

Pennsylvania Legislators Introduce Bill Impacting Prediction Markets

Pennsylvania lawmakers have unveiled a bipartisan bill designed to regulate prediction markets significantly. The proposed legislation aims to prevent sportsbooks and other gambling entities from acting as liquidity providers or market makers for these platforms, thus reshaping the current market landscape.

Key Provisions of the Proposed Bill

The bill, known as House Bill 2711, was introduced by Democratic Rep. Tarik Khan on July 22. It has gained support from 24 lawmakers, consisting of 20 Democrats and four Republicans. If passed, the bill will enforce insider trading rules, implement consumer protections, and establish age restrictions, all while avoiding the creation of a state licensing system for prediction markets.

One notable aspect of the bill is its provision targeting prediction market providers that engage with liquidity providers or market makers involved in any gaming activities. This restriction would also extend to connections with parent companies and affiliates. Specifically, prediction market operators would be prohibited from entering revenue-sharing agreements with entities that typically engage in gaming.

Legislative Context and Currency Demands

This legislative initiative coincides with an evolution in how sportsbooks operate, as many expand into the prediction market space. Companies like DraftKings have been integrating prediction market frameworks after securing approval from the Commodity Futures Trading Commission (CFTC).

Unlike other states that may seek to outright ban prediction markets, House Bill 2711 offers a regulatory approach that sets conduct standards and consumer protections while distinctly separating prediction market trading infrastructure from gambling entities.

Consumer Protections and Market Integrity

Alongside the restriction on market-making, the legislation introduces numerous operating requirements for prediction platforms. Participants must be at least 21 years old, and operators must prevent self-excluded individuals and those with insider information from participating. Additional measures will mandate safeguards against fraud and market manipulation.

Moreover, the bill explicitly prohibits contracts concerning high school sports, events featuring minors, individual health conditions, and any contracts related to a person’s death or mass-casualty events, emphasizing the ethical boundaries of prediction markets.

Companion Legislation Under Consideration

A companion proposal, House Bill 2497, is also under discussion, which would implement a licensing requirement for prediction market operators. It proposes a $1 million licensing fee and a 22% tax on gross prediction wagering revenue, which remains lower than the current tax rates imposed on other gambling revenues in the state.

Ongoing Legal Conflict Over Regulatory Authority

The introduction of these bills occurs amidst an enduring conflict between state and federal authorities over prediction markets. Recently, Pennsylvania reported to the CFTC that certain sports event contracts could be considered illegal gambling. At the same time, a federal court ruling has asserted that federal laws may preempt state gambling regulations in specific contexts.

As Pennsylvania continues to navigate legislative waters concerning prediction markets, the proposed bills present a structured approach to regulate the emerging market while addressing the complexities of existing gambling laws.