As Kalshi faces ongoing legal challenges, legislators in Pennsylvania are advocating for the regulation of prediction markets within the state.
The proposed legislation, known as HB 2711, introduced by Philadelphia Democrat Rep. Tarik Khan, aims to create a framework for these markets without imposing taxes, licenses, or bans on sports event contracts. Given the historical resistance of prediction markets like Kalshi and Polymarket against state regulations, this bill is unlikely to raise any alarms.
While HB 2711 may not fully legitimize prediction markets in its current state, legal expert Doug Mishkin from BCLP believes it could serve as a foundational step towards establishing a recognized industry. He highlights the popularity of wagering on sports-related predictions in the U.S. and suggests that a regulatory approach similar to that of daily fantasy sports and legal sports betting could be beneficial.
Although the bill does not propose a licensing system, it seeks to acknowledge and regulate prediction markets, which are becoming increasingly prevalent. HB 2711 has garnered bipartisan support and aims to incorporate consumer protection measures into Title 4 of the Pennsylvania Consolidated Statutes, which currently govern the state's gambling sector.
The legislation sets the minimum age for players at 21, establishes protocols to prevent insider trading, and prohibits political markets that may provoke controversy. Additionally, it would place oversight of prediction markets under the jurisdiction of the state attorney general rather than the Pennsylvania Gaming Control Board.
Prior to HB 2711, HB 2497 was introduced, which would require state licensing for prediction markets and impose a 22% tax on gross revenue, a lower rate compared to the 36% tax on sports betting. This approach mirrors the regulatory framework seen in industries like telecommunications, where federal oversight exists alongside state taxation.
However, for prediction markets like Kalshi and Polymarket, compliance with such regulations remains uncertain, especially with ongoing disputes involving the Commodities Futures Trading Commission (CFTC) and state courts regarding sports betting contracts.
Moreover, HB 2711 includes a clause that would restrict companies from offering prediction markets in Pennsylvania if any part of their operations, including affiliates, acts as liquidity providers. This provision could potentially alienate major sports betting companies like FanDuel and DraftKings, which dominate the market and have recently ventured into prediction markets.
Mishkin has expressed confusion regarding this aspect of the bill, suggesting it may complicate the existing licensing and regulatory framework for sportsbooks.