A proposal aimed at regulating event-driven prediction markets, such as Kalshi, has advanced through the Iowa legislature but now faces challenges due to insufficient support from a House committee. Concerns regarding federal jurisdiction and ongoing legal disputes have contributed to this uncertainty.
Senate File 2470, which received overwhelming approval from the Iowa Senate in March with a 45-1 vote, seeks to create a regulatory framework for companies that offer contracts based on the outcomes of real-world events, including sports, elections, legislative actions, economic indicators, and geopolitical events.
Although the measure was approved by a House subcommittee on Monday, it was not addressed by the House Ways and Means Committee on Tuesday.
Rep. Carter Nordman, chair of the House Ways and Means Committee, noted, “There have been a lot of questions,” emphasizing that many concerns stem from federal law implications.
The bill mandates that operators of event-driven contracts obtain a permit from the Iowa Department of Revenue prior to commencing operations in the state. The proposed licensing fees range from $10 million to $20 million, with an annual renewal fee of $100,000 and a 20% tax on adjusted annual revenue.
Legislative estimates suggest that these permitting fees could generate approximately $20 million for Iowa's general fund in the upcoming budget year, while separate projections indicate that the tax structure could yield $40 million in fiscal 2027 before decreasing to $2.2 million after initial permit collections.
If the bill is enacted, Iowa would become the first state in the U.S. to impose specific regulations and taxes on prediction market operators.
Senate Majority Leader Mike Klimesh urged lawmakers to take action before prediction markets expand further, asserting, “The states have the right to regulate gaming within our borders, which the federal government is taking away from us.” He expressed concerns that prediction markets are negatively impacting casinos that offer online sports wagering.
Klimesh emphasized that the proposal aims to establish necessary regulations while legal disputes are ongoing, stating, “This is our attempt to try to do something, as opposed to waiting another year when they grow their user base.”
Operators like Kalshi are currently embroiled in legal battles with various states over whether prediction markets fall under federal or state jurisdiction. Last year, Iowa Attorney General Brenna Bird joined 37 other state attorneys general in filing a brief in a case involving Kalshi and the Maryland Lottery and Gaming Control Commission.
In March, Kalshi filed a lawsuit against Iowa, claiming there was a “substantial risk” that Bird would enforce state gambling laws through the Iowa Racing and Gaming Commission, potentially limiting the company's operations in the state.
Kalshi contends that its business falls under the regulation of the Commodity Futures Trading Commission and that federal law supersedes state authority.
Logan Shine, representing Kalshi, advised lawmakers to wait for judicial rulings, stating, “Given all the litigation around this topic and the likelihood it ends up at the Supreme Court, it would probably be prudent to pause, take a breath, and see where this goes in litigation.”
He cautioned that the anticipated state revenue may not materialize quickly, saying, “The money proposed under this bill is not likely to be seen anytime soon from Iowa.”
Representatives from Iowa casinos and development groups also voiced opposition to the proposal, arguing that prediction markets pose unique oversight challenges compared to traditional gaming. R.G. Schwarm, representing the Cedar Rapids Development Group, remarked that the legislation would authorize platforms that currently operate without state oversight.
“Regardless of what safeguards are put into place, the systems and the platforms are still ripe to be exploited, whether you're talking about vetting the odds of a military capture or the over/under on when this Legislature is going to adjourn; markets provide incentives to influence or manipulate,” Schwarm added.