Pennsylvania legislators are exploring new legislation aimed at creating a state regulatory framework for prediction market platforms like Kalshi and Polymarket, while ensuring that sports event contracts remain permissible.
Representative Tarik Khan has presented HB 2711 as a response to the varied approaches taken by states in relation to exchanges overseen federally by the Commodity Futures Trading Commission (CFTC).
This bipartisan bill has garnered support from 24 members of the House, consisting of 20 Democrats and 4 Republicans. It has been directed to the Consumer Protection, Technology & Utilities Committee for assessment and voting.
HB 2711 stipulates that participants in prediction markets must be at least 21 years of age and outlines consumer protection and integrity measures akin to those required for sports betting. Additionally, providers will need to implement self-exclusion programs, address potential market manipulation involving employees with access to confidential information, and report any suspicions of insider trading to the state.
The proposed legislation bans contracts related to high school sports or events involving minors. It also prohibits markets focused on an individual’s health status or death, such as assassination attempts and mass casualty scenarios. Notably, contracts for sports events are not listed among the prohibited markets in this proposal.
The bill specifies, “A provider is disallowed from offering a prediction market in this Commonwealth if it includes, as a liquidity provider or market maker, a person that knowingly engages in gaming activities as part of their business.”
This clause is likely to hinder DraftKings and FanDuel, both authorized sportsbook operators in Pennsylvania, from having their prediction market services available in the state.
HB 2711 would empower Pennsylvania to impose civil fines for noncompliance with the proposed regulations. Providers could face fines of up to $10,000 for each infraction, while recurrent violations tied to market making, exclusion of participants, or trading based on nonpublic information could lead to penalties of $50,000.
Individuals found liable for violations could incur fines exceeding $50,000 or double the profits gained or losses avoided. Furthermore, the Pennsylvania Attorney General can seek court orders to prevent an operator with repeated infractions from continuing operations, with noncompliance potentially resulting in fines up to $1 million per day.
This legislative approach contrasts with initiatives in other states, where some have moved to prohibit prediction markets or enforce taxes on trading exchanges, notwithstanding their regulation by the CFTC. Recently, North Carolina implemented a 6% tax on prediction market operators while permitting them to offer sports contracts without needing a state license.
Illinois has also recently enacted a tax on prediction market operators via its state budget. Consequently, the CFTC has filed lawsuits against Illinois and other states, asserting that federally regulated markets should remain exempt from state laws.
Kalshi, Polymarket, and other prediction market platforms are currently embroiled in multiple lawsuits with states allowing legal sports betting.