A bill currently under advisement proposes to tax prediction market platforms operating in the Keystone State. But whether those prediction markets would voluntarily pay that tax if the bill were passed is another question entirely, especially when many bettors already prefer the established reliability of safe offshore sportsbooks.
Pay to Play
While many states are seeking to ban prediction markets, Pennsylvania, already one of the most prominent legal sports betting states, is taking a different tack and proposing a licensing fee and a tax on revenue to offer its contracts in the state. Several Democratic lawmakers have sponsored House Bill 2497, and it has been referred to the lower chamber’s Gaming Oversight Committee.
The bill would consist of several critical features, including a $1 million license fee, a $1 million renewal fee thereafter, and a 20% tax on revenue for all prediction markets operating in Pennsylvania. It would also raise the minimum age from 18 to 21 and ban insider trading as well as contracts on political races, among others.
Prediction markets that do not abide by the law and operate without a license would be subject to fines of up to $25,000. A sponsor of HB 2497, Representative Danilo Burgos, believes it is a law whose time has come.
“Because these platforms often claim to be ‘financial derivatives’ rather than gaming products, they currently bypass the rigorous safeguards we have spent decades building for our casinos and sportsbooks. This ‘regulatory arbitrage’ leaves our constituents vulnerable and deprives the Commonwealth of significant tax revenue,” wrote Burgos in a March memo.
Compliance Defiance
The bill’s preamble reads, “A regulatory framework at the State level for event outcome prediction wagering is necessary, in light of the adoption of a noninterference approach by the Commodity Futures Trading Commission, to regulate prediction markets.”
The Commodity Futures Trading Commission (CFTC), under newly installed Chairman Michael Selig, has suggested it will create new rules and regulations to adapt to today’s environment for prediction markets.
Selig stated shortly after his confirmation and ascension to the chairmanship, “For too long, the CFTC’s existing framework has proven difficult to apply and has failed our market participants. That is something I intend to fix by establishing clear standards for event contracts that provide certainty to market participants.”
However, under his leadership, the agency has pivoted from taking a laissez-faire approach that agreed to let the courts decide jurisdiction to openly advocating on behalf of its licensees. Selig has morphed from a neutral observer during his confirmation hearings to a zealous supporter of the prediction markets’ ability, under its federal authority, to operate in all 50 states, regardless of state gaming regulations.
Selig recently said, “Some states continue to pursue ever-escalating, illegal enforcement actions against CFTC-regulated exchanges, despite rulings from multiple courts halting those efforts. Congress has entrusted the CFTC with the sole authority to regulate commodity derivatives markets, including prediction markets. To any state that seeks to nullify federal law and seize authority over these markets, I say again: We will see you in court.”
The legal battle raging between state gaming regulators and prediction markets like Kalshi and Polymarket has rendered conflicting rulings, which would lend credence to the conclusion that jurisdictional authority will ultimately be decided by the US Supreme Court.
