Pennsylvania is Logical Place for State-Level Prediction Market Regulation, But HB 2711 is Oddly Timed

It wouldn’t tax. It wouldn’t license. It wouldn’t ban sports event contracts. And given the history of prediction markets like Kalshi and Polymarket defying state regulators and courts of all levels with federal cover, a new bill in Pennsylvania wouldn’t feature anything to concern them anyway.

But HB 2711, introduced by Rep. Tarik Khan, a Philadelphia Democrat, could eventually be impactful, particularly if it’s a first step in channeling prediction markets into perceived legitimacy for lawmakers, like daily fantasy sports and legal sports betting before it.

HB 2711 doesn’t get there in its current form, BCLP Sports, Entertainment & Media practice attorney Doug Mishkin told Gambling Insider. But he believes that at a “purely conceptual level,” it could be a starting point for an ascending industry that is finding new ways to allow customers to wager on sports.

“Avoiding the legal debate as to whether these are swaps or this is sports betting, the underlying activity being risking money based on sports-related predictions is so hugely popular in the U.S.,” Mishkin said, “and the approach that was taken as it related to daily fantasy sports and ultimately as it related to sports betting was to regulate it, license it. 

“It’s not a licensing regime under this bill, I recognize, but to acknowledge, legalize and regulate is, I think, the most principled approach to something that is going to be happening at scale anyway, whether it’s legal or not.”

What’s in HB 2711?

HB 2711, boasting bi-partisan support, would at its core incorporate consumer protection guardrails into Title 4 of the Pennsylvania Consolidated Statutes, which already govern the state’s gambling industry. The state currently sanctions online and retail sports betting and casino play.

In addition to setting a player minimum age at 21, establishing insider trading protocols and forbidding the type of political markets that have rankled state and federal politicians – think assassinations and death – it would place oversight of prediction markets under the state attorney general instead of the Pennsylvania Gaming Control Board.

HB 2711 was preceded in May by HB 2497, which would demand state licensure for prediction markets and tax gross revenue at 22% (as compared to 36% on sports betting). This would, in some ways, follow a blueprint drawn for industries like commercial airways and telecommunications: regulated on a federal level, but still taxed by states in which they operate.

If, that is, prediction markets like Kalshi and Polymarket, who foist Commodities Futures Trading Commission oversight, chose to actually comply. And if the CFTC, which itself is jousting with state courts attempting to shut down controversial sports events contracts considered to be sports betting by state regulators, didn’t continue utilizing its influence to support them.

The bill would also prevent platforms from contracting or sharing revenue with other companies that offer gambling in Pennsylvania, but doesn’t define “gaming activity.”

Key in HB 2711 is a provision that would prohibit companies from offering prediction markets in Pennsylvania if any part of their business, including affiliates or subsidiaries, served as liquidity providers for that platform. This would seemingly displease the two dominant sports betting outfits in the United States – FanDuel and DraftKings – who control at least 80 percent of market share nationally. Both are licensed and operating sportsbooks in Pennsylvania. Both launched prediction markets this year. Both serve as market makers on their own prediction platforms. 

Mishkin is perplexed by this aspect of the bill.

“They’re presumably referring to sportsbooks. [Saying] that they can’t effectively enter into this space would seem to be trying to separate, or maintain perhaps, the licensing and regulatory regime that’s already in place as it relates to the licensed gambling operators, while also creating a lane for prediction markets,” he said. “But it’s not clear to me where that ultimately gets you. If you’re concerned about certain companies circumventing gaming licensing because they already have those licenses, if I get into prediction markets, wouldn’t you have the same concern about any entity getting into prediction markets because of the similarities with sports betting?

“My sense is that it’s a nod of sorts to trying to maintain those swim lanes still, without having a crossover. But again, that doesn’t make complete sense to me.”

Does HB 2711 Snatch Defeat From Jaws of Victory?

HB 2711’s timing puzzles many in the gambling industry.

It still sits in the Pennsylvania House Consumer Protection, Technology and Utilities Committee, as states string together legal victories against Kalshi.

The CFTC remains an aggressive overseer, however. Last week the agency charged with regulating prediction markets invoked its emergency authority to advise Kalshi to ignore a cease-and-desist order in New York. This follows a similar move in July where the CFTC ordered Kalshi to continue honoring sports event contracts that a Michigan circuit court ordered the exchange to unwind. 

As written, HB 2711 might save Kalshi some billable hours in attorney fees. Or taxpayer dollars and bandwidth at the CFTC.

“It was surprising to me to see a bill that, rather than ban, is attempting to regulate prediction markets,” Mishkin said. “It’s ironic in that the core legal issue around prediction markets across the country is whether or not they are subject only to federal law. And the arguments from the prediction markets have been that they’re not subject to state law because they’re subject to the exclusive jurisdiction of the CFTC.

“So this sort of flips the dynamic a bit. It’s a proposal that, theoretically, prediction markets might welcome, certainly more so than an outright ban. [They might] welcome a legalized and regulated approach at the state level. But it doesn’t change that fundamental dynamic, which is that prediction markets’ position is they’re not subject to state law.”

Pennsylvania the Right Place for Prediction Market Regulation

Such a bill being introduced in Pennsylvania may be no coincidence, Mishkin said. On April 6, the U.S. Court of Appeals for the Third Circuit – which includes Pennsylvania – ruled 2-1 that the Commodity Exchange Act which defines prediction markets preempts state law.

Wrote U.S. Circuit Judge David J. Porter: “Because Kalshi’s sports-related event contracts are swaps under the [Commodity Exchange Act], the district court properly defined the scope of field preemption as the regulation of trading on a DCM (a form of futures trading) rather than as gambling (a broader and traditionally state-regulated field). Thus, the district court did not err in holding that New Jersey law is field preempted by the act.”

“It was on a ruling related to a preliminary injunction standard,” Mishkin observed. “It was not a final ruling on the merits, but they ultimately determined that, yes, there was a showing that they were more likely than not to succeed in that argument.

“So, perhaps it’s more of a jurisdiction-specific phenomenon that this bill would come from Pennsylvania.”

Pennsylvania RG exec Josh Ercole: HB 2711 won’t pass as is, but parts could end up elsewhere