Pennsylvania Proposes New Approach to Regulating Prediction Markets

The bill proposed in Pennsylvania aims to create a regulatory framework for prediction markets without taxation. This distinguishes the state from others that have focused on taxes and bans. Bill 2711, introduced on July 22 by Representative Tarik Khan and over two dozen co-sponsors, will add a new chapter to the state's legislation.

Key Provisions of HB 2711

The bill includes the following provisions:

• Establishes a minimum participation age of 21.
• Requires operators to implement consumer protection measures, including the exclusion of self-excluding users, employees, and individuals with material non-public information.
• Prohibits contracts related to school sports events or events involving minors.
• Bans markets based on an individual's health condition.
• Prohibits "death markets," including contracts related to death or murder.

Safeguards Against Manipulation and Insider Trading

The bill requires operators to implement "commercially reasonable and technically feasible" measures to detect fraud and market manipulation. The use of insider information or attempts to influence event outcomes for financial gain are also prohibited.

Distinction from Traditional Gambling

The bill seeks to distinguish prediction markets from traditional gambling. Providers are prohibited from offering markets in Pennsylvania if any participant is engaged in gambling activities. However, it remains unclear how this will be applied to platforms associated with sportsbooks, such as DraftKings and FanDuel.

Different Approaches in Other States

Other states employ varying approaches. Minnesota is introducing the strictest restrictions, leading to lawsuits from the Commodity Futures Trading Commission and operators. Kentucky and Illinois combine taxes with broader regulatory measures. North Carolina has implemented taxation but lacks a separate regulatory framework. Pennsylvania, however, offers a focus on operational rules without taxation.

The bill underscores the different approaches states are taking: some focus on taxation and litigation, while Pennsylvania emphasizes the regulation of prediction market operations.