Pennsylvania bill sets rules for prediction markets

Pennsylvania lawmakers introduced House Bill 2711 on July 22 to create a regulatory framework for prediction markets. The measure was filed by Rep. Tarik Khan and lists more than two dozen co-sponsors. The bill would set operational rules and enforcement mechanisms without imposing a tax on the industry.

The proposal would add a new chapter to state law defining prediction markets and establishing operator requirements. It sets the minimum participation age at 21 and requires operators to exclude self-excluded users, employees and anyone with material nonpublic information from trading.

Operators would be required to deploy commercially reasonable and technically feasible systems to detect fraud, market manipulation and misuse of nonpublic information. The bill would bar individuals from trading on inside information or attempting to influence an event for financial gain through a prediction market.

The text would prohibit contracts tied to high school sporting events or any event involving minors. Markets based on an individual’s health status would be banned. The legislation expressly outlaws so-called “death markets,” covering contracts linked to an individual’s death, assassination, attempted killing or mass casualty events. The bill does not broadly ban sports prediction markets.

The proposal includes limits intended to separate prediction markets from traditional gambling businesses. Providers could be barred from offering markets in Pennsylvania if a liquidity provider or market maker knowingly engages in gaming in the ordinary course of business. The bill would prohibit certain market-making and revenue-sharing arrangements with entities that engage in gaming. The text does not detail how those limits would apply to platforms affiliated with sportsbooks or daily fantasy operators.

Enforcement authority under the bill would rest with the Pennsylvania Attorney General and local district attorneys rather than the Pennsylvania Gaming Control Board. The measure authorizes civil penalties and court-ordered injunctions. Operators that continue to run prohibited markets after an injunction could face fines of up to $1 million per day.

States have taken varied approaches to prediction markets. Minnesota enacted a broad prohibition earlier this year. Kentucky imposed a 14.25% tax on online prediction market revenue. Illinois enacted a tax on sports event prediction contracts and requires exchanges to obtain a state license. North Carolina set a 6% tax on net trading revenue without creating a dedicated regulatory framework. Tennessee made it a felony to intentionally influence the outcome of an event when holding a tied prediction contract. Kentucky and Illinois have faced legal challenges from the Commodity Futures Trading Commission and some operators.

HB 2711 will move through the Pennsylvania legislative process for further review and possible amendment.