The Pennsylvania Gaming Control Board (PGCB) sent a letter to members of Congress voicing concerns about prediction markets and sports event contracts.
The PGCB believes sports event contracts pose a threat to “Pennsylvania’s long-established regulatory framework for gaming.” The regulator also believes event contracts that are not tied to sports events are a threat to gaming, but is limiting its scope on the issue to sports.
PGCB wants the CFTC to step in
The letter, sent to 19 lawmakers, requests that Congress ask the Commodity Futures Trading Commission (CFTC) to consider issues caused by the blurred lines between state-regulated sports wagering and futures trading on sports event contracts.
Prediction markets, like Kalshi, claim they offer sports event contracts with oversight from the CFTC as the commission is the regulator of designated contract markets and swaps.
“This assertion creates a direct conflict regarding regulatory authority, pitting federal derivatives law against Pennsylvania’s established power to regulate gambling activities within its borders and criminalize illegal gambling,” said PGCB Executive Director Kevin O’Toole in the letter. “The introduction of these markets operating under purported federal oversight poses a direct threat to the comprehensive regulatory system that Pennsylvania, and many other state jurisdictions, have meticulously constructed for gaming.”
PGCB claims prediction markets take the easy route
The PGCB considers the offering of sports event contracts as “regulatory arbitrage” as prediction markets bypass state licensing requirements that operators must meet.
The requirements include background checks, licensing fees and state taxation. CFTC-backed prediction markets also don’t mandate the same consumer protection standards required by Pennsylvania law and PGCB regulations. The consumer protection and responsible gaming measures include access to RG resources and deposit and bet limits.
“This creates an uneven playing field where prediction markets could gain a competitive advantage by exploiting a perceived loophole between federal financial regulation and state gaming law,” continued O’Toole. “Perhaps most troubling, the CFTC regulates a system that allows wagers on events that a single person can control—something the PGCB would never allow. . .”
The PGCB allows raises the complexity of gaming regulation with it potentially taking the CFTC years to create a regulatory system and oversight for sports event contracts that is comparable to standards and protocols licensed sports betting operators in the U.S adhere to. The regulator also raises a lack of expertise in gaming for the CFTC and its members.
“State bodies like the PGCB possess specialized knowledge and experience in this area to protect the public interest,” added O’Toole.
Several senators also recently questioned why the CFTC allows sports event contracts to be offered in a letter sent to CFTC Acting Chair Caroline Pham. In the letter, the lawmakers expressed concern about what constitutes “gaming” in the prediction market sector.
The six senators submitted 11 questions to the CFTC regarding sports event contracts.
Regulators outside of PA send warnings about event contracts
The PGCB is urging for changes related to sports event contracts after the Michigan Gaming Control Board (MGCB) sent a notice to the state’s licensed operators and suppliers. The MGCB warned its licensed operators and suppliers that offering sports event contracts contravenes state gambling law and that license revocation is possible.
Michigan’s regulator said its rules apply to a licensee’s activities outside the state. Arizona’s gaming regulator also recently criticized the CFTC for its handling of sports event contracts.
Regulators nationwide oppose prediction markets and earlier this year, Kalshi responded to pushback of its sports event contracts by suing the Ohio Casino Control Commission (OCCC) after the regulator sent the prediction market a cease and desist order. In the suit, Kalshi claims the threat of criminal and civil prosecution by the OCCC is unconstitutional and threatens existing and future business partnerships for the prediction market.
Prediction markets are causing a stir in the gaming industry as the platforms reach new heights. Earlier this week, Intercontinental Exchange, Inc. (ICE) reached an agreement to invest up to $2 billion in Polymarket, valuing the prediction market at approximately $8 billion. ICE is the parent company of the New York Stock Exchange.
