Pennsylvania lawmakers discussed the proliferation of sports event contracts as the state’s gaming regulator considers possible license revocation for casinos and sportsbooks that partner with a prediction market platform.
Members of Pennsylvania’s House Gaming Oversight Committee held an informational hearing this week on prediction markets, sports event contracts and how they relate to the state’s active gaming laws. Committee members were provided with insights from the Pennsylvania Gaming Control Board (PGCB), which considers prediction markets and their sports event contracts to be a “growing and highly problematic issue,” according to PGCB Executive Director Kevin O’Toole.
How the PGCB perceives sports event contracts
The PGCB takes issue with prediction markets and their sports event contracts for “offering high-volume wagering mechanisms that operate entirely outside of Pennsylvania’s comprehensive consumer protection, responsible gaming and tax frameworks,” O’Toole told committee members during the informational hearing.
Prediction markets are offering sports-related event contracts in Pennsylvania, which led the PGCB to send a letter in October to a large contingent of House members, voicing concerns about sports event contracts for the “threat they pose to Pennsylvania’s long-established regulatory framework for gaming.”
The PGCB considers sports event contracts to be gambling activities, which, the agency argues, requires wagering licenses in the state to operate. The PGCB wants sports event contracts to fall under their regulation to ensure consumer protection and responsible gaming standards. Meanwhile, prediction markets continue to offer sports event contracts in Pennsylvania under Commodity Futures Trading Commission (CFTC) regulation.
“Our regulatory train is stalled at a crossing where federal and state tracks intersect,” PGCB Chief Enforcement Counsel Cyrus Pitre told House committee members.
PA regulator wants sportsbooks & casinos to be cautious
The potential license revocation comes as DraftKings and FanDuel prepare to offer sports event contracts. Fanatics, a licensed operator in Pennsylvania, launched its own prediction market platform on Dec. 3.
“What I’ve told them is that they need to move forward cautiously,” continued Pitre. “I have cautioned [casinos] that offering non-traditional prediction markets, whether sports or current events, within Pennsylvania, could certainly jeopardize their gaming license.”
PA law calls for a tax on “unauthorized” wagering
The PGCB is also pushing back against sports event contracts for their lack of tax obligations as they are regulated by the CFTC and don’t adhere to Pennsylvania’s gaming laws. The Keystone State requires online sports betting revenue generated by licensed operators to be taxed at a 36% rate. The tax rate also applies to “unauthorized sports wagering in the state,” despite prediction markets not paying the rate in the state.
“While this provision [in Pennsylvania gaming law] was likely meant to address illegal bookmakers, it is my belief that it is equally applicable to companies offering sports-related prediction markets in Pennsylvania,” said PGCB Chief Counsel Steven Cook.
In Pennsylvania, the tax revenue generated from online sports wagering is allocated toward RG resources and social service community programs.
Prediction markets actively bypassing the tax rate on sports gambling “constitutes a direct wealth transfer from Pennsylvania public services to private entities,” added Cook.
NY lawmaker wants to prohibit certain event contracts
Pennsylvania lawmakers discussed prediction markets after New York Assemblyman Clyde Vanel introduced a piece of legislation that restricts the type of event contracts prediction markets can offer. The measure, Assembly Bill 9251, proposes amending New York’s general business law to prohibit operators from offering event contract trading on “catastrophic events, politics, deaths, securities and athletic events.” AB 9251 applies to both trading on the outcome of a specific athletic event and also “events within an athletic event,” specifically prop-style markets that would not be permissible under the measure.
Clyde’s legislation only aims to ban certain sports-related event contracts as the bill would allow prediction markets to offer event contracts for the final outcome of athletic tournaments. The bill also allows platforms to offer markets for a combination of all outcomes of each event within an athletic tournament. That rule allows prediction market users to trade event contracts for March Madness, NBA Finals and Super Bowl winners.
AB 9251 also places a minimum age limit of 21 years old for event contract trading with self-exclusion and spending limit tools mandated. It also prohibits push notifications to encourage gambling and the use of credit cards. The bill, also known as the Oversight and Regulation of Activity for Contracts Linked to Events Act (ORACLE Act), has been referred to the Assembly Committee on Consumer Affairs and Protection.
