Pennsylvania prediction markets bill could block sportsbooks from market making

Pennsylvania lawmakers have introduced a bipartisan bill that has proposed insider-trading rules for prediction markets while preventing sportsbooks and other gambling companies from supplying liquidity or acting as market makers for those platforms.

The proposal, House Bill 2711, was introduced on July 22 by Democratic Rep. Tarik Khan and referred to the House Consumer Protection, Technology and Utilities Committee. Backed by 24 lawmakers, including 20 Democrats and four Republicans, the measure would regulate prediction markets through conduct standards and consumer protections instead of creating a licensing system or banning the products outright.

Pennsylvania bill targets sportsbook role in prediction markets

At the center of the proposal is a provision that would prevent a prediction market provider from operating in Pennsylvania if its liquidity provider or market maker knowingly conducts gaming activity in the ordinary course of business, regardless of whether that activity occurs inside or outside the state.

The restriction would also extend to parent companies, subsidiaries, affiliates, joint ventures, employees, and entities acting for another company’s financial benefit. In addition, prediction market operators would be barred from entering contracts or revenue-sharing arrangements with businesses that ordinarily engage in gaming.

The legislation does not define what constitutes “gaming activity” within the new prediction market chapter. It also leaves unanswered how the restriction would apply to exchanges connected to sportsbook operators, creating uncertainty over how regulators or courts could interpret the provision if the bill becomes law.

The timing is notable because several gambling companies have expanded beyond traditional sports betting into federally regulated event contracts. DraftKings recently launched its proprietary DKeX exchange after acquiring CFTC-registered Railbird Technologies, while both DraftKings and Flutter have pursued market-making operations tied to prediction markets.

If interpreted broadly, the proposal could prevent sportsbook-controlled firms from providing liquidity for prediction contracts offered to Pennsylvania residents. It could also complicate commercial arrangements in which prediction exchanges share revenue with casino operators, sportsbooks, or affiliated gambling businesses.

Unlike bills introduced in several other states that seek to prohibit prediction markets altogether, HB 2711 would regulate their conduct while separating their trading infrastructure from companies engaged in gambling.

Consumer protections accompany the liquidity restriction

Alongside the market-making provision, the legislation would establish several operating requirements for prediction platforms.

Participants would have to be at least 21 years old, while operators would be required to block self-excluded individuals, company employees, employees connected to settlement sources, and anyone possessing material nonpublic information.

Providers would also need commercially reasonable safeguards against fraud, market manipulation, and the misuse of confidential information.

The proposal would prohibit contracts tied to high school sporting events, sporting competitions involving minors, individual health conditions, and so-called “death markets,” which the bill defines as contracts related to a person’s death, assassination, attempted killing, or mass-casualty events.

Athletes, coaches, officials, political candidates, campaign workers, and others capable of influencing an outcome could face liability if they trade contracts connected to those events.

Rather than creating a licensing framework, the bill would give enforcement authority to the Pennsylvania Attorney General, who could investigate violations, seek penalties, and stop platforms operating outside the proposed rules.

Companion proposal would create licensing and taxation

The conduct-focused legislation follows a separate prediction market proposal already pending in the Pennsylvania House.

Earlier this year, Rep. Danilo Burgos introduced House Bill 2497, which would require prediction market operators to obtain licenses from the Pennsylvania Gaming Control Board instead of relying solely on federal oversight.

HB 2497 would impose a $1 million initial licensing fee, require another $1 million annual renewal payment, and tax gross prediction wagering revenue at 20%, together with a 2% local share assessment.

The combined 22% rate would remain below Pennsylvania’s existing tax rates on licensed gambling businesses, which pay 36% on sports wagering revenue and 54% on online slot revenue.

Burgos has argued that platforms offering event contracts as financial derivatives bypass consumer protections and regulatory requirements already imposed on casinos and sportsbooks.

Although the two bills take different approaches, they have advanced along parallel tracks rather than replacing one another. Burgos circulated his licensing proposal in March, while Khan introduced the conduct-focused legislation in April. Khan is a co-sponsor of both measures, allowing the proposals to complement each other if lawmakers choose to move forward with both.

The approach resembles other recent Pennsylvania legislative efforts involving emerging technologies. In June, Gov. Josh Shapiro introduced the state’s GRID Standards for large data centers, pairing economic incentives with compliance requirements, while previous crypto-related proposals have similarly relied on targeted regulatory measures instead of outright prohibitions.

Neither HB 2711 nor HB 2497 has received a committee hearing or vote.

Federal dispute over prediction markets continues

The latest proposal also arrives while prediction markets remain at the center of a growing conflict between state regulators and federal authorities.

The Pennsylvania Gaming Control Board told the U.S. Commodity Futures Trading Commission in May that sports event contracts amount to illegal gambling under state law and argued that federally regulated exchanges function as unlicensed sportsbooks that remain accessible to people younger than 21.

Pennsylvania also joined a coalition of 40 states urging the CFTC to leave sports event contracts under state gambling oversight.

Federal courts, however, have reached a different conclusion in an important case.

In April, the U.S. Court of Appeals for the Third Circuit ruled 2-1 in KalshiEX LLC v. Flaherty that the Commodity Exchange Act preempts state gambling laws when applied to sports event contracts listed on CFTC-registered exchanges. The ruling upheld an injunction preventing New Jersey from enforcing its gambling laws against Kalshi and now serves as binding precedent for federal courts in Pennsylvania.

Judge Jane Roth, writing in dissent, argued that Kalshi’s contracts were “virtually indistinguishable” from products offered by DraftKings and FanDuel, highlighting the overlap between prediction markets and sportsbooks that Pennsylvania’s latest proposal seeks to address through its liquidity restrictions.

The state proposal also follows fresh legal battles elsewhere. As crypto.news previously reported, the CFTC recently asked a federal court to expedite its ruling against Minnesota before that state’s prediction market ban takes effect on Aug. 1, arguing that federally regulated exchanges fall under the Commodity Exchange Act rather than state gambling laws. 

At the same time, the agency has tightened oversight of event-contract listings by requiring exchanges to provide contract-specific disclosures instead of relying on broad self-certification filings.