Pennsylvania gambling regulator asks lawmakers to act against proliferation of prediction markets
Pennsylvania Gaming Control Board Executive Director Kevin F. O’Toole has called on lawmakers to press the Commodity Futures Trading Commission over the growth of sports prediction markets.
It follows testimony submitted to the commodities regulator by the Pennsylvania Gaming Control Board in April 2025.
In a letter to the state’s two US senators and 17 House members on Friday, O’Toole said the rise of privately run futures-style markets threatens Pennsylvania’s “long-established” regulatory framework as well as consumer protections.
He said, “Sports prediction markets operate under the assertion that they are financial derivatives,” adding, “These markets effectively create a backdoor to legalized sports betting, operating parallel to, but outside of, the state-regulated system, and without strict oversight.”
O’Toole added that the framework set by the Commodity Futures Trading Commission suits institutional derivatives, not consumer wagering, and warned that self-certified sports contracts face minimal federal review, weaker responsible-gaming controls, and softer safeguards against match-fixing or insider abuse.
Pennsylvania launched legal sports betting in 2018, following the US Supreme Court’s repeal of the Professional and Amateur Sports Protection Act, which restricted wagers to licensed operators and adults aged 21 and over.
O’Toole concluded that continued availability of sports wagering through commodity venues risks confusing consumers by “utilizing the veneer of a highly regulated market” while operating more like the “wild west.”
The rise in concerned state regulators comes as prediction market platform Polymarket plans to relaunch in the US as early as this month.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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Why states are escalating the fight
State regulators have moved prediction markets from a niche policy concern to a front-burner enforcement issue as futures-style sports contracts proliferate alongside legal sportsbooks. In Pennsylvania, the Gaming Control Board warned Congress that a wave of privately run markets is exploiting derivatives rules to offer sports wagers outside state oversight. Executive Director Kevin F. O’Toole told lawmakers the growth of self-certified contracts threatens consumer protections and the integrity systems that underpin licensed sportsbooks. The agency’s call to action followed testimony to the Commodity Futures Trading Commission this spring and was formalized in an Oct. 3 letter urging federal attention to an emerging gray market. The letter argues that derivative rules built for institutional traders are being repurposed for retail wagering with weaker controls on age, identity, problem gambling and match-fixing safeguards. The regulator’s critique frames the stakes: without clarity, consumers may conflate the “veneer” of financial regulation with the stricter guardrails of state-licensed betting, blurring the line between investing and gambling. Pennsylvania’s escalation comes as prediction platform Polymarket signals a U.S. relaunch, underscoring the urgency. For details, see the Gaming Control Board’s request to lawmakers and its letter to Congress pressing for action against sports prediction markets and the board’s Oct. 3 letter to Congress.
Michigan has taken a similar tack. The Michigan Gaming Control Board launched an investigation into unlicensed platforms it says are operating unlawfully in the state and sidestepping rules that licensed sportsbooks must follow. The regulator warned that framing sports outcomes as investment contracts confuses consumers, exposes them to data security and fraud risks, and undercuts tax revenue and integrity monitoring. It also flagged that many venues permit users as young as 18, in conflict with Michigan’s 21-and-over standard. The agency’s message is unambiguous: this is not a new asset class to be traded; it is sports betting without the compliance costs or consumer safeguards the state requires. Read the MGCB’s rationale in its announcement of an investigation into unlicensed prediction markets.
The CFTC’s lane under fresh scrutiny
At the center of the dispute is who regulates sports event contracts. Prediction market operators argue their products are swaps subject to CFTC oversight, not wagers governed by state gaming law. State regulators counter that the practical effect is identical to sports betting, which belongs squarely in their jurisdiction. Pennsylvania’s letter argues that the CFTC’s self-certification process for event contracts, designed for institutional derivatives, does not deliver the consumer protections state systems provide. Michigan, in a separate letter to the commission, emphasized the gaps in age verification, KYC, AML and self-exclusion controls on unlicensed platforms.
The NBA has stepped into the fray, telling the CFTC that sports prediction markets threaten game integrity in ways traditional sportsbooks do not. The league supports legal betting through state-regulated partners, but warns that contracts on officiating decisions, injuries or player-specific performance could fuel schemes beyond the reach of sports betting integrity units. The NBA also noted the commission lacks a division dedicated to sports markets, raising questions about supervision depth if such contracts expand. The league asked for dialogue on risk mitigation if the CFTC allows the products to continue. The concerns are outlined in the NBA’s letter to Acting Chair Caroline Pham, summarized in reporting on the NBA’s integrity-focused appeal to the CFTC.
Kalshi’s legal offensive tests the boundaries
Kalshi, one of the leading operators, is pressing the jurisdictional question in court. After receiving a cease-and-desist letter in Maryland, the company sued the state’s lottery and gaming commission, arguing federal law preempts state attempts to regulate futures traded on a designated exchange. Kalshi asked a court for a preliminary injunction while asserting its sports event contracts are peer-to-peer swaps, not sports bets. The filing positions Maryland’s enforcement as intruding on a federal framework for derivatives, attempting to resolve the state-versus-federal standoff that has lingered since prediction markets diversified into sports. The complaint follows earlier skirmishes in Nevada and New Jersey, where Kalshi won an early injunction in Nevada allowing operations to continue pending litigation. The case details are in coverage of Kalshi’s lawsuit against Maryland’s regulator.
That Nevada win may not hold. Legal analysts have noted that the Wire Act could be a fatal constraint for national sports-related markets, regardless of an exchange model. The act prohibits transmitting wagering information on sports across state lines. While Kalshi says it is not a sportsbook, the law does not distinguish between exchange trading and bookmaker models. Nevada has time to raise the Wire Act in its response, which could reshape the case’s trajectory and set up a federal test of how the statute applies to event contracts claimed as derivatives. These issues are probed in reporting on whether Kalshi’s Nevada victory could falter under the Wire Act.
Integrity, consumer protection and the business model
For states, the business model is the problem. Operators can avoid sportsbook licensing, fees and taxes while offering markets that look and feel like betting. Regulators warn that creates arbitrage against licensed books that fund enforcement, responsible gaming and integrity monitoring. It also shifts risks to consumers who may lack recourse if disputes arise on venues outside state purview. Leagues add a separate integrity layer: the breadth of tradable events, including potential props tied to officiating or injuries, invites pressures that traditional monitoring systems are built to detect and deter in regulated books but may miss in thinly supervised venues.
Pennsylvania and Michigan are pushing the CFTC to either wall off sports from event contracts or impose sportsbook-like obligations if such products persist. Their argument hinges on parity—if the activity is functionally betting, the rules should match. Operators counter that they fit within a federal derivatives regime and provide efficient price discovery on real-world events. Courts will now decide which framework governs and whether federal preemption shields these platforms from state action.
Global resonance of the online access debate
The U.S. fight echoes broader tensions over digital gambling access. In the Philippines, church leaders have urged lawmakers to crack down on online betting, arguing that mobile-first platforms circumvent venue-based safeguards and expose minors and vulnerable populations to round-the-clock gambling. The push follows policy shifts that banned overseas operators while allowing local online casino and sports products, a distinction critics say still leaves 24/7 access unresolved. That argument mirrors U.S. regulators’ warnings about consumer confusion and diminished protections when betting-like products surface on financial platforms without gaming-grade oversight. See coverage of the Philippine bishops’ appeal to curtail igaming.
The stakes are high. For licensed sportsbooks, prediction markets that avoid state rules threaten revenue and the integrity backbone those dollars support. For consumers, the question is whether they are trading or betting—and who protects them when things go wrong. For leagues, the proliferation of exotic markets heightens integrity risks that require fast, coordinated responses. And for regulators, the outcome will define where the line sits between financial innovation and gambling, and which watchdogs get to draw it.
