Pennsylvania regulator issues prediction markets warning to casino operators
The Pennsylvania Gaming Control Board has warned casinos and sportsbooks not to get involved with prediction markets.
During a hearing for the House Gaming Oversight Committee on Tuesday, Executive Director Kevin O’Toole, outlined the regulator’s concerns, saying that apps like Kalshi and Polymarket were offering a wagering platform that operated “entirely outside of Pennsylvania’s comprehensive consumer protection, responsible gaming, and tax frameworks.”
The warning follows a similar move made by O’Toole in October when he called on lawmakers to act against the growth of prediction markets.
Prediction markets enable users to buy and sell contracts linked to real-world events, including sports, elections, and other cultural moments.
The companies offering these markets argue that they are providing financial instruments rather than betting markets and can offer these contracts because they are regulated at a federal level by the Commodity Futures Trading Commission.
However, state regulators argue that event contracts mirror gambling and are particularly dangerous for younger users.
Lawmakers raised concerns about users being able to influence outcomes or circumvent verification systems, and pointed out that prediction market companies paid no tax, unlike the 36% tax paid by licensed operators on gambling.
Officials also expressed the view that Pennsylvania’s 2017 gaming law might give the regulator some relief over prediction markets, falling under the category of “unauthorized sports wagering,” which would mean prediction platforms would be subject to state tax.
In the meantime, the regulator warned operators not to jeopardize their gaming licenses by partnering with prediction market sites.
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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The Backstory
Why Pennsylvania escalated its warning
Pennsylvania’s latest admonition to casino and sportsbook licensees not to touch prediction markets is the culmination of months of friction over where event contracts fit in U.S. gambling law and who gets to police them. In October, Pennsylvania Gaming Control Board Executive Director Kevin F. O’Toole urged lawmakers to press federal regulators to curb sports-focused event contracts that look and feel like wagers but sit outside the state’s regime. In that appeal, O’Toole warned that privately run futures-style platforms threaten Pennsylvania’s regulatory framework, consumer safeguards and tax collection, calling them a “backdoor to legalized sports betting” that relies on lighter federal oversight. That stance set the stage for this week’s sharper directive: licensed operators risk their state credentials if they partner with or facilitate access to unregulated prediction products.
O’Toole’s earlier push outlined a structural gap. Prediction platforms argue their contracts are financial instruments overseen by the Commodity Futures Trading Commission. Pennsylvania, which launched legal sports betting in 2018 under a tightly controlled model for adults 21 and older, counters that these app-based markets mimic gambling, invite underage access and skirt responsible-gaming standards required of licensees. The board has also floated that Pennsylvania’s 2017 gaming law could treat some event contracts as “unauthorized sports wagering,” potentially exposing the activity to state taxation and enforcement even absent explicit new legislation.
Behind the legal debate is a practical one: how to prevent confusion among consumers who may see Wall Street-style branding and assume the products carry the same protections as regulated sportsbooks. The board’s messaging has hardened as prediction platforms signal growth plans in the U.S., increasing the risk that state-licensed operators might view them as traffic partners or white-label opportunities.
A federal gray zone collides with state guardrails
O’Toole’s October letter to federal and congressional counterparts underscored a core friction point: self-certified contracts can clear at the CFTC with limited scrutiny designed for institutional derivatives, not mass-market wagering. He warned that the federal framework provides weaker responsible-gaming controls and softer safeguards against match fixing or insider abuse than state-regulated sports betting. That argument aligns with a broader state-regulator view that the CFTC’s purview was never built for consumer-facing apps marketing binary outcomes on sports, elections or pop culture to retail users.
The risk calculus has shifted as more platforms court U.S. users. O’Toole pointed to plans by one prominent venue to relaunch domestically, adding urgency to state-level responses. Pennsylvania’s directive tells in-state licensees to keep clear, or risk disciplinary action that could imperil core gaming privileges. The board’s move is as much about signaling to the market as about near-term prosecutions: the message is that no operator can use a federal veneer to sidestep state rules on age checks, bet integrity and taxes.
The tightening posture in Harrisburg also mirrors mounting skepticism across statehouses. Regulators worry that if prediction contracts proliferate without state oversight, they will siphon handle from licensed books, depress tax revenue and complicate problem-gambling efforts that rely on statewide self-exclusion and data sharing.
Other states draw lines against unregulated play
Pennsylvania is not alone in warning consumers and operators away from products offered beyond state systems. Maine’s gambling watchdog recently cautioned residents about offshore and sweepstakes-style casinos masquerading as legitimate sites, emphasizing that while sports betting, fantasy contests and advance deposit wagering are legal, any online casino-style games remain banned. The unit said it cannot intervene in disputes with unlicensed platforms and reminded residents that only licensed offerings carry the state’s consumer protections. The warning comes as lawmakers revisit whether to legalize online casino, with the debate around Legislative Document 1164 shaping the policy path.
Wyoming’s regulator issued a similar alert to residents and visitors that no igaming, sweepstakes or online casino site is licensed in the state, even as mobile sports wagering and daily fantasy are permitted. The commission said multiple offshore operators use branding and false addresses to appear compliant, leaving patrons with no recourse if funds are frozen or terms change. Both states’ notices reinforce the same theme animating Pennsylvania’s action on prediction markets: state regimes confer rights and responsibilities that unlicensed models do not, and consumers bear the cost when the line blurs.
These warnings, while focused on casino-style products, offer a playbook for how states may address prediction apps: public advisories, clear statements of illegality where applicable and coordination with attorneys general when cease-and-desist orders are warranted.
Michigan pairs rhetoric with enforcement
Michigan has been increasingly active against both offshore casinos and unlicensed prediction markets, framing the fight as a defense of consumer protection and tax integrity. The Michigan Gaming Control Board said it is investigating unauthorized sports prediction venues operating in the state, arguing that such platforms bypass age verification, Know Your Customer and anti-money laundering requirements and may expose residents to fraud or identity theft. The regulator warned that framing sports contracts as investments risks confusing users and undermining the state’s responsible-gaming standards for 21+ wagering.
Michigan has backed words with actions in the parallel battle against offshore casinos. The board recently issued 10 cease-and-desist letters to a Belize-based operator behind a cluster of online casino brands, citing violations of state gaming statutes and giving the company 14 days to halt activity or face legal action with the attorney general. The enforcement cadence signals that state agencies will not wait for federal intervention to police unlawful online gambling, whether it surfaces as slots and table games or as event contracts that look like sports bets by another name.
The Michigan posture matters for other big regulated markets. If agencies demonstrate that investigations and cease-and-desist orders can curb unlicensed activity or at least raise its cost, lawmakers elsewhere may be more willing to codify prohibitions or clarify that prediction contracts fall under existing wagering bans.
What’s at stake for licensed operators
Pennsylvania’s warning puts incumbents on notice that the safest answer to prediction-market overtures is “no.” Partnerships with event-contract apps could invite claims that licensees facilitated unregulated wagering, jeopardizing licenses that support core casino, online gaming and sportsbook business lines. Operators must also weigh reputational risk. If customers encounter losses, frozen funds or data issues on a partner app, the blowback may not distinguish between state-regulated and federal-labeled products.
There is a competitive dimension too. Licensed sportsbooks pay a 36% tax in Pennsylvania, fund problem-gambling programs and adhere to integrity monitoring. If prediction venues siphon volume without similar obligations, regulated books face a margin squeeze. The board’s stance seeks to prevent that arbitrage while preserving clarity for consumers about which products fall under state protection.
The stakes extend beyond revenue. A fragmented landscape erodes the effectiveness of self-exclusion and age-gating. It also complicates law enforcement and integrity monitoring if suspicious activity migrates to platforms outside state data-sharing agreements.
The road ahead: policy clarity or continued collision
The contest over prediction markets is moving on two tracks. States like Pennsylvania are tightening guidance to licensees and signaling potential use of existing statutes to pursue unauthorized sports wagering. Meanwhile, regulators in Maine and Wyoming are reinforcing the principle that only state-licensed products carry consumer recourse, a message likely to be repurposed for prediction apps. In Michigan, investigations and cease-and-desist actions may yield a playbook for more aggressive enforcement.
Absent federal realignment, the most immediate path to clarity is state-level action. That could include explicit bans on event contracts that replicate sports wagering, formal guidance that treats such products as gambling under existing law or, in some jurisdictions, a decision to license and tax them with sportsbook-grade controls. For now, Pennsylvania’s move is a shot across the bow: licensed operators should keep prediction markets at arm’s length until the legal fog lifts, or risk finding themselves on the wrong side of the regulator that grants their most valuable permissions.
Related coverage: Read more on Pennsylvania’s October push to rein in event contracts in O’Toole’s call for federal pressure on prediction markets; Maine’s consumer alert in the state’s warning on illegal online casinos; Wyoming’s stance in its igaming advisory; and Michigan’s twin front against illicit play in cease-and-desist letters to offshore casinos and an investigation into unlicensed prediction markets.
