PGCB executive director likens prediction markets to the “Wild West”

Pennsylvania Gaming Control Board (PGCB) executive director Kevin O’Toole has expressed concerns regarding sports wagering via event contracts.

In a letter sent to the state’s two US senators, Dave McCormick and John Fetterman, and 17 members of congress, O’Toole urged lawmakers to contact the Commodity Futures Trading Commission (CFTC) to make clear the threat prediction markets have on the regulated market.

Noting that event contracts operate outside of state legal systems, O’Toole said it creates a risk of “inconsistent and inadequate regulation.”

The letter read:  “Sports prediction markets operate under the assertion that they are financial derivatives, or swaps, and therefore claim to not be gambling under state law.

“These markets claim primary regulatory oversight falls under the federal CFTC.

“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.

“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.”

O’Toole also highlighted how operators that gain a license in the state do so after meeting significant regulatory requirements, arguing prediction markets are able to avoid regulations.

Calling it an “uneven playing field,” the O’Toole argued the PGCB would never allow markets to be open to the risk of manipulation by offering wagers on events a single person can control.

The letter continued: “State-regulated sports betting operators in Pennsylvania face significant requirements, including thorough background investigations, licensing fees, state taxation on gross gaming revenue for the benefit of the Commonwealth’s citizens, and mandatory compliance with detailed rules providing consumer protections, responsible gaming provisions, and integrity monitoring.

“By seeking classification as financial derivatives, prediction markets aim to sidestep these crucial state-level requirements. 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.

“Perhaps most troubling, the CFTC regulates a system that also allows wagers on events that a single person can control – something the PGCB would never allow for fear of manipulation of the market and a cascading loss of confidence in the integrity of the betting system.”

O’Toole ended the letter by labeling prediction markets the “Wild West,” and noted that having both a regulated sports betting markets and prediction markets available to consumers could potentially lead to confusion for players.

The letter added: “Even worse, the parallel tracks risk confusing patrons who engage in these markets by utilizing the veneer of a highly regulated market when, in reality, their markets are more akin to the ‘Wild West’.”

The prediction markets sector has dominated the industry this week after the Intercontinental Exchange struck a deal to invest $2bn in Polymarket.

The deal led to both Flutter Entertainment and DraftKings’ stock falling 3.7% and 5.8%, respectively, on Tuesday, October 7.

The CEOs of Flutter, DraftKings, and BetMGM each gave their opinion on the state of prediction markets while on a panel at G2E in las Vegas this week.

Polymarket is set to re-enter the US market after it agreed a settlement with the CFTC following its withdrawal in 2022.