New Jersey Fires Salvo at Prediction Markets with Regulation Bill
New Jersey has introduced a bill to regulate controversial prediction markets.
The new bill, S 4447, would bring prediction markets such as Kalshi and Polymarket under the NJ Division of Gaming Enforcement's control. Currently, the Commodity Futures Trading Commission (CFTC) regulates online prediction market sites under federal rules.
Additional safeguards aim to combat insider trading, accusations of which have plagued the industry over the past few months.
At a Glance:
- S 4447 would require prediction markets to be licensed within NJ
- Prediction markets currently licensed federally by the CFTC
- Special rules would come in for sports event contracts
- Some employees and public officials would be banned from trading
- State-licensed framework likely to enflame relationship with CFTC
New Jersey keen to protect its regulated sports betting industry
The New Jersey prediction markets bill is a clear indication that the Garden State is in no mood to back down in its war against the CFTC.
New Jersey was the first state to legalize online casinos and one of the first to regulate online sportsbooks in the United States.
However, the growth of prediction markets has stunned states like New Jersey that have mature online gambling industries.
Currently, prediction markets fall under the CFTC's remit. That means federal regulation, in direct contrast to sportsbooks, which are regulated by states.
Prediction markets vs. online sportsbooks
Prediction markets like Kalshi and Polymarket argue they allow trades in “event contracts.” Customers set the price and accept trades, rather than the prediction market apps themselves. The prediction market sites simply take a fee on any transaction.
While prediction sites focus on political outcomes and entertainment, they also offer contracts for sports events.
For example, you can purchase shares in the winner of the NBA Finals, FIFA World Cup, or Super Bowl. Prices are set by other traders based on their personal research.
That has angered plenty of states, New Jersey included, who argue prediction sites are acting like sportsbooks. Therefore, they must be state-licensed and pay tax.
New Jersey already rebuffed by federal appeals court
Several states have issued cease-and-desist letters to prediction market sites this year.
However, a federal appeals court in April ruled that New Jersey gaming regulators were prohibited from blocking Kalshi. A tight vote in the Third Circuit Court of Appeals ruled for the prediction market platform.
A similar ruling in May saw Arizona blocked from charging Kalshi with illegal gaming.
And earlier this month, Minnesota was sued by the CFTC over the state’s attempts to criminalize prediction markets.
Administration supports CFTC ... for now
The fight for control over prediction markets continues. Certainly, there’s White House support for a federally regulated industry over state intervention.
Donald Trump supported the CFTC last month, backing the regulator in its battle against the states. In typical fashion, the president went one further, calling state regulators “scum” in their fight against federal regulation.
Additionally, Donald Trump’s son, Don Jr., has invested in Polymarket, an industry leader.
A key part of the New Jersey legislation centers on insider dealing. Market prices can be skewed by insider knowledge, especially on political events or sports props.
The proposed ban on public officials and employees from trading in NJ will go some way in mitigating that. However, that’s not the only battle New Jersey will be fighting as it prepares for inevitable federal pushback.
