Pennsylvania Proposes $1M Fee for Prediction Market Licenses

Pennsylvania wants $1 million from every prediction market operator that hopes to do business with its residents — but a federal appeals court ruled three weeks before the bill was filed that the state may have no authority to ask. House Bill 2497, introduced by Rep. Tarik Khan on April 29, would slap a $1 million upfront license, a $1 million annual renewal, and a 20% gross-revenue tax on platforms like Kalshi and Polymarket, only to run headlong into the Third Circuit’s April 6 ruling that the CFTC has exclusive jurisdiction over event contracts in Pennsylvania, New Jersey, and Delaware.

The bill at a glance

HB 2497 creates a new chapter of Pennsylvania gaming law titled “event outcome prediction wagering” and folds it under the Pennsylvania Gaming Control Board (PGCB). Platforms must apply for a one-year license, submit detailed financial records, run background checks on key employees, and show proof of operational stability. Self-exclusion lists and a three-day contract cancellation window are mandatory consumer safeguards. Unauthorized operators face fines up to $25,000 plus winnings forfeiture; underage participation can rise from misdemeanor to felony on repeat offense.

Athletes cannot wager on their own competitions, politicians cannot bet on their own elections, and mass-casualty markets are banned outright. The bill also explicitly prohibits wagering for money laundering, insider trading, or use of nonpublic information from employment or social connections — language that mirrors the federal charges against an Army Special Forces master sergeant in late April.

The preemption problem

On April 6, 2026 — twenty-three days before HB 2497 was filed — the U.S. Court of Appeals for the Third Circuit ruled 2–1 in KalshiEx LLC v. Flaherty that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over sports-related event contracts and preempts conflicting state gambling statutes. The opinion, authored by Judge David J. Porter and joined by Chief Judge Michael A. Chagares, affirmed a preliminary injunction barring New Jersey from enforcing its gambling laws against Kalshi. Because the Third Circuit covers Pennsylvania, New Jersey, and Delaware, the holding directly governs any future PGCB enforcement action against Kalshi or Polymarket inside Pennsylvania (our detailed coverage of the Third Circuit’s April 6 ruling for Kalshi walks through the legal mechanics).

The court called Kalshi’s contracts “swaps” under the CEA and applied both field and conflict preemption — a fairly broad endorsement of federal exclusivity, though the panel was careful to note that this was a preliminary injunction finding of likely success on the merits, not a final ruling. That nuance leaves the door cracked open for Pennsylvania to defend HB 2497, but operators and their lawyers will be hard-pressed to treat PGCB licensing demands as enforceable in the near term.

The chronology matters: Pennsylvania is not legislating in a vacuum. Its bill arrives after a federal appellate panel has effectively told the state that the CFTC, not the PGCB, decides who may offer event contracts to Pennsylvanians. Any constitutional challenge to HB 2497 by Kalshi or Polymarket would land squarely back in front of the Third Circuit, which has now twice shown willingness to enjoin state action (see also the CFTC’s parallel litigation against state regulators).

Why Pennsylvania is pushing anyway

The state has a clear financial motive. Pennsylvania’s legal gaming operators booked a record $6.8 billion in gross revenue in 2025 — the fifth consecutive record year — and the state collected nearly $3 billion in gaming taxes, up from $2.7 billion in 2024. Sports betting alone produced an $8.86 billion handle, $867.8 million in operator revenue, and roughly $205 million in tax receipts at Pennsylvania’s 36% rate (34% state plus a 2% local share), one of the highest sportsbook tax rates in the country.

“Every dollar wagered on a federally regulated event contract… yields zero tax revenue.”
— Steven Cook, PGCB Chief Counsel (legislative testimony, December 2025)

That math has set the PGCB on a collision course with federally licensed Designated Contract Markets (DCMs) for the better part of a year. The board has not yet attempted formal enforcement, but Executive Director Kevin O’Toole has spent months telegraphing that he views event contracts as a “backdoor to legalized sports betting, operating parallel to, but outside of, the state-regulated system” — and the Council on Compulsive Gambling of Pennsylvania reported in late 2025 that the 18–24 age cohort had become the largest single demographic calling the state’s 1-800-GAMBLER helpline, a first.

“By allowing DCMs to masquerade as unregulated sportsbooks, the Commission has abandoned its historical mandate. One cannot only wager upon sporting events but also on pop culture and political novelties such as whether a particular person will appear at the Met Gala, who will win Survivor, and whether President Trump will utter the phrase ‘Make Iran Great Again.'”
— Kevin O’Toole, PGCB Executive Director

For PGCB, then, HB 2497 is less a legislative gamble than the regulatory expression of arguments O’Toole and Cook have been making in writing for nearly a year. The fact that it lands after the Third Circuit ruling is, in this telling, the state declaring its position rather than retreating from it.

The insider-trading driver

The bill’s stated rationale is harder to argue with. Six days before Khan filed HB 2497, the Department of Justice indicted Master Sgt. Gannon Ken Van Dyke, a 38-year-old U.S. Army Special Forces soldier, for using classified information to bet on Polymarket contracts tied to Operation Absolute Resolve — the U.S. mission that captured Venezuelan leader Nicolás Maduro and his wife in early January. According to the indictment, Van Dyke wagered roughly $33,000 across about 13 bets in the week before the operation went live, winning approximately $410,000. He then allegedly took steps to conceal his identity as the trader once journalists noticed unusual activity in Maduro-related markets.

Van Dyke faces charges of unlawful use of confidential government information, theft of nonpublic government information, commodities fraud, wire fraud, and unlawful monetary transactions. The CFTC filed a parallel civil complaint. Kalshi says it independently identified and blocked Van Dyke’s account — the trading occurred on Polymarket. A separate, smaller case involving a trader who won more than $300,000 by correctly betting that President Trump would issue specific pardons added political weight to the file (a pattern the platform has confronted before, as covered in earlier Polymarket insider-trading concerns).

“We have a duty to make sure that these markets are legit and that people are not getting scammed.”
— Rep. Tarik Khan (D-Philadelphia), prime sponsor of HB 2497

The bill’s insider-trading language — barring wagers using nonpublic information from employment or social connections, prohibiting athletes from betting on their own competitions and politicians on their own elections, banning mass-casualty markets — reads like a checklist drawn directly from the past nine months of headlines. Whether the PGCB will ever get the chance to enforce that checklist against a federally licensed exchange is a different question.

How Pennsylvania stacks up nationally

Pennsylvania’s $1 million fee is far from the highest state proposal on the table. Iowa’s SF 2470 — the most aggressive bill in the country at the moment — proposes a $20 million initial license, a 20% revenue tax, and a 20% excise on the price of every event contract traded. New York lawmakers have filed both the ORACLE Act (A9251), which would require a state gambling license to offer contracts on “sensitive matters,” and S8889, which would route prediction markets through the New York Department of Financial Services. Ohio’s SB 430 takes a different tack, classifying event contracts as sports wagering rather than imposing a separate licensing regime.

Massachusetts produced one of the few state wins of the year, securing a preliminary injunction in early 2026 that gave the state authority to block Kalshi sports contracts — though the order was promptly paused pending appeal. Nevada’s outright ban remains in effect. New Jersey, Arizona, and Tennessee are all currently enjoined from enforcing their gambling laws against Kalshi by federal courts. The American Gaming Association estimates collective state tax revenue lost to unregulated prediction markets at more than $600 million across all sports — a figure the industry trade group has used to lobby for state-level intervention. Pennsylvania, in other words, is joining a tide rather than starting one — though the state-level surge is happening even as Kalshi’s broader legal fight is heading toward the Supreme Court and the platform recently closed a $1 billion raise at a $2.2 billion valuation.

What happens next

HB 2497 now sits in committee, and the practical question for operators is not whether Pennsylvania will pass some version of it — bipartisan sponsorship and 36% sportsbook politics make passage plausible — but whether the statute would survive a constitutional challenge. Three paths are worth watching: a circuit split (other federal appellate courts could rule the opposite way, prompting Supreme Court review); a Supreme Court grant of cert in the Kalshi cases, which would settle the preemption question nationally; or narrow drafting amendments that try to position HB 2497 around the Third Circuit’s “swaps” reasoning. None of those produce immediate enforcement certainty for the PGCB, which is why the bill’s most enforceable provisions in the short term are likely its insider-trading prohibitions and consumer-protection requirements — areas where state and federal authority overlap more comfortably.

Other states are testing similar legal limits in parallel — Wisconsin’s recent multi-platform suit against Kalshi, Polymarket, Coinbase, and Robinhood shows the same state-vs-federal pattern playing out in litigation rather than legislation. Until the Supreme Court takes the question, every state-level fee, license, or tax remains presumptively unenforceable inside the Third Circuit, and operators are likely to treat HB 2497 as a position paper as much as a billable cost — at least until a final ruling on the merits forces the question.

Sources

• HB 2497 Bill Information — Pennsylvania General Assembly
• U.S. Soldier Charged With Using Classified Information To Profit From Prediction Market Bets — U.S. Department of Justice, Office of Public Affairs
• Pennsylvania Gaming Control Board — Public statements and testimony
• Third Circuit Ruling on Exclusive CFTC Jurisdiction Over Sports-Related Event Contracts — Paul Weiss analysis via Columbia Law School Blue Sky Blog
• American Gaming Association — State tax revenue loss estimates