PGCB Executive Kevin O’Toole Warns Prediction Markets Pose ‘Existential Threat’ to Pennsylvania

O’Toole’s core concern centers on the platforms’ attempt to classify sports wagering as a federally supervised commodity market activity. This classification allows them to bypass rigorous state gambling regulations, creating an unregulated “backdoor to legalized sports betting.”

Direct Threat to State Sovereignty

O’Toole asserts that the prediction markets’ strategy is one of “regulatory arbitrage.” He warns that the assertion these markets are merely “financial derivatives” under the oversight of the Commodity Futures Trading Commission (CFTC) directly conflicts with Pennsylvania’s authority to regulate gambling within its borders.

This development, O’Toole argues, directly threatens the “comprehensive regulatory system that Pennsylvania, and many other state jurisdictions, have meticulously constructed for gaming.” Allowing federally regulated commodity markets to offer event contracts creates a parallel wagering ecosystem that operates outside of the state system and without strict oversight. This undermines the state’s legal framework and the integrity of the regulated market.

Bypassing Essential Consumer Protection

The PGCB Director highlighted that, by claiming federal oversight, prediction markets evade numerous state-mandated obligations designed to protect consumers and ensure fair play. These obligations include:

• State Taxes: Legal operators in Pennsylvania face a 36% tax on sports betting revenue, a burden prediction markets avoid.
• Responsible Gaming: Licensed operators must adhere to strict responsible gambling measures, such as displaying help resources (like 1-800-GAMBLER), enforcing deposit limits, and imposing time restrictions.
• Age Verification: Most prediction markets, including Kalshi, allow participation at age 18, whereas Pennsylvania requires legal bettors to be 21.
• Licensing and Background Checks: Prediction market operators bypass the rigorous background investigations and stringent licensing requirements imposed on all state-licensed entities.

O’Toole stressed that this evasion creates an uneven playing field for licensed operators and significantly weakens public protections.

Market Integrity and Federal Oversight Deficiencies

Beyond consumer protection, O’Toole raised serious concerns about market integrity and the CFTC’s suitability as a primary regulator for consumer gambling.

He stated that the CFTC “is a financial market regulator, lacking the specific expertise and historical mandate for overseeing consumer gambling activities.” He warned that building the necessary regulatory and oversight systems for consumer gambling would take the CFTC “years.”

Most troubling, O’Toole noted, is the potential for manipulation: “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.” If prediction markets successfully carve themselves out of the “gaming” definition, O’Toole warns of a parallel ecosystem with “significantly less oversight regarding potential match-fixing or the exploitation of insider information.”

O’Toole concluded that the parallel systems 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.’” Furthermore, he pointed out that the PGCB’s most crucial power—the ability to penalize and fine licensed operators for non-compliance—would not apply to a self-certified, federally regulated prediction market.