Exclusive Q&A: How PGCB's stance on prediction markets impacts operators

Given PGCB Executive Chair Kevin O'Toole sent a letter to state Senators and Congress outlining prediction markets concerns, how does the offering provoke unease among the Board?

SC: Futures markets operate under, if you listen to them, the color of federal law with the Commodities Exchange Act. We question whether the Commodities Futures Trading Commission (CFTC), which is the federal regulator that licenses them, understands if this is an appropriate product for them to be putting out. Members of Congress have a lot on their plate, so we thought it was important to try and call their attention to this issue - which they might not otherwise be paying attention to.

We've seen operators such as FanDuel and DraftKings already enter the prediction markets space. Have there been conversations regarding how you can regulate these operators before they integrate the gaming type?

SC: The way we're set up as an agency, the seven-member Board I'm counsel to basically sits, in many respects, as a judge. We have a whole separate team of lawyers, which is our Office of Enforcement Counsel, which brings enforcement actions if they believe it's appropriate against operators we license. If an operator we license chooses to get into prediction markets, it would be up to our Office of Enforcement Counsel to take action against them because they're our licensees.

It may very well be that our Office of Enforcement Counsel would take issue with them making these offerings outside of the scope of what they're licensed to do in the Commonwealth, so that could be a matter which comes before the Board by way of an enforcement action.

Steve, how does your Chief Counsel role relate to sports betting regulation and how has the industry expanded since you took over the position in 2021?

SC: I was here when the Murphy decision was handed down by the Supreme Court and my office, the Office of Chief Counsel, issued the sports wagering regulations we put in place. The General Assembly of Pennsylvania, when the Gaming Act was last amended in 2017 and Murphy was not yet decided, had the foresight to put an entire chapter to deal with sports wagering in the event it became legal under federal law.

Within a couple of years, Murphy was decided, and we were very well positioned to immediately draft regulations, push them out and were probably the first state after Murphy to actually go live with sports wagering other than the states which had it previously like Nevada or New Jersey, to a certain limited degree. So we've been intricately involved in drafting the regulations and overseeing sports wagering.

O'Toole also mentioned it would take the CFTC "years" to replicate similar regulatory oversight as state entities. Could that infer PGCB is wary of licensed operators debuting prediction markets by 2026?

SC: We would certainly not be in favor of that. We think it's outside of what we envision as licensed regulated sports wagering in the Commonwealth. Kevin's comments spoke to the thorough background and licensing process that everybody goes through if you file an application in Pennsylvania. Basically, we really get down to the nitty-gritty, and the CFTC is just not built for that. It would literally take them years. I mean, it took us years in one state.

DH: Our main goal is to protect the public and if that's not the type of process that's going to take place for people who are putting money into wagering like this, then how well are they being protected without those background investigations in place. We deal with the same thing from offshore betting, and that's why we go out of our way with responsible gaming messages, to ensure you're protected when you go to an unregulated, unlicensed site.

Given DraftKings and FanDuel have already entered the prediction markets space, how would the PGCB regulate such entities that are already licensed in Pennsylvania?

SC: The devil would be in the details. They would have to come with us with a product and we would have to analyze it. All of our operators also require robust know your customer (KYC) standards. They have to really demonstrate a good KYC to ensure whoever's on the other end of that computer is who they say they are.

Our law is clear: it has to be an athletic contest, so when others come in and they're offering trading for political elections or Taylor Swift; those are not things which fall neatly under the Gaming Act in Pennsylvania. They wouldn't be legal.

Could the uncertainty of whether sporting event contracts will be traded within these platforms act as a way of adhering to regulatory oversight for operators?

SC: Well, there's a couple of problems with some of these things, let's call them current event gaming. One that I saw which jumps to mind is Eric Adams in the New York City Mayor's race, and it was 'will he or won't he drop out of the race by X date?' My threshold problem with that, other than betting on an election, is one human being controls the outcome of that wager and it can be so easily manipulated, which creates all sorts of public protection issues.

That's a fundamental problem, and some of these sexy bets they want to put out as futures markets, when it comes down to one human being deciding the outcome, that's a problem. I certainly see what you're saying, and it's something I've heard from many other entities as well when discussing prediction markets.

What other concerns is the PGCB currently tackling, whether its sweepstakes, offshore betting, etc.?

SC: We have skill games, which look a lot like slot machines, but have some element of skill purportedly in them which falls outside of the criminal statute for a gambling device. At this point they're legal in the Commonwealth, pursuant to intermediary appellate court decisions. The matter is coming up and pending oral argument next month before the state Supreme Court, so we may see some resolution there.

PGCB reported an all-time in fiscal year gaming revenue for 2024/2025. How does this help mirror the success of the state's gaming industry?

DH: It's been an unmitigated success. It's certainly been driven by iGaming. The internet gaming market has really developed and there are a lot of different and new players from the land-based casino market. More and more people have gotten comfortable with engaging in gambling through that manner and, candidly, it's because they feel it's very safe. At the same time, casinos have done a very good job of continuing to grow their market and their facilities. Have we seen a little diminution of their revenue from time to time? Yes, but generally speaking, it's stayed pretty steady even with this brand new gambling market.

SC: What we don't know is what the numbers would be if there weren't these tens of thousands of skill games out there, and that's the one which probably has as big an effect on casino revenue, rather than maybe iGaming. You can put prediction markets into that same category. They're in the Commonwealth and there's some customers eligible to go to a casino or online to wager who is otherwise just going to a futures market and the offshore sites.

With Michigan, Ohio and Arizona also issuing warnings regarding prediction markets, could state entities form a united front of sorts for regulatory purposes?

SC: We've talked with regulators and the way these things play out in every state is very similar, in which the state regulator sends a cease-and-desist letter or otherwise notify the prediction market companies to say, 'what you're doing is illegal.' That triggers a federal lawsuit, typically it's Kalshi, to come in, sue the regulator and basically say federal law preempts state law.

I think it's clear that what they're offering, relative to sports wagering, violates the Gaming Act in a criminal manner, and when they're offering non-sports contracts, it violates Title 18 and our crimes code under state law. I don't know if they would even argue that, but they basically say 'those laws are preempted because we're under federal law.' The arguments are the same basically in every state. When you see Michigan going directly to some of these markets, that's because they have the criminal ability to go after them, which some states are authorized to do.

DH: And there are also organizations like the American Gaming Association and the National Organization of Legislators which are very involved with this type of issue. Besides just the individual agencies, those organizations are trying to make sure this is elevated to the federal level, and that's what a lot of the states need to do, have this looked at by legislators.