New Jersey senators have unveiled a bill to regulate prediction markets and impose taxes of up to 30% on sports-related event contract trades.
The bill is the brainchild of New Jersey Senate President Nicholas Scutari and fellow Democratic Party Senator Paul Sarlo, and focuses heavily on sports-related contracts.
The bill’s text draws parallels between sports contracts and conventional sportsbooks. It calls for prediction market operators to obtain permits to operate in the Garden State.
The senators passed the bill on to the Senate Budget and Appropriations Committee late last week.
The legislation may risk stoking the Commodity Futures Trading Commission’s wrath. The CFTC insists that it alone has the power to regulate prediction markets and says trades on prediction markets are swaps, not wagers.
“Prediction market operators offer ‘events contracts’ that allow participants to open a speculative position, and thereby stake money, on the outcome of events in what amounts to the functional equivalent of a wager,” the Senators wrote.
New Jersey: Prediction Market Regulation Coming?
The CFTC filed a lawsuit against the state of New Mexico earlier this month and suggested that more lawsuits could be on the way elsewhere in the US.
The state and a group of New Mexico-based tribes have both launched legal action against the prediction market operator Kalshi, claiming it is violating state and tribal gambling laws.
Similar legal battles continue in several other states, including Ohio, Rhode Island, and Illinois.
“New operators who present gambling by a different name or in a different form threaten to undermine these longstanding frameworks of state regulation,” wrote Scutari and Sarlo. “Prediction markets are an example of such operators.”
The New Jersey Senators said “athletic events markets” should “be taxed at the same rate as sports wagering, plus a 10% surcharge.”
In clauses that the CFTC may well find less controversial, the bill seeks to ban a range of public officials and employees from “employment with athletic event markets.” It further calls for a block on candidates and campaign staff from trading on political markets.
Earlier this month, Kalshi said it had begun restricting certain users on higher-risk markets as it “screens potential insiders.”
Senators Push for New Tax Rules
The Senators want to impose special taxes on revenues from sports-related prediction contracts. If the bill passes, traders would need to pay an extra 10% in taxes on top of New Jersey’s 19.75% online sports betting tax, “in addition to otherwise applicable business taxes and fees.”
Non-sports-related prediction market trades would also be subject to the 10% surcharge. The bill proposes fining violators of its proposed regulatory framework up to $25,000.
Scutari and Sarlo called for prediction market firms to pay a $5 million initial licensing fee to continue offering sports contracts in the Garden State.
But these could be subject to a rise in the future, with permit renewal costs reassessed on an annual basis by the state gambling regulator.
The Democratic Party currently has a firm grip on New Jersey, with a majority in both chambers of the state legislature and a Democratic governor.
The Garden State has previously attempted to sue Kalshi for failing to respond to a cease-and-desist order. Attorneys for New Jersey say they will take their battle against the operator to the Supreme Court.
