New Jersey Senator Nicholas Scutari and Senator Paul Sarlo introduced S4447, on June 11, which proposes stricter regulations on the prediction markets industry, including greater taxes and bans for government employees.
The proposals in the Garden State will bring a new 29.75% tax for all operators - consisting of 19.75% sportsbook tax plus a 10% surcharge. Additionally, the proposal also includes: stricter licensing requirements and restrictions on who can use the platforms, including a complete ban for government officials who want to predict political markets.
About S4447
"While gambling may take many forms and be carried out by varying methods, the basic principle remains that when individuals are staking money on a game of chance or on the outcome of an event over which they have no control, that constitutes gambling," the bill stated.
"This bill requires all prediction markets to meet basic standards, including that prediction markets disclose the source of information used to settle a market and take practical steps to limit potential manipulation, insider trading, or fraud in violation of State law."
The new bill proposes that sports-related prediction markets must comply with the state's existing sports betting framework, something that includes stricter regulatory requirements. In addition, certain categories will be banned under the new proposals, including contracts involving politics, death or a catastrophic event market.
New tax rate for prediction markets
Those offering sports event contracts will only be permitted to operate should they have a license from the Division of Gaming Enforcement. As part of gaining the license, operators must pay the 19.75% New Jersey Sportsbook Tax, plus an additional 10% surcharge.
In addition to the tax hike, the bill would make responsible gaming measures for prediction markets compulsory, including deposit limits and time limits. Those that don't comply, or offer their services in the state without a license, could face fourth-degree criminal penalties and fines of up to $25,000.
New Jersey clashes with Kalshi
This isn't the first time New Jersey has had legal drama with prediction markets, the state previously issued a cease-and-desist order against operator Kalshi from operating in the state.
However, Kalshi responded by seeking a preliminary injunction against the state, something the US Court of Appeals for the Third Circuit granted.
Despite that setback for New Jersey lawmakers, they appear determined to establish clear boundaries around prediction markets and this bill could establish statutory authority to regulate prediction market operators and enforce the above rules like they do for sports betting platforms.
This bill follows other states that have enforced strict rules on prediction market providers. Just last month, Minnesota became the first state in the country to pass a total ban on the industry, something the Commodity Futures Trading Commission (CFTC) is seeking to overturn via an injunction.
S4447, which was sent to the Senate Budget and Appropriations Committee, has not been scheduled for a hearing yet. If enacted, it could become one of the most comprehensive state-level attempts to regulate prediction markets, something other state lawmakers will no doubt be keeping an eye on.
