Iowa Senate Advances Bill to Regulate Prediction Markets

Iowa lawmakers are attempting something no other state has attempted so far – passing a bill to regulate prediction markets. This is certain to cause some turmoil among the event contracts space, since prediction market operators say that they are regulated at the federal level and that federal law precedes state gambling regulations.

Prediction Markets Are a Point of Contention

Prediction markets are a novel form of trading that allows participants to trade event-based contracts. Users effectively buy yes-no shares in the outcomes of certain events, which may range from sports to politics.

As trading platforms, prediction markets are regulated by the Commodity Futures Trading Commission (CFTC), which allows them to offer their products in all 50 states. However, industry critics have claimed that event contracts are virtually indistinguishable from sports betting and that prediction markets, as they currently exist, are an unregulated form of gambling.

To top it all off, critics have said that prediction markets are vulnerable to insider trading and could encourage the manipulation of event outcomes.

These problems have led to multiple lawsuits and conflicts, with the exact future of prediction markets remaining hazy. Iowa is now attempting an unprecedented approach by advancing a bill that, if signed into law, would regulate prediction markets.

An Unprecedented Approach

Senate File 2470 is a bill that seeks to regulate prediction markets. If passed, it would introduce a prohibition for any prediction market operator that lacks a license from the Department of Revenue. Under this framework, providers of event contracts would also be required to pay taxes in Iowa.

Senate File 2470 is the brainchild of Senator Mike Kilmesh, who submitted it in January. The bill outlines a 20% tax rate on prediction markets, most of which would go into the general fund. In addition to that, the measure would require prediction markets to pay an entry fee before entering Iowa. An earlier version of the bill proposed licensing fees of $10 million, which was doubled to $20 million in the more recent versions. Prediction market platforms would have to pay a further $100,000 fee to renew their licenses each year.

The bill just passed the Iowa Senate with overwhelming support, as 45 out of 46 voters approved the amended version of the measure. As a result, it will now advance to the House of Representatives for further deliberation.

In the meantime, recent studies suggested that many Americans either see prediction markets as a form of gambling or at least believe that the sector should be regulated in a similar fashion.