The regulatory debate over prediction markets continues to gain momentum in the United States. In less than 48 hours, lawmakers in New Jersey and Vermont introduced proposals to control these platforms, which operate in a gray area between finance and gambling. The underlying conflict is the same in both cases: determining whether these markets are financial instruments under federal jurisdiction or forms of betting subject to state regulation, a dispute involving operators like Kalshi and Polymarket that is being resolved in the courts with varying results.
Prediction markets allow users to buy and sell contracts whose value depends on the outcome of future events: from presidential elections to sports results, including economic indicators or judicial decisions. Their growth in recent years has been explosive, driven in part by the rise of cryptocurrencies and the normalization of online betting.
New Jersey: specific prohibitions, licenses, and million-dollar fines
On February 24, Senators Shirley K. Turner and John F. McKeon introduced Senate Bill 3692. The initiative recognizes the federal Commodity Exchange Act and establishes that New Jersey will not interfere in markets expressly governed by federal regulations. However, it requires platforms active in the state to comply with local standards when there is no direct conflict with federal law, which in practice opens the door to significant state regulation over much of the current offering.
The bill draws a clear line on what types of contracts would be prohibited: those linked to political elections, catastrophic events such as wars or natural disasters, and outcomes related to deaths involving murders or mass casualty events. This delimitation targets segments of the offering that lawmakers consider ethically incompatible with any form of regulated market, regardless of how they are legally structured.
For markets linked to sporting events, on the other hand, the bill proposes an integration model within the existing regulatory framework. Operators could continue to offer these types of contracts as long as they hold a valid sports betting license or partner with a duly authorized entity. Oversight would fall to the Division of Gaming Enforcement, with obligations including age verification, deposit limits, self-exclusion tools, responsible gaming messages in all advertising, and taxation at the same rate as online sports betting, with revenues going to the State General Fund.
Regarding sanctions, the Attorney General would be authorized to seek injunctive relief against violators. Operators that continue to function after receiving a court order would face civil fines of $1 million per day, a figure designed to deter even the most highly capitalized platforms.
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Vermont bets on criminalization and a new sports betting tax
Vermont’s approach is more forceful. House Bill 913, introduced on February 25 and referred to the Committee on Government Operations and Military Affairs that same day, proposes to directly modify the state’s criminal statutes to include prediction markets within the definition of illegal gambling. Unlike New Jersey, Vermont does not contemplate a licensing scheme or a regulated integration path: the proposal categorically excludes these contracts from the legal sphere.
Under the proposal, it would be prohibited to offer prediction market securities or commodities linked to outcomes on sports, contests, individuals, political campaigns, disasters, wars, events of any kind, or deaths. The legislation would also modify state contract law to declare such agreements void, opening a path for civil recovery for users who have lost money on these platforms within the state.
A regulatory map being redefined week by week
The proposals from New Jersey and Vermont reflect two different philosophies regarding the same problem: one state chooses to absorb these markets into a regulated framework, while the other directly excludes them from the legal sphere. What both initiatives have in common is urgency. These platforms already have millions of active users across the country and move considerable volumes of money. The ability of states to regulate them effectively, and to sustain that regulation against federal challenges, will largely define the future of the sector in the United States.
What is clear is that the window for unrestricted operation for prediction markets is closing. As more states develop their own legislative initiatives, operators will have to choose between adapting to a fragmented regulatory environment or facing legal battles on multiple fronts simultaneously. The outcome of the New Jersey and Vermont bills will be, in that sense, an important barometer to measure how far state power is willing to go in its tug-of-war with federal regulation.
For the industry, the emerging scenario is one of greater operational complexity and higher regulatory costs. For users, on the other hand, clearer regulation could translate into greater transparency regarding the risks they take and better protection mechanisms. The real challenge for lawmakers will be to find that balance without stifling a market that, like it or not, is already part of the country’s financial and entertainment ecosystem.
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