Iowa and Ohio Push New Prediction Market Rules

Iowa legislators are taking steps to regulate prediction market platforms, with a House subcommittee advancing a bill that would impose licensing requirements and taxes on companies operating in the space. The proposal, known as Senate File 2470, targets platforms that allow users to trade contracts tied to real-world outcomes such as sports events, elections, and global developments.

The measure would require companies to obtain a state permit before operating in Iowa. Lawmakers set the initial licensing fee at $20 million, with an annual renewal cost of $100,000. The bill also introduces a 20% tax on adjusted revenue generated within the state and a separate 20% excise tax on each contract purchased.

State analysts estimate that the structure could generate about $40 million in revenue for Iowa’s general fund in fiscal year 2027, although projections suggest a decline in subsequent years after the initial licensing payments.

The legislation reflects growing concern among state officials about the expansion of prediction markets, which some lawmakers view as closely resembling traditional gambling. Rep. Shannon Lundgren, cited by the Iowa Capital Dispatch, said, “This, to me, feels like gambling. But I am, you know, not at a position that I know enough about it to say it is today. But I will certainly sign off on this, but we can keep the conversation going.”

Legal Disputes Shape the Debate

The push for regulation comes amid ongoing legal battles involving prediction market operator Kalshi. The company has challenged state authority, arguing that federal law grants oversight to the Commodity Futures Trading Commission and limits states’ ability to regulate its operations.

Kalshi has filed a lawsuit against Iowa, seeking to block enforcement of state gambling laws. The company maintains that it operates within a federally regulated framework for derivatives trading, placing it outside the reach of state-level gaming rules. Iowa officials, however, have signaled concern about potential enforcement gaps as the industry expands.

Senate Majority Leader Mike Klimesh told lawmakers that the state has already faced legal action despite lacking a clear regulatory structure. He said the bill represents an effort to establish guidelines rather than delay action. “This is our attempt to try to do something, as opposed to waiting another year when they grow user base,” Klimesh said.

Opponents of the bill urged caution, citing ongoing litigation that could determine how prediction markets are governed nationwide. Logan Shine, speaking on behalf of Kalshi, warned lawmakers against moving forward prematurely. “I think at this point, given all the litigation around this topic and the likelihood it ends up at the Supreme Court, it would probably be prudent to to pause, take a breath, see where this goes in litigation,” Shine said. He also added, “the money proposed under this bill is not likely to be seen anytime soon from Iowa. I guess we would just caution you as you approach this bill and kind of let the courts decide where they’re at on this.”

Despite those concerns, the subcommittee voted to advance the proposal, with further debate expected as it moves through the legislative process.

Ohio Considers Similar Regulatory Approach

Iowa is not alone in examining how to handle prediction markets. In Ohio, lawmakers have introduced legislation that would classify certain prediction market activities as sports wagering, placing them under existing gaming regulations.

Sen. Bill DeMora filed Senate Bill 430, which proposes redefining “sports gaming” to include trading event contracts tied to the outcome of sporting events. Under the proposal, platforms offering such contracts would need approval from the Ohio Casino Control Commission and would be taxed and regulated in the same manner as licensed sportsbooks.

The effort follows a series of disputes between Kalshi and Ohio regulators. The company previously filed a lawsuit after receiving a cease-and-desist order, but a federal court denied its request for a preliminary injunction. Regulators have since indicated plans to impose a $5 million fine, alleging that Kalshi continued offering contracts without proper authorization.

The broader legal question centers on whether federal law governing derivatives markets overrides state gaming regulations. Courts across the country are weighing similar cases, with outcomes that could determine how prediction markets operate in the future.

National Attention on Emerging Industry

Prediction markets have drawn increasing scrutiny from lawmakers at both the state and federal levels. These platforms allow users to buy and sell contracts based on anticipated outcomes, raising concerns about market integrity and the potential for misuse of insider information.

Iowa’s Senate previously passed SF 2470 by a 45-1 vote, marking the first time a state legislative chamber approved a measure specifically designed to regulate prediction markets. Rather than prohibiting the platforms, the bill imposes financial and licensing requirements intended to bring them under state oversight.

The debate highlights a broader tension between federal and state authority. While federal regulators assert jurisdiction over certain financial instruments, states continue to argue that prediction markets function similarly to gambling and should fall under their control.

Courts have yet to provide a definitive answer, leaving the industry in a state of uncertainty. The outcome of Iowa’s legislation, along with ongoing lawsuits, could influence how other states approach the issue and shape the future of prediction market regulation across the United States.