New Jersey Bill Will Require License for Sports Event Contracts

• Sen. Nicholas P. Scutari (D-22) introduced S4447 to regulate prediction markets in a similar fashion to sports betting
• The piece of legislation requires operators to be licensed to offer event contracts in New Jersey
• Operators offing sports event contracts will be subjected to same tax rate as online sports betting and will be required to pay additional 10% surcharge

New Jersey is the latest state to introduce legislation to regulate prediction markets.

Sen. Nicholas P. Scutari (D-22) recently introduced S4447 to regulate sports event contracts and prohibit certain prediction markets in New Jersey. The bill will require prediction market operators to either acquire a sports betting license to offer sports event contracts in the state or become licensed as an athletic event market operator and partner with a sports wagering licensee.

“The bill requires all prediction markets to meet basic standards, including that the 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,” Scutari and co-sponsor Sen. Paul A. Sarlo (D-36) wrote in the bill.

New Taxes and Prohibitions

The bill currently sits in the Senate Budget and Appropriations Committee. It has yet to be scheduled for a committee hearing.

The legislation requires any prediction market operator offering sports event contracts in the state to be regulated in a similar manner as a sports betting operator. This includes acquiring a New Jersey sports betting license or become licensed as an athletic event market operator and partnering with a sports wagering licensee.

If a prediction market operator is licensed, it may offer sports event contracts and be subjected to the same 19.75% tax rate on revenues, plus an additional 10% surcharge. The 10% surcharge will also be applied to all other prediction market contracts, in addition to New Jersey business taxes and fees.

The legislation sets a minimum age of 21 for any prediction market operator customers and requires operators to establish self-exclusion and responsible gaming programs. The Division of Gaming Enforcement will regulate the markets.

“Any person who operates an athletic event market without approval of the division will be guilty of a crime of the fourth degree will be subject to a fine of not more than $25,000 and, in the case of a person other than a natural person, to a fine of not more than $100,000,” the sponsors wrote in the bill.

In addition to the new taxes for operators, certain event contracts will be prohibited entirely in the state, such as those related to death, catastrophic events, and political markets.

Hefty Fines For Noncompliance

Under the bill, the State Attorney General is authorized to petition the court for an injunction to stop any operation of a prediction market that does not follow these new regulations. Operators who do not comply with an injunction will be fined $1 million per day that the operation continues.

State and local officers, employees, members of the legislature, and members of their immediate families will be prohibited from any insider trading related to official state duties.

“A state or local officer or employee, or member of the legislature who violates this provision is guilty of a crime of the fourth degree. A crime of the fourth degree is punishable by imprisonment for up to 18 months, a fine of up to $10,000, or both. A member of their immediate family or another person who commits a violation at the direction of a state or local officer or employee, or member of the legislature is guilty of a disorderly persons offense. A disorderly persons offense is punishable by imprisonment for up to six months, a fine of up to $1,000, or both.”

Court Challenges Likely

Even if Scutari’s bill is approved and signed into law, it will likely face legal challenges from prediction market operators and the federal government.

Minnesota Gov. Tim Walz (D) signed SF 4760 into law this past May, making Minnesota the first state to officially prohibit certain prediction markets. Almost immediately, Kalshi and the Commodity Futures Trading Commission (CFTC) challenged the legislation in district court.

Both lawsuits allege the CFTC has exclusive jurisdiction over regulating prediction markets. If New Jersey approves similar legislation, it will likely face similar legal challenges as Minnesota.