Illinois lawmakers have introduced legislation to regulate prediction markets through a new framework that would be overseen by the Illinois Gaming Board.
Senate Bill 4168 (SB 4168), introduced on 5 March, proposes the Prediction Markets Regulation and Taxation Act, creating a state licensing regime and imposing a significant tax on platform revenue.
It would require any operator offering prediction market contracts to Illinois residents to obtain a master prediction market licence from the Illinois Gaming Board before launching services.
The legislation sets the initial licence fee at $1m, with licences valid for 12 months. Operators seeking to continue operating would need to pay a $1m annual renewal fee and demonstrate continued compliance with the Act and the Board’s rules.
The measure defines a prediction market as a platform where participants trade contracts whose value depends on the outcome of future events.
Notably, under the proposed legislation those events cannot be related to sports activity. Contracts tied to athletic contests or any component of sporting events are expressly excluded from the proposed framework.
Under the bill’s definitions, qualifying prediction market contracts could include markets tied to political elections, economic indicators, regulatory decisions, weather outcomes, entertainment awards or other verifiable real-world developments.
These contracts will either be binary or have multiple outcomes, provided they are settled based on the occurrence of a defined event.
The legislation also points out that sports betting and casino-style gaming will continue to remain exclusively governed by the existing laws of the state of Illinois.
Prediction markets operators have tried to argue that operating under federal laws prevents states from forcing compliance with local laws. That argument has been rejected on several occasions, however.
The proposed legislation also points out that prediction markets must not include sports betting or any other type of casino-style gaming, in order to safeguard existing regulated markets.
Standard gambling restrictions apply
The rules for the issuance of licences would include consumer protection mechanisms overseen by the Gaming Board.
These provisions cover minimum age restrictions of 21, geofencing technology to block access from prohibited jurisdictions, anti-money laundering compliance, responsible gambling tools and market integrity monitoring systems.
Operators would also face a substantial tax obligation. The bill establishes a 50% privilege tax on adjusted gross receipts generated from qualifying prediction market contracts involving Illinois residents.
Adjusted gross receipts are defined as the total amounts received from contracts minus participant payouts and certain permitted deductions.
Taxes would be remitted monthly to the Gaming Board and deposited into the state’s general revenue fund or another designated fund through legislative appropriation.
The proposal specifies that prediction markets would not be subject to the per-wager fees or graduated tax rates applied under the state’s sports wagering law.
Enforcement provisions are detailed and direct.
The operation of a prediction market without a licence or offering prohibited sports contracts would be considered illegal gambling under Illinois law.
Violations may include cease-and-desist orders, civil penalties, revocation of a licence, or referral for criminal prosecution.
The bill also modifies Illinois gambling law by adding violations of the Prediction Markets Regulation and Taxation Act to the list of illegal gambling activity.
Illinois follows a handful of states in exploring the question of how to regulate prediction markets, which has become an issue in the context of legislation like the ORACLE Act.
This federal legislation aims to provide guidance in the regulation of event-based prediction markets by specifying the regulatory responsibility of agencies such as the Commodity Futures Trading Commission and gambling regulators.
The Illinois legislation tries to lay the groundwork for the regulation of prediction markets in the state while clearly limiting the scope of the markets to non-sports-related activity.