Iowa lawmakers push prediction market regulations while House committee support weakens

A proposal to regulate event-driven prediction markets such as Kalshi advanced through the Iowa legislature but faces uncertainty after failing to gain enough support in a House committee, with lawmakers citing concerns over federal jurisdiction and ongoing litigation.

Senate File 2470, which passed the Iowa Senate in March on a 45-1 vote, would establish a regulatory framework for companies offering contracts tied to the outcomes of real-world events, including sports, elections, legislative actions, economic indicators, and geopolitical developments.

The measure moved out of a House subcommittee on Monday but was not taken up on Tuesday by the House Ways and Means Committee.

“There have been a lot of questions,” said Rep. Carter Nordman, chair of the House Ways and Means Committee. “A lot of it has to do with what federal law says.”

Proposed licensing model

The bill would require event-driven contract operators to obtain a permit through the Iowa Department of Revenue before operating in the state.

The proposed upfront licensing fee was listed between $10 million and $20 million, while operators would also face an annual renewal fee of $100,000 and a 20% tax on adjusted annual revenue.

Legislative estimates indicated that permitting fees could generate about $20 million for Iowa’s general fund in the next budget year. Separate projections estimated the tax structure could bring in $40 million in fiscal 2027 before declining to $2.2 million after initial permit collections.

If enacted, Iowa would become the first US state to impose regulations and taxes specifically targeting prediction market operators.

Legal fight over oversight

Senate Majority Leader Mike Klimesh told lawmakers the state needed to act before prediction markets expand further.

“The states have the right to regulate gaming within our borders, which the federal government is taking away from us,” Klimesh said.

He also said prediction markets “are already having a detrimental impact on our casino partners that have sports wagering online.”

Klimesh told lawmakers the proposal was intended to establish guardrails while legal disputes continue.

“This is our attempt to try to do something, as opposed to waiting another year when they grow their user base,” Klimesh said.

Operators such as Kalshi remain involved in legal disputes with multiple states over whether prediction markets fall under federal or state jurisdiction.

Late last year, Iowa Attorney General Brenna Bird joined attorneys general from 37 other states in signing a friend-of-the-court brief in a case between Kalshi and the Maryland Lottery and Gaming Control Commission.

In March, Kalshi sued Iowa, arguing there was “a substantial risk” that Bird would enforce state gambling laws through the Iowa Racing and Gaming Commission and restrict the company’s operations in the state.

Kalshi argues its business is regulated by the Commodity Futures Trading Commission and that federal law preempts state oversight.

Logan Shine, representing Kalshi, urged lawmakers to wait for the courts to rule.

“Given all the litigation around this topic and the likelihood it ends up at the Supreme Court, it'd probably be prudent to pause, take a breath, see where this goes in litigation,” Shine said.

He also warned lawmakers that projected state revenue may not materialize soon.

“The money proposed under this bill is not likely to be seen anytime soon from Iowa,” Shine said.

Casino operators raise integrity concerns

Representatives from Iowa casinos and development groups also opposed the proposal, arguing that prediction markets present oversight challenges different from traditional gaming.

R.G. Schwarm, representing Cedar Rapids Development Group, said the legislation would authorize platforms that currently operate without state regulation.

“Regardless of what safeguards are put into place, the systems and the platforms are still ripe to be exploited, whether you're talking about vetting the odds of a military capture or the over/under on when this Legislature is going to adjourn, markets provide incentives to influence or manipulate events,” Schwarm said.

Klimesh also pointed to a recent case in Minnesota where a lawmaker was suspended from Kalshi after betting on the outcome of his own election.

“The rules around how they're structured to provide security, which we do very diligently with the rest of our sports wagering, are kind of left in the lurch,” Klimesh said. “This is not the perfect solution, but …. we felt we didn't have time to wait another year to at least begin to move something.”

For now, the bill remains stalled in the House as lawmakers continue weighing whether Iowa can regulate prediction markets while federal courts consider the issue.