So, how did we get here?

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The slow and steady race to avoid common sense

Pennsylvania’s skill game deadline has turned out to be the closest thing we have to a natural experiment in forcing a gray market to choose between regulation and shutdown.

In Pennsylvania, the skill game industry is now experiencing a dark period — the result of a June 15, 2026 ruling by the Pennsylvania Supreme Court that skill games are slot machines under the state’s Gaming Act, and therefore illegal outside licensed facilities. The Court stayed its decision for 120 days to give the General Assembly time to build a legal framework for the machines.

These machines look, feel and play like the regulated slots you see in casinos and regulated route markets, but their makers have long argued they are something different: games of skill, not chance. The question of what constitutes “skill” and what constitutes “chance” continues to confound policymakers, regulators and courts across the United States and abroad, though in Pennsylvania the highest court has now answered it.

In PA, the machines and their legitimacy run up against the highly influential and revenue-salient casino industry, which has been pushing for the state to do away with these unlicensed and unregulated machines. The state’s largest skill game supplier, Pace-O-Matic, has spent years pushing for a bill to regulate and tax the machines, and Sen. Gene Yaw (R-Lycoming) has been the legislation’s leading Senate champion. With no bill passed, Yaw, Sen. Anthony Williams (D-Philadelphia) and Rep. Jonathan Fritz (R-Wayne) asked the Supreme Court on October 6 to extend the stay to February 10, 2027. They withdrew the petition the next morning, refiled it a day later, and on October 9 the Court denied it in a one-sentence order, along with a parallel request from VFW and American Legion posts, fraternal clubs and volunteer fire companies. Which brings us to the present moment.

The state is set to leave anywhere from roughly $300 million a year (under a flat $500-per-machine monthly fee) to more than $2 billion a year (under Gov. Josh Shapiro’s proposed 52% tax) on the table by not regulating these machines. Currently, VGTs exist legally only at Pennsylvania’s licensed truck stops, capped at five per location, and provided $21.6 million in tax revenue to the state in FY 2025/26 on $41.6 million in gross terminal revenue across 75 facilities. Skill games are virtually a parity product to VGTs. With an estimated 70,000 of them in play versus a few hundred truck-stop VGTs, the cost of not licensing and taxing them means less money for Pennsylvania’s General Fund and for the commitments a skill game tax would have carried, including local share payments to host municipalities and counties and funding for compulsive and problem gambling programs.

What happens next is anyone’s guess. But the readers of this Substack aren’t just anyone. They’re people who believe and trust in the process, who look for the edge in every play and who want to know what is going to happen before it happens. So let’s first look at some other states’ paths to determine what ultimately will happen here.

Let’s jump aboard the Patchwork!

An exercise of comparative inaction

Shifting gears to the “Show Me” State, where political heavyweights like Torch Electronics, its lobbyist (and former House Speaker) Steve Tilley, and convenience-store chain Warrenton Oil have had little to “show” for their efforts under Attorney General Catherine Hanaway. In April, after a federal judge ruled Torch’s machines illegal gambling devices, Hanaway pressed the company into suspending its Missouri operations.

The effort to finally regulate the slot-like machines in bars, restaurants and convenience stores has been long and arduous in Missouri with many fits and starts. The latest setback came this past session: HB 2989, sponsored by Rep. Bill Hardwick (R-Dixon), narrowly passed the House for the second straight year, only to be killed without discussion by a unanimous vote of the Senate Select Committee on Gaming on May 6.

The familiar pattern of inaction occurring in Pennsylvania has long been a feature in Missouri, too, due to a muddled understanding of the public impact and a focus on protecting the regulated casino industry’s revenue. Those are the main elements that continue to stymie route gaming legitimization and slow its advancement. Not to mention that Missouri only launched legal sports wagering in December 2025, and asking a rank-and-file member to take a second vote on gambling expansion in short order, in an election year, is a tall order.

Perhaps most importantly, the political money has been flowing in both states. Just four days after Missouri’s session adjourned in May, Illinois route operator J&J Ventures sent $100,000 to a PAC tied to Sen. Jason Bean (R-Holcomb) and $50,000 to one backing Rep. Bill Hardwick, the VLT bill’s House sponsor, in his state Senate primary (he won in August). On the other side of the ledger, casino companies and the Missouri Gaming Association gave $75,000 to the leadership PAC of Senate President Pro Tem Cindy O’Laughlin, who chaired the committee that killed the bill.

With O’Laughlin term-limited out this year and with a new Senate leader waiting in the wings, 2027 could finally be the year Missouri’s gray market is converted into a meaningful source of revenue for public education, veterans’ services and other obligations.

House Speaker Jon Patterson won his Senate primary and is moving to the Senate.

Time will tell whether these arguments rule the day in either state. Fortunately for route gaming supporters in both, they have a clear success story to refer to in the great state of Illinois.

The exception to the rule

Regulated video gaming was authorized in the Land of Lincoln in 2009, and the first terminals went live in the fall of 2012. Before that, the market was underground, with much of it controlled by organized crime.

With the 2009 Video Gaming Act, the state set out to clean all that up, identifying the regulation and taxation of gaming in bars and restaurants as a key source of revenue to fund the state’s burgeoning capital needs. (The Act was part of the Illinois Jobs Now! capital package, and VGT tax revenue still flows to the state’s Capital Projects Fund today.)

Between 2013 and 2018, the state’s distributed gaming industry grew by leaps and bounds. It expanded further in 2019, when lawmakers raised the maximum bet from $2 to $4 and the per-location machine cap from five to six. The COVID-19 pandemic slowed growth for a time, but it quickly rebounded.

Along with the retail growth came very real and tangible taxation growth, which has become clear and unavoidable to acknowledge for both the state and local government partners who share in the revenue.

In 2022, the Illinois Municipal Policy Journal, published by the University of Illinois Springfield with the Illinois Municipal League (the state’s largest association of municipalities and local elected officials), ran a study by UIS researcher Allen Adomite which found that for every $1 lost in a gaming machine, a municipality sees nearly $6 in additional taxable retail sales — a positive relationship between retail sales and gaming revenue. The study tested for a substitution effect, with gaming dollars cannibalizing local retail. It found the opposite.

Key findings included:

· A positive, statistically significant covariance between the municipal net wager and sales tax.

· Video gaming within local communities not only does not harm retail sales economies but the gambling activity increases retail sales within the municipal jurisdictions.

· The hypothesis of a negative relationship between net wagering and local retail sales was rejected and, in fact, the opposite effect (retail economic growth) is validated.

https://iml.org/file.cfm?key=25386 - DRAIN OR DRAW? A PANEL STUDY OF THE IMPACT OF ILLINOIS VIDEO GAMING ON LOCAL TAXABLE RETAIL SALES – Page 145

In 2025, the IL Department of Human Services published a report on gambling in Illinois and found that the IL Video Gaming Industry is the least problematic form of gambling — when compared to the various forms of available gaming including the lottery, sports wagering and brick and mortar casinos, of which there are now 17 authorized throughout the state, with several of the newer casinos still operating out of temporary facilities while they build permanent ones.

This is due in large part to both the public nature of the activity in question and its public benefit.

Fast forward to 2026: Illinois video gaming terminals generated $3.31 billion in net terminal income (NTI) in FY 2026, the highest total the State has ever recorded. That figure comes from the Commission on Government Forecasting and Accountability’s (COGFA) annual Wagering in Illinois report. COGFA is the General Assembly’s nonpartisan fiscal office, and legislators, mayors and every corner of the gaming industry read it closely.

For the second year in a row, video gaming sent more money to State coffers than any other form of gambling. In FY 2026 it provided $1.013 billion, or 38% of all State gaming revenue. That is ahead of the Lottery ($788 million), sports wagering ($593 million) and casinos ($262 million).

Including local governments, video gaming generated $1.158 billion in tax last year. Video gaming also accounts for about 41% of all money Illinoisans spend on gambling after winnings are paid out. That is more than casinos and sports betting combined. Video gaming is the largest gaming industry in Illinois, and the State’s budget depends on it.

However, this rapid expansion, growth and prosperity is not without its obstacles. Taking them into account alongside the successes provides a map to the Patchwork that exists for this industry across the nation.

An honest look at the obstacles

Casino Cannibalization. If we are using Illinois as the model, we can say two definitive things:

a) Regulated route/distributed gaming causes temporary, not sustained, revenue disruption to traditional and legacy brick and mortar casinos.

b) Regulated route/distributed gaming does not discourage large casino operators from investing in states with said market inclusions.

Casinos and their trade associations deliver real, valuable fiscal impact to the states and localities they operate in. But in Illinois they no longer deliver as much as regulated route gaming does, and that is the whole reason for the opposition. It’s not so much that casino revenue gets cannibalized; it’s that casinos’ political influence with states and local governments does.

Consider Rockford, one of the largest VGT regions in Illinois and home to a relatively new Hard Rock casino. The data bears this out.

According to a 2022 analysis by Spectrum Gaming Group, Illinois provides the clearest example of how video gaming terminals (VGTs) actually affect casinos:

As shown, rolling 12-month Illinois casino gross gaming revenue declined by nearly $200 million from 2013 through 2019, while VGT revenue grew from about $300 million to roughly $1.7 billion over the same period. The proliferation of distributed gaming grew overall revenue while casino revenue declined.

Until the temporary Rockford Casino – A Hard Rock Opening Act opened in November 2021 in northern Illinois, there had not been a good example of a new casino entering an established VGT market. That raises the question: how does a casino affect the VGT market? By analyzing VGT results for Rockford, Machesney Park, Loves Park and the unincorporated areas of Winnebago County for the 12 months before and after the opening of Rockford Casino, Spectrum found that VGT revenue did not fall after the casino opened. It edged up, from $83.2 million to $83.9 million. The number of VGTs and host locations also increased, by 4%, after the casino opened.

Conclusions: The same person who plays VGTs at a local bar or restaurant may also enjoy all that a casino environment offers. The Rockford results suggest that VGT route operators should not fear the addition of casinos to new markets, and that casino developers should not shy away from markets with a large VGT presence. The biggest winner in this case was government: Combined state gaming-tax receipts increased 33%, and local gaming-tax receipts increased by 75%.

As the data bears out, when casinos are considering new markets, the inclusion or current operation of regulated route gaming is not ideal from their perspective, but it doesn’t meaningfully dent casino revenue either. This single study may be the most important data point in this discussion.

Break-ins. With huge success and big money on the table, bad actors take notice.

Through a recent Freedom of Information Act request to the Illinois Gaming Board, the IL Video Gaming and Machine Operators Association obtained records documenting reported break-ins and related incidents at licensed video gaming establishments throughout the state. The IGB’s full response contained 2,270 reported incidents. Of those, 479 were reported in 2026 as of the records’ date, already more than the 473 reported in all of 2025 and more than 50% above the 306 reported in 2021. (By June 22, the IGB put the 2026 count at 502.) These figures underscore the widespread and growing nature of this problem.

The industry estimates the loss associated with each incident, including damaged property and equipment as well as stolen cash, at approximately $125,000 to $150,000, and its overall losses to date at more than $200 million. Cash actually taken is a far smaller piece: per IGB records reported by the Chicago Sun-Times, about $2.7 million was stolen in 2025.

This is a growing problem for the booming regulated VGT industry in Illinois and cannot be overlooked. However, IL has a clear antidote to this growing concern — as we will highlight in the next section.

Further gray operators. Although Illinois enjoys a massively successful licensed and regulated video gaming market, there is still a gray element in the Land of Lincoln that is hard to shake. It exists primarily within the Windy City and is not contributing to the revenue needs of the state or city.

In Chicago, the gray market is alive and well. With the City Council’s 33-15 vote in June rejecting a ban on sweepstakes machines, coupled with the authorization, and subsequent slow-walking, of legal VGTs in the city, an estimated 7,000 of these machines continue to operate in bars, restaurants, gas stations and convenience stores throughout the city without any of the consumer protections that licensed VGTs must adhere to and without generating any tax revenue.

The IGB has maintained that these machines are illegal gaming devices. However, the Board lacks the regulatory teeth needed to enforce such a position and the city council has thus far sided with the operators and the businesses they represent.

However, times are changing. As just mentioned, the City Council authorized licensed video gaming in its 2026 budget last December, over Mayor Brandon Johnson’s objections, ending an opt-out from a state program Chicago had sat out since its creation in 2009. Like Pennsylvania and Missouri, that absence left millions on the table. The rollout has been slow-walked: as of September, the IGB had approved 63 Chicago locations, but the City had yet to issue a single local license. Bally’s, whose temporary casino has badly underperformed its revenue projections, argues VGTs breach its host community agreement, has paused construction on the hotel and concert venue at its permanent River West casino, and appears headed to court. Still, legal machines appear to finally be moving forward in Chicago.

With a projected $882 million budget gap for 2027, and the Mayor and all 50 aldermen on the ballot in February, regulated VGTs are set to play an influential role in the years ahead in the untapped market of Chicago.

On the lookout

Midterm results on state budgets. With the November 3 midterms right around the corner, blue states are already expecting a cascade of retribution from an executive branch that is likely going to be backed into a corner without the provided cover from Congress. Therefore, the logical result of such an action will be an exercise in belt-tightening and new revenue searching for Democratic-led states like Illinois, Pennsylvania and California. This could even extend to purple and light-red states if Democrats pick up congressional seats and governorships this fall (cough, Ohio; cough, Texas).

Therefore, we can expect to see the importance of additional revenue from gaming expansion grow more and more. In states where distributed gaming expansion has already been on the table, like Pennsylvania and Missouri, the next two years may be the best chance they have at regulation and taxation.

Responsible Gambling. As prediction markets have made a big impact on the nation over the last year or two, so has the national framework of responsible gambling. We will explore that part of the story in a coming issue. However, just looking in the here and now, states are already re-configuring their responsible gambling initiatives and policies to align to their current gaming industry makeup.

Take Illinois as an example. Last month, the IGB approved proposed rules to modernize its self-exclusion program (the “SEP”). Self-exclusion, which Illinois launched in 2002 as one of the first such programs in the country, allows people who think they may have a problem with gambling to self-exclude from further engagement, interaction or marketing materials with gambling activity.

The new proposal would create tiered enrollment durations (from six months up to indefinite), offer expanded channels through which to enroll, as well as a 12-month marketing exclusion list after leaving the SEP.

At the same September meeting, the IGB adopted a resolution declaring its intent to bring video gaming into the SEP. The plan runs through the redemption terminal: players would verify their identity there and buy a ticket-in, ticket-out (TITO) voucher with cash or a player account, and the VGTs themselves would no longer accept cash directly. Players would redeem any winnings at the same terminal. Importantly for the video gaming industry, this plan will isolate cash in the redemption terminals, which should help to prevent VGTs from being damaged or destroyed in future robbery attempts.

On October 22, the IGB took the next step by approving proposed rules, now headed to the legislature’s Joint Committee on Administrative Rules, that include cashless wagering provisions that allow Terminal Operators the ability to offer cashless play and player rewards through individual patron video gaming accounts. Those accounts would be funded through approved payment methods and be subject to age and identity verifications, privacy and security controls and Know-Your-Customer and anti-money laundering requirements. Further, each player account must allow the patron to establish individual responsible gaming limits.

The bottom line is: as more and more states come online with regulated gaming (both in the land-based and interactive spaces), look for these provisions to be included and championed as part of their implementation. Indeed, this very development and increased focus on RG may be the boost that Pennsylvania and Missouri need to get these packages to the finish line.

Patchwork 50 is written by a 15-year government affairs and political professional. Reply to this email or write to hello@readpatchwork.com — I read everything.

Disclaimer

This publication and its authors are not licensed investment professionals, attorneys, or registered advisors of any kind to the readers of the Patchwork 50. Nothing published under the Patchwork 50 brand should be construed as investment, legal, or professional advice. Do your own research.

Source: Photo: G2E https://www.flickr.com/photos/136408179@N08/albums/

Chicago Bears and Philadelphia Eagles, MNF, and a rainy start to the G2E conference in Las Vegas.

While Case Keenum appeared to be in a “flow state,” going 24/34 for nearly 250 yards with 3 TDs, the Strip itself seemed to be in a flow state of its own. As Keenum, the veteran backup QB, took the field in place of injured “Madden” cover honoree Caleb Williams, the Strip was filled with rain from a burst of tropical moisture that swept into the Southwest last week.

Commuting to the site of the conference, G2E was especially interesting this year. Instead of avoiding tourists and street vendors and large transformer men, it was actual rain puddles that you had to avoid — quite strange for desert life!

Inside the conference, however, was anything but dry. It was wet hot — with sidebar conversations, event stage meetings and technology demonstrations all centered around the rapid rise and regulatory standoff between traditional gaming and startup prediction markets and the unmistakable imprint of AI technology integrations within regulated gaming.

Let’s take a deeper look!

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Prediction Markets

It was hard to go anywhere last week at the tradeshow and not hear the words, “prediction markets” or “event contracts.” Indeed, the longstanding feud between traditional gaming interests and upstart quasi-gaming enterprises like Kalshi and Polymarket was on full display. Although these companies were not exhibiting or even present at the conference in an official capacity, their shadow loomed largely over the entire affair.

At issue: the basic question of who has regulatory authority over prediction markets — the states and their sports wagering laws or the federal CFTC?

It was no secret where the AGA stood — displaying a prominent wall of education and advocacy on the subject, meant to outline all of the work they have been doing to curtail what they refer to as, “illegal gaming.”

American Gaming Association President Bill Miller took the main stage at the Venetian Expo on Tuesday to sound the alarm on the accelerating threat of prediction markets. His message covered the argument in its entirety, with a clear nod to the alliance between the AGA and tribal gaming on the issue. Tribal gaming leaders had made their own case from the same stage a day earlier. On Monday, Indian Gaming Association Chairman David Bean and three other tribal leaders took the main stage for a panel moderated by IGA Executive Director Jason Giles, who noted that states have prevailed in 38 of 43 court decisions against prediction markets.

“They call themselves prediction markets. And their message to states and tribes seems pretty straightforward. Your laws don’t matter. Your regulations don’t matter. The tax structures don’t matter. Your sovereignty doesn’t matter.” – AGA President and CEO Bill Miller

“These are basically untaxed, unregulated, consumer-predatory organizations that are masquerading themselves as investment vehicles,” David Bean, chairman of the Indian Gaming Association (IGA), said of prediction market companies.

Source: Photo: G2E https://www.flickr.com/photos/136408179@N08/albums/

During the show and adding to the drama, some major news also broke concerning prediction markets, which is completely on brand for them.

CBS News announced a formal partnership with Kalshi for the midterm elections, showing that the 2024 presidential election and the prediction market revolution that occurred within it, have real public efficacy and staying power. Kalshi also has a similar agreement with other major news outlets including CNN.

Election markets have existed for decades — Iowa Electronic Markets ran academically for years, and prediction markets have been cited in election coverage without visible harm. What’s new is scale, retail access, and a broadcaster with an editorial interest in the number it reports.

The tie in here is the angle of regulatory overlap, wrapped in more regulatory overlap. The CFTC currently maintains that they oversee these contracts over state regulators, the FEC oversees campaign money, the FCC oversees media networks, state election officials oversee the ballot, and nobody technically oversees an individual broadcaster reporting odds on a race while a market maker profits from volume. That gap is the most Patchwork-50-shaped development to come about the last two weeks; a national product, fifty state election codes, and no one holding the question.

AI Integration

If prediction markets were the ghost haunting G2E, AI was the angel and devil on its shoulders.

Walk the floor at the Venetian Expo and nearly every booth had found a way to fit those two letters onto its signage. But no company made the point more bluntly than BetConstruct AI, one of the most visible names at this year’s show.

Source: Yogonet - https://www.yogonet.com/international/news/2024/02/14/70805-betconstruct-launches-new-range-of-products-to-drive-player-engagement-and-partner-efficiency

If you want to launch an online sportsbook or casino but don’t want to build one from scratch, BetConstruct will rent you the whole thing — the betting engine, the odds, the casino games, the player accounts, the back office, and put your logo on the front. The industry calls this a “turnkey” or B2B platform. Your customers never see BetConstruct’s name; they see yours. The company is licensed out of Malta and the U.K., and says more than 500 operators use its AI products.

The AI sits on top of that plumbing by incorporating such features as a chat assistant, recommendation engine and various other “bet engagement tools.”

BetConstruct’s own pitch for all of it: a “proven increase in turnover.” That’s the business case for AI in gaming in four words. And to be fair, it isn’t a scandalous one. Every retailer in America runs a recommendation engine. But “you might also like” lands differently when the product is a wager that you can potentially win, than a random friend request or follow on social media.

Which brings us to the elephant in the G2E room.

On October 1^st, the same day G2E closed its doors, a West Virginia bettor filed a proposed class action in federal court in Boston alleging that DraftKings “weaponized AI” to “understand and exploit users’ vulnerabilities.” The complaint says the company used AI to identify customers likely to keep betting through their losses and then hit them with personalized promotions; the named plaintiff says he received roughly 70 promotional emails, texts, and messages in a single month. It cites former employees describing systems built to re-engage users who were trying to leave, claims the analytics lifted promotional margins 13% in 2025, and argues DraftKings ran afoul of Massachusetts rules governing how sportsbooks may use AI.

DraftKings flatly denies the allegation: “DraftKings does not use AI to target customers based on losses, nor do we use AI to target customers based on indicators of potential problem gaming.”

What makes this a Patchwork story is who was already paying attention. A week before the suit, after a New York Times investigation into DraftKings’ AI-driven promotions, Massachusetts Gaming Commission Chair Jordan Maynard directed staff to engage with DraftKings and said the commission would review how all of its operators use AI. Once the suit landed, the Massachusetts Attorney General’s office said the allegations “raise serious concerns about the potential use of technology to target or exploit consumers.”

To recap, a state gaming regulator is now asking a question about artificial intelligence that almost no gaming law in the country was written to answer. Massachusetts is the rare exception: its sports wagering rules bar operators from using any “machine learning, artificial intelligence, or similar system” reasonably expected “to make the gaming platform more addictive,” and one commissioner noted Massachusetts may be the only state with AI in its gaming regulations at all. Who governs the algorithm: the gaming commission that licensed the operator, the attorney general enforcing consumer protection, or a state AI law not explicitly written for the gaming industry? Expect fifty different answers and expect them to arrive one lawsuit at a time.

I’m not here to tell you AI personalization is inherently predatory nor am I linking BetConstruct AI with these developments. The question isn’t whether, it’s where the line on gaming AI integration sits, and who gets to draw it.

A New Trend Emerges

Here’s the story that got less stage time at G2E than it deserved, and it may outlast everything else in this issue.

In May, the National Council on Problem Gambling — the national nonprofit that state regulators, operators, and treatment providers all lean on for responsible-gambling standards, training, and referrals, made Kalshi the first member of a brand-new “Financial Services & Trading” membership category. Kalshi pledged $2 million over two years for what was billed as trader health and safety work.

You can guess how that landed with members whose states were, at that very moment, fighting Kalshi in court. The exits from the umbrella organization came in succession: the Ohio Casino Control Commission (June 26), the Michigan Gaming Control Board (July), and the Nevada Council on Problem Gambling (August, after its request to pause its membership was denied). On September 10, the Massachusetts Gaming Commission said its membership may no longer reflect the commission’s values.

Then the staff started leaving. NCPG’s Director of Programs, Jaime Costello, resigned, saying “the environment shifted in ways I could no longer reconcile with how I believe this work should be done.” A week later, on September 28, Executive Director Heather Maurer announced her own resignation, effective October 16, less than a year into the job.

The honest caveat: a resignation amid a controversy is not necessarily a resignation because of one, and Maurer hasn’t said otherwise. But consider that NCPG’s board president now describes prediction markets as “functionally gambling” — the same organization that, four months earlier, built a special membership category so one of them could join. Whatever the cause, the donation became a fracture point for the leadership and its partner organizations.

Responsible gambling infrastructure is quasi-public. States write NCPG resources into their rules and helplines without funding the organization themselves. When that body’s independence is in question, states lose a dependency they never controlled and didn’t budget for. And this is the second shock in about a year: NCPG lost the rights to the 1-800-GAMBLER hotline in September 2025 and had to rebuild around a new number, 1-800-MY-RESET. This all wrapped around the fact that calls to those very helplines continue to climb as more and more platforms for consumers to gamble become available both online and offline. New York’s HOPEline took 8.5% more calls in 2025 than in 2020 as mobile sports wagering surged. In Massachusetts, the same state where DraftKings now faces the AI lawsuit, calls to the problem gambling helpline more than doubled (up 121%) in the year online sports betting launched.

A state regulator has three tools to reach for: licensing, taxation, and responsible gaming. Prediction markets are contesting the first two in federal court right now. Whether by design or by accident, they’ve now destabilized the third. A state’s self-exclusion list doesn’t reach a platform it doesn’t license, and the national body it would normally consult seems to be coming apart at the seams.

So, what fills the gap? My bet (no pun intended), the states do it themselves. Watch the 2027 sessions for line items and rulemakings that bring in-house the RG standards, training, and helpline functions that used to be outsourced to a single national reference point. One framework becomes fifty. That’s the patchwork being stitched in real time, and it’s the least-covered second-order effect of the entire prediction-market fight, landing on exactly the institutions a regulator would reach for first.

Who Lives, Who Dies, Who Survives?

Let’s zoom out. Where does all of this stand and eventually, land?

Start with what operators are doing, not what their lawyers are saying. In September alone, the field split at least three ways:

Litigate. Underdog sued five states: Ohio, Massachusetts, Wisconsin, New Mexico, and Washington — arguing that federal law gives the CFTC exclusive jurisdiction and state gaming laws can’t touch its contracts. Days earlier, it surrendered its daily fantasy licenses in seven states. Those aren’t two strategies; CEO Jeremy Levine tied them together, saying those states had “taken the legal viewpoint we disagree with.” Underdog is betting the company on preemption, and a strong federal government. Kalshi, meanwhile, lost at the Ninth Circuit in August and is asking the full court to rehear the case, while Supreme Court petitions from New Jersey, Robinhood, and Crypto.com are still pending.

Withdraw. Robinhood cut a court-approved deal with Michigan on September 10 to pull sports event contracts and close open positions within 30 days, without conceding the legal question. Kalshi didn’t get a deal; it was ordered out of Michigan sports by injunction. And for football season, prediction markets are live in most of the country but not in Nevada, where the state won its own injunction, or in Washington, where state courts have also moved to enforce.

Sell umbrellas, pray for sun. The licensed incumbents are running prediction-market products of their own. Among them is FanDuel Predicts, even as FanDuel’s parent, Flutter, is quietly — or loudly, depending on who you ask — rooting for the whole category to be shut down. Flutter’s CFO told a J.P. Morgan investor conference that regulatory clarity would be preferable to the current uncertainty, and the bank’s analysts read a shutdown as the more positive near-term scenario. DraftKings CEO Jason Robins was blunter: “If prediction markets got shut down by the Supreme Court tomorrow, our share price would pop.” Add Chris Christie, the godfather of legal sports betting and current adviser to the American Gaming Association, urging state attorneys general in late September to send cease-and-desist orders to Kalshi and Polymarket.

Different postures may reflect different exposure rather than different predictions. Robinhood holds broker-dealer registrations a pure exchange doesn’t, so it has more to lose from an adverse state finding and would retreat earlier no matter what it expects. This is risk-tolerance 101 and not a crystal ball into the future.

With that caveat, here’s how I see it shaking out.

Who survives: the companies with optionality, and this is obvious. The licensed sportsbooks that run both a regulated book and a prediction-market product win under either outcome: if the Supreme Court sides with the states, they keep the licensed business and fold the rest; if it sides with the CFTC, they already have a product in market. Hedging looks cowardly in a press release. It looks brilliant in a 10-K.

Who dies: the single-thesis players. Anyone who burned their state licenses to go all-in on preemption has removed their own fallback. If the Ninth Circuit’s view prevails, the state map becomes the permanent map, and companies that walked away from it will have to ask to be let back in — by the same regulators they sued and actively fought.

Who lives — but changes: the states and the institutions behind them. Even a clean win at the Supreme Court for upstart stakeholders doesn’t restore the responsible-gambling backbone that fractured this summer, nor does it discount the opportunity for new taxation. States will rebuild RG initiatives locally and enact new ways to tax and regulate these new products. Indeed, they already have begun to do so: Illinois routed its new tax through sports event contracts, North Carolina now taxes prediction-market operators at 6% of net trading-fee revenue, and Kentucky enacted a 14.25% tax on operators, now under legal challenge from a coalition that includes Kalshi and Polymarket.

Re-enter AI. Preemption is a fight over who gets to call these products gambling. It doesn’t settle who gets to police how they’re sold. The DraftKings complaint rests on contract claims and a Massachusetts gaming rule, with the state’s consumer-protection statute held in reserve, and that’s terrain the CFTC preemption argument was never built to cover. Whoever wins the jurisdiction fight, the AI-personalization fight is headed to state attorneys general, state gaming commissions, and state legislatures, at precisely the moment the national RG infrastructure those regulators would lean on is at its weakest. Prediction markets accelerated the product. AI is accelerating the pitch. The rulebook for both is about to be written fifty times.

The best forward indicator in all of this isn’t a ruling, it’s where operators pull out, which you can observe without waiting on a court.

A map of which contracts are live in which states, updated weekly, would be the single most useful artifact in this domain.

Nobody publishes one — yet.

Stay tuned and continue to follow, the Patchwork.

Patchwork 50 is written by a 15-year government affairs and political professional. Reply to this email or write to hello@readpatchwork.com — I read everything.

Disclaimer

This publication and its authors are not licensed investment professionals, attorneys, or registered advisors of any kind to the readers of the Patchwork 50. Nothing published under the Patchwork 50 brand should be construed as investment, legal, or professional advice. Do your own research.

This quote by famed Roman Emperor and Stoic Philosopher, Marcus Aurelius, perfectly encapsulates the motivations behind this fledgling publication.

The Patchwork 50 is a bi-weekly exercise in examining the shifting policy, regulatory and legal dynamics which shape the emerging industries of the 21st century.

At its core, this space is a compendium of knowledge-gathering within the policy and regulatory space of emerging markets and industries. The mission here is to identify the obstacles, map them and adapt to them. Within this corner of the internet we lean into the uncertainty, the long-game approach and the chaos of American public policy to overcome political and regulatory obstacles and successfully navigate the Patchwork.

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The Patchwork 50 is a place not just to learn about the obstacle along the path, it’s an instruction manual to plan for it and ultimately to hedge for or against it—you decide.

It’s a place which posits that the American political system is nothing more than a complex web of 50 separate rulebooks for any given issue, technology, product or industry — and that this web is navigable, if you possess the proper tools, knowledge and information.

The gap is structural, it’s widening with a politically volatile central government and fractured two-party rule — and it’s working, for better or worse, the way it was designed.

It’s striking how much we are aware of the dysfunction in government yet are continuously surprised by the lackluster outcomes it produces. What’s more striking is the tendency to which we refuse to acknowledge that this dysfunction is a feature built into the system itself, not a bug.

It’s an obvious observation that in this hyper-divided federal government, the states are reclaiming their legislative power to build, restructure and sometimes roll back huge advances in modern society. As we see the emerging technology and VC converge increasingly more in modern times, and as we see the Washington D.C. governing window continue to diminish and collapse upon itself, the states are filling the void. In doing so they are creating big opportunity for policy leaders, stakeholders and businesses of all kinds.

Given all of this, the goal here is to treat the obstacles of regulatory uncertainty and built-in fragmentation as the game itself, because it is.

I’m talking about putting in the work. The patchwork.

Who Sent Me?

Oftentimes in my political journey, I’ve heard something that translates to the effect of “Who sent you?” Given respect for this important question, I should tell you why I think I can be your messenger on this journey.

I’m a longtime government affairs and political professional who has spent their career advising clients in both the public and private sector. My current focus concerns the interconnected web of emerging technologies, capital flows and public policy shifts within both highly regulated and unregulated/under-regulated markets and industries. I’ve spent a career advising both large and small entities on how to navigate, prepare for and capitalize on the subtle shifts and positioning within the policy process, and the aim of this project is to help both public and private readers analyze this information, discover nuance and take meaningful actions for their shareholders, constituents or other clientele.

Practically, what this publication buys you is a look under the hood of government from both a former high-ranking staffer and now an outside consultant’s perspective; an outsider’s iteration on insider knowledge. This niche will provide you a peek into how the sausage gets cooked. You’ll learn which definition gets argued over, and which arguments to follow, because whoever writes the definition writes the market.

Fifty Rulebooks

Prediction markets. Nowhere has the patchwork been more on display this year than in the fast-evolving world of prediction markets. The daily legal battle between prediction market operators like Kalshi and Polymarket and states looking to enforce regulatory jurisdiction over sports event contracts mirror the penchant for minute-to-minute entertainment which these markets are built on in the first place. In future years, this moment will be both venerated and studied in future MBA entrepreneurial courses and deeply panned in hard-hitting doc series. They will both ask the same question: What happened and how did it happen? The answer: regulatory, political and legislative uncertainty, a state-by-state arbitrage plan and a dream.

The American Gaming Association and the Indian Gaming Association, whose current members include brick-and-mortar regional operators and tribal gaming casinos respectively, have jointly pressed Congress to curb event contracts. The AGA put the states’ missed tax revenue from unregulated prediction markets at north of a billion dollars and has strongly aligned with the states, naming event contracts a direct threat to the regulated market. This move is not without strategy. While the Vegas strip continues to face questions of growing gaming, dining and overall hospitality and entertainment performance, regional casinos throughout the United States continue to carry the success of this vertical within the larger gaming industry.

The legal and regulatory battlefield has played out like a war movie, with different battles playing out on a wide array of theaters. In April the Third Circuit in New Jersey affirmed an injunction protecting Kalshi and just recently, the Ninth Circuit went the other way, holding unanimously that the substance of these contracts is sports gambling regardless of what Kalshi calls them, and that federal law likely does not preempt state gaming regulation. All of this as Washington failed last week to pass the CLARITY Act, which attempts to divide how the CFTC and SEC govern regulated digital assets but also could have far-reaching implications for controversial event contract types dealing with sports and politics.

All of this is on a fast (or slow) track to the Supreme Court — it depends on how you read the patchwork.

Data centers. Another prime example of this beautiful and organized chaos on display is in the meteoric rise and sudden descent of the political feasibility and popularity of data centers.

In roughly the first six weeks of the 2026 sessions, more than three hundred data center bills were filed across thirty-plus states, covering everything from outright bans to tax credit suspensions, siting reform, environmental regulation, power generation and labor and privacy standards. New York and Illinois, both huge data center markets in the past, required the executive rather than the legislative branch to act at all — Governor Hochul by executive order imposing a one-year moratorium on new hyperscale permits, and Governor Pritzker by directing his administration to pause new data center tax incentive agreements. Oklahoma’s megawatt cap died on the vine, and the recent water leak catastrophe in El Reno adds insult to injury within the policy sphere in the state.

As legislative action has stalled these last several months, and in the face of huge opposition from private investment and organized labor, and as political pressure grew from rural communities and angry constituents who have watched their electric bills rise through the roof, the regulatory action moved instead to the utility commissions and to local governments. In Illinois, leaders have incentivized alternative energy operators by passing huge pieces of legislation like the Clean and Reliable Grid Affordability Act, or CRGA, which aims to produce an additional 3 GW of energy storage capability by 2030 — the immediate goal being to sustain the growth of data centers and offset their impact. Following the adage of “all politics is local,” and as an example of the certainty that voters vote with their pocketbooks, the fights within these arenas have, for the most part, centered within affected local communities while state or official action slugs along.

Meanwhile, during all this time, the need for data centers has exploded with increased AI adoption among white-collar job markets and blue-collar task-doers alike, as did the electricity bill of all communities and especially the already vulnerable ones. With data center infrastructure growth set to reach $1 trillion by 2030, and the penchant for Washington not to touch hot-button issues and leave them to the states, this issue is a main bulwark of the patchwork.

Artificial intelligence. Like prediction markets, AI development and governance issues rest within the patchwork.

Recently, the daily news drip of AI models acting out within frontier in-house deployments points to the continuation of policy and governance debates throughout the 2027 and ’28 legislative sessions. Within these debates are key discussions of how to secure and stabilize the development of AI while also protecting and fostering growth and innovation.

While novel and revolutionary, AI continues to evolve daily — which makes it the ideal candidate for further study and, if I were placing a bet on Kalshi, I’d bet that their regulatory path would mirror the following pattern:

• New technology revolutionizes human behavior

• Wrongs and discomfort identified, press releases released

• Years of political posturing around multiple elections and campaigns

• Actual reform

As of midsummer, states have enacted something on the order of 109 AI laws across twenty-nine states. Meanwhile, Washington D.C. and the Trump administration have spent a year trying to preempt all of it. However, just this weekend, after a week filled with questions about the possibility of AI causing the apocalypse, Trump himself announced on Truth Social that he will create a new bureaucratic layer termed “AI Force,” headed by an “AI Czar.” So, the operative mindset for anyone deploying an AI product in the United States is: twenty-nine different rules, plus the live possibility that all of them get erased overnight.

Route gaming. They’re right in front of your eyes in gas stations, convenience stores and other retail establishments. Their purpose, regulation and legal protocols change from state to state, as do their revenue positioning and tax treatment — and you likely have no clue what to call them at all.

In Pennsylvania and Missouri, states with robust regional casinos, standalone machines that look like slot machines and pay like slot machines sat in bars, restaurants, stores and VFW halls for years while the courts argued about whether they were gambling devices at all.

This year served as a seismic shift on this front. In June, like a bolt of lightning from Zeus, the Pennsylvania Supreme Court held that skill games are slot machines and unlawful under the state’s gaming laws. The Court stayed enforcement for 120 days and started a clock, reminiscent of the doomsday clock, that runs out on October 13, at which point roughly seventy thousand machines go dark unless the legislature builds a framework which enhances gaming, provides for responsible gaming measures and ensures public benefit. Among the biggest opposition: the traditional casino gaming industry, who for years have enjoyed strong ROI and in recent months are investing heavily in new locations to help attract younger demographics.

Changing arenas to the “Show Me State,” with the absence of successful legislation, strong regional casino opposition, and as they watch Illinois prosper from legal and regulated VGTs, Missouri took the enforcement route this year. The timeline of events follows a familiar pattern of product expansion, regulatory arbitrage, legal battle and policy failure. A federal judge ruled the machines illegal in February, the attorney general persuaded the state’s largest operator, Torch Electronics, to unplug in April, and a Senate committee killed the legalization bill in May.

Meanwhile in Illinois, licensed VGTs have generated more than $5.7 billion in tax revenue for state capital projects since 2012, and in FY2025 video gaming passed the lottery — which had held the top spot since 2008 — to become the state’s largest single source of gaming tax revenue.

It’s worth mentioning that VGTs and VLTs are largely “Games of Chance,” more akin to casino slot machines and thus more accountable from a regulatory perspective. They require minimum payouts, are lab tested and participate in the tax revenue for the state — in Illinois, roughly 1.6% of the entire annual budget, and as of FY2025 the single largest source of gaming tax revenue in the state, ahead of the lottery, the casinos, sports wagering and horse racing.

The regulator in Illinois says it plainly. In the Illinois Gaming Board’s 2025 annual report, Administrator Marcus Fruchter writes that Illinois’ video gaming industry “is currently the largest source of gaming tax revenue” and that “the State’s regulated video gaming route network is the largest distributed network of its kind in the world.” Nearly 50,000 terminals across roughly 8,800 licensed establishments. That is the model for regulation in this sector, and it was built step by step with careful compliance and regulatory considerations along the way.

Dysfunction Is a Certainty

This fragmentation is not a bug in the American system; it’s the system itself, working exactly as designed, under conditions its framers never anticipated — or did they?

In performing this work, one must accept this and seek out the obstacle, learn it, be friends with it, take it to lunch, and ultimately turn it into an advantage. In taking this approach, anyone can crack this code and break the mold for their employers, shareholders, constituents, voters, etc.

Those that do this know which agency, working group, or stakeholder decides, as opposed to which one appears on the press release. They know a rule is being drafted eighteen months before it is a rule, because they know the drafting is downstream of a working group or influential caucus that met in February. They see where the through-points are, and more importantly, where they aren’t.

That skill has no name and no credential, and right now, it’s one of the highest-leverage capabilities a person could have, giving themselves and their clients strong agency and high likelihood of success in what is otherwise a puzzle of regulatory madness.

The Next Aristocracy

For the last twenty years, the key differentiator was attention. Capture it, aggregate it, resell it. That was the whole ballgame, and it produced enormous fortunes and an entire culture organized around the extraction of eyeballs. It also produced a captive generation of people who mistook engagement for insight and volume for value — drinking from a fire hose of content and putting their own creative fire on the back burner.

That era is closing by design, and the culprit is right in front of our eyes.

When generating content can be done in the blink of an eye, with very little skill, the market value of producing collapses on its face. We are seeing this in real time, through the sudden rise and fall of many engagement-native business pursuits, and it amounts to simple logic: abundance breeds mediocrity, and mediocrity kills price.

What does not collapse on its face is the value of knowing which claim or path is load-bearing and which is just window dressing.

For policy and regulation: which piece of politics and corresponding data controls the deal in front of you, and which conventional wisdom is the non-consequential status quo. Judgment, synthesis, and a map of the terrain get more valuable in a world of unfettered generation, not less, because they are the only remaining scarce inputs in a world filled with constant outputs.

So here is the bet this publication is making, stated as plainly as I can:

The next skill aristocracy will not be built on content generation, attention farming, or making money online. It will be built by the people who gather intelligence, analyze it, iterate on it, and collaborate with others to act on it before the regulatory and legislative window closes.

Information is the input. Knowledge is the advantage. First-moving is the output.

The richest available territory for that kind of work happens to be the exact gap I’ve been describing: the space between what a technology, product or industry can already do and what the rules currently permit. That space is enormous, it’s readable if you know where to look, and it’s fogged up with noise, negativity and 24-hour news cycles.

This space will write about the space in between. What the regulation is about to do to the industry and, more importantly, which industry advances have already made which regulation obsolete. That is the vantage point that is missing, and it’s the one that can help solve for this patchwork.

Where We’re Headed

Patchwork 50 publishes bi-weekly.

Each issue will take one piece of the bureaucratic albatross and draw it properly: a sector, a state fight, a definition worth a billion dollars, a gap that is about to close, or open. The through-line is always the same: here is what the thing does, here is what the rules currently allow, here is the distance between them, and here is how you can close it for yourself, your clients, your constituents, etc. Or, if you want to just impress your friends with all your random knowledge — that’s cool too!

I’m open to collaborative analysis too, opinion and POV takes on the topics I’m discussing, and others not brought up in this initial post or subsequent posts. After all, as we analyze, dissect and ultimately predict the future, one thing that we can take to the bank is that humans will need to collaborate and iterate and discover new channels, new movements and new outcomes together.

The gap between what our emerging technology and verticals can do and what our laws permit is the largest unexploited territory in the American economy. Almost nobody is charting it from a policy and regulatory perspective, and the people who do are going to gain the skill of catching a 90 MPH fastball and throwing it to second base in 1.9 seconds.

Let’s go find out where the seams are.

See you along the Patchwork!

Patchwork 50 is written by a 15-year government affairs and political professional. Reply to this email or write to hello@readpatchwork.com — I read everything.

Disclaimer

This publication and its authors are not licensed investment professionals, attorneys, or registered advisors of any kind to the readers of the Patchwork 50. Nothing published under the Patchwork 50 brand should be construed as investment, legal, or professional advice. Do your own research.

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