We cover a large number of ongoing state government attempts to take control over prediction market activity within their state borders. By and large, these legal conflicts have taken the same path, with state bans, injunctions, appeals, and lawsuits by prediction markets and the CFTC. 41 State Attorneys General across the country have signed a letter indicating their support for rightful control over, at the least, the sports and entertainment categories of prediction markets. Now, one state has taken a unique tactic.
North Carolina lawmakers have embedded a groundbreaking provision into a major spending package. This move explicitly recognizes certain event contract platforms as lawful operators while imposing a new tax on their activities. The development is a radical departure from other states’ efforts to capture revenue from the expansion of event-based markets.
The legislation, part of a comprehensive North Carolina budget bill that recently cleared the legislature and received gubernatorial approval, treats platforms registered with the federal Commodity Futures Trading Commission (CFTC) differently from traditional sports wagering operators.
Meanwhile, sports betting faces higher tax levels under the same package. This contrast highlights North Carolina lawmakers’ eagerness to generate new revenue streams from the growing wave of prediction market activity, while still trying to protect their updated 23% tax on sports betting. In short, a why fight ’em when you can tax ’em strategy.
Key Provisions Driving the Authorization in North Carolina
The budget language clarifies that CFTC-registered prediction market operators offering event contracts, including those tied to sporting outcomes, may conduct business lawfully within North Carolina. This North Carolina state government recognition stems directly from federal oversight of prediction markets under the Commodity Exchange Act, rather than from any new state licensing process.
No additional registration, licensing, or regulatory obligations apply to these operators at the state level. In a novel approach, the provision specifies that compliance with federal rules is sufficient for legal operation. Traders engaging in these markets face the same federal standards that already govern commodities trading.
Legislators placed a 6% tax on the net prediction market trading fee revenue that operators derive from North Carolina residents. This levy targets fees paid on qualifying trades and apportions based on the location of the trader at the time of the transaction. Returns become due annually, with records subject to standard inspection periods.
The tax component aligns with the start of the new calendar year. State projections anticipate modest initial collections from this source, potentially around $1 million annually once fully implemented. Though it would set a new precedent for prediction markets to comply with a minimal state tax assessment, quite different than the current, legally contentious battles taking place. And minimal state tax assessments tend to rise.
Tax Structures Compared in the North Carolina Budget
Lawmakers paired the prediction market measure with adjustments to sports betting taxes. These changes raise the rate on gross wagering revenue for sportsbooks while adding a substantial licensing fee. The differences create clear incentives that operators may evaluate when deciding how to structure offerings
Tax Rate Comparison Between Sports Betting and Prediction Markets
| Category | Tax Base | Rate | Additional Requirements |
|---|---|---|---|
| Sports Betting Operators | Gross wagering revenue | 23% | $1 million license fee; full state regulatory oversight |
| Prediction Market Operators | Net trading fee revenue from state residents | 6% | None beyond federal CFTC registration and compliance |
Reactions from Lawmakers Highlight Revenue and Oversight Concerns
North Carolina State Senate leader Phil Berger described the inclusion as recognition of growing popularity and visibility for these trading activities. He noted uncertainty about whether prediction market trading might eventually overshadow traditional sports betting volumes. House Speaker Destin Hall emphasized that significant activity already occurs among residents anyway, making this tax levy timely and simple.
Democratic lawmakers voiced sharper reservations. Sen. Julie Mayfield warned that revenue previously flowing from sports betting could plummet, citing direct consequences for school athletic programs that have grown reliant on those allocations (though most sports betting tax revenue currently goes into the General Fund). Rep. Pricey Harrison called the inclusion in the budget a poor decision, arguing that more careful consideration of the broader ramifications of authorizing the use of prediction markets would have been the wiser choice.
Industry advocate Mick Mulvaney, former White House chief of staff and director of Gambling Is Not Investing, criticized the measure as a sweetheart arrangement favoring unlicensed operators. He argued that it undermines state gambling regulations and could expose younger users to sports-related trading without the more rigorous safeguards required of state-licensed sports betting operators.
Industry Shifts and Revenue Implications Emerge in North Carolina
Operators now face strategic choices related to North Carolina as the new rules take shape. Some sportsbooks, like FanDuel and DraftKings, already integrate prediction market-style contracts into their platforms in certain markets. With the lower effective tax burden here, more activity could shift toward event contract trading to optimize operators’ net revenue.
This migration risks eroding the higher-taxed sports betting base in North Carolina that currently supports state coffers and college athletic programs. Lawmakers built the sports betting tax hike (from 18% to 23%) partly to offset broader income tax reductions elsewhere in the budget. Any significant shift could require adjustments to account for a shortfall in sports betting tax revenue.
Meanwhile, traders stand to benefit from clearer state-level legal clarity for platforms they already use. Federal registration provides the foundation, while the absence of duplicative state rules simplifies compliance. Yet questions persist about consumer protections, data privacy, and enforcement against potential manipulation.
Legal Precedents and Future Challenges Surface
The authorization leans heavily on federal preemption arguments. It asserts exclusive CFTC authority over prediction markets under the Commodity Exchange Act, an authority that most other states are currently challenging in the courts.
Critics raise the possibility of tacit endorsement through taxation. Taxing activity, they contend, might strengthen legal arguments that the prediction market operations enjoy legal status under state law as well. Operators could relocate or restructure headquarters toward jurisdictions offering even more favorable tax treatment.
The measure could serve as a template for other states seeking revenue without full regulatory overlays. It could also invite lawsuits testing the limits of federal versus state authority in this evolving space. It’s becoming evident that state lawmakers are struggling with how to proceed in practice amid the rapid growth of prediction markets among their residents. They can’t do nothing, but they may not wish to go full prohibition or legal battle.
Ultimately, while state politicians wave around the flag of “safeguards” and “the children”, as practical commentators, we understand much of these decisions revolve around the money.
References
1. WRAL News – Prediction market betting would be authorized in NC’s new budget. What it means for sports betting
2. Closing Line – How Did Prediction Markets Get This Sweetheart Deal In The North Carolina Budget?
3. TaxProf Blog – Bloomberg: North Carolina Targets Prediction Markets, Sports Betting Taxes
4. North Carolina General Assembly – Senate Bill 257 (2025-2026 Session)
