Prediction market tax revenue drain hits state budgets hard amid surging sports wagering volumes on event contracts.
State governments are watching revenues slip away as their state’s traders are flocking to prediction market platforms for sports-event contracts that mirror traditional betting. The American Gaming Association estimates that lost gaming tax dollars have now surpassed $1 billion. That tally is climbing daily as volumes surge.
This shift creates immediate revenue issues for states as taxes from state-regulated gaming take a hit from this increasingly popular new kid on the block. While legal sports betting operators remit assigned percentages of revenue to state coffers, prediction market platforms operate under federal frameworks. This distinction largely exempts them from those same obligations. In short, they aren’t getting their cut of the action.
Tax Wedge Widens Between Regulated Sportsbooks and Prediction Platforms
Sports betting taxes vary widely by jurisdiction, ranging from a low of 6.75% in Iowa and Nevada to over 50% in New York, New Hampshire, and Rhode Island, and everywhere in between. Prediction market operators, by contrast, typically face only standard corporate income taxes. Several states don’t even have corporate income taxes. Platforms like Polymarket and Kalshi are not subject to these sports betting or gaming taxes.
For example, one U.S. state collects 18% from sportsbooks on relevant wagers but only 2.25% corporate tax from prediction platforms operating in the same space. Forbes analysis details the growing gap.
Estimated Annual Tax Impacts from Shifting Activity
| Category | Traditional Sportsbook Tax Contribution | Prediction Market Equivalent | Potential Annual Shortfall |
|---|---|---|---|
| High-Tax States | 18-51% on GGR | Minimal or zero gaming tax | Hundreds of millions |
| No Corporate Income Tax States | 6-20% gaming tax | $0 gaming-specific | Significant per-state losses |
| Cumulative National | Billions generated historically | Over $1B diverted to date | Accelerating with volume growth |
Data compiled from industry trackers shows the gap widening as sports contracts dominate platform volumes.
Lawmakers in multiple states have introduced bills to close this loophole, but without the current authority to regulate these markets under state gaming regulations, it’s proven rather difficult. This is why almost all of these states have enacted, or are considering enacting, prohibitions or bans on prediction market contract trading.
If we can’t tax your revenue under our gaming authorities, then you can’t operate here.
Legal Battles Escalate as States Fight to Reclaim Revenue Streams
Attorneys general from 41 states have united in challenging federal oversight that allows these platforms to operate nationwide. They argue that sports-focused contracts function as unlicensed betting, evading state gaming regulations intended to protect users. Additionally, they claim that sports-market prediction contracts deprive state budgets of funds originally earmarked for education, infrastructure, and public safety.
The CFTC, which currently holds federal regulatory authority over prediction markets, has countered by filing suits against states attempting to enforce such laws, intensifying the jurisdictional clash.
Tribal gaming operations also feel the pinch as compact revenues tied to exclusive gaming rights, or shares thereof, erode when bettors opt for interstate prediction apps instead. Industry groups representing casinos and sportsbooks (not an entirely unbiased union) highlight how prediction market operations undercut the regulatory framework voters approved, where taxes funded community priorities in exchange for controlled expansion of gaming in the state.
States that have legalized sports betting since the 2018 Supreme Court decision allowing states the option to legalize have sold their initiatives to voters as a means to raise tax revenues to fund schools, hospitals, and first-responder budgets.
As governments tend to do, once a new revenue source comes in, it’s treated as if it will be steady and permanent, so service budgets grow around it. Now those revenues are threatened, and there is growing concern about the shortfall in funding for these services.
Industry Groups Sound Alarm on Unsustainable Revenue Shift
The American Gaming Association maintains a live counter documenting the mounting losses. As of late May 2026, the figure exceeds $1 billion and continues rising, underscoring the urgency felt by state officials and tribal leaders alike. View the AGA tracker here.
Bill Miller, AGA President and CEO, stressed that the issue transcends any single industry and affects communities that depend on these revenues. He noted broad support from attorneys general across political lines who prioritize protecting state authority and funding sources.
The AGA is an industry association, so its motivation may extend beyond concern for the funding of public services.
The prediction market platforms have responded by asserting federal compliance and product structures distinct from those of their gaming industry competitors. They argue their model fosters innovation and forecasting while providing liquidity that benefits users seeking to express views on event outcomes. Still, the tax disparity and revenue losses to states remain key drivers of ongoing courtroom and legislative confrontations.
Future Outlook: Will States Close the Loophole?
As trading volumes on prediction market platforms climb into tens of billions annually, pressure builds for some kind of agreeable resolution. Some states are exploring hybrid tax approaches, such as levies on transaction fees rather than on gross revenue. Others are pursuing tighter definitions to redirect activity back into licensed channels.s.
The only thing for certain is that, with this billion-dollar tax revenue loss for states continuing to grow, the legal battles and regulatory maneuvering have only just begun.
References
- States have lost $1 billion due to prediction markets – CNBC
- Sports Event Contracts Tracker – American Gaming Association
- Prediction Markets vs. States: Tax Gaps and Legal Battles – NC State
- Ohio Bill Would Regulate, Tax Prediction Markets – Legal Sports Report
- New Ohio bill would tax prediction markets – YouTube
- States vs. Prediction Markets Regulatory Battles – Multistate
- Prediction Markets Are Costing States Millions – Forbes
- Federal government sues states over prediction markets – AP News
