AGA Claims That $1 Billion Tax Lost to Prediction Markets

The American Gaming Association has declared that prediction market platforms have cost state governments more than $1 billion in foregone gaming tax revenue. The bulk of that figure has accumulated since the start of 2025. Prediction markets allow users to place wagers on future events, functioning similarly to sports betting platforms but operating under different regulatory frameworks. The association’s commercial gaming revenue tracker indicates nearly $950 million in potential gaming taxes lost since early 2025 alone. The organization contends these platforms operate as unregulated national sportsbooks that avoid the gaming taxes paid by licensed competitors, sparking a regulatory debate over proper oversight authority.

American Gaming Association Reports $1 Billion Revenue Loss from Prediction Markets

Bill Miller, president and CEO of the American Gaming Association, detailed the revenue impact during an appearance on CNBC’s Squawk Box, noting that lost funds would otherwise support critical community projects. Prediction market platforms offering sports bets have deprived seniors’ pension plans and responsible gaming programs of funding.

Regulated gaming generated $1.42 billion in gaming tax revenue for state programs, marking a 10.5% increase over the previous year. Miller emphasized that the gaming industry provides 1.8 million jobs and $53 billion in tax revenue, a figure exceeding the annual budgets of 34 individual states including Pennsylvania, New Jersey, and Illinois. Operators of skill machines, sweepstakes casino sites, and prediction market platforms pay no state gaming taxes.

The threat extends beyond tax revenue. Executive surveys reveal that 81% of gaming executives view prediction markets as a very significant threat to the regulated gaming industry. Federal regulatory concerns now limit operations for 46% of executives, up from 29% in Q3 2025. Competition from new gaming forms affects 42% of executives, compared to 25% last fall.

Kalshi’s growth illustrates the scale. Sports-related activity on the platform represented just $227,000 in volume during 2024. Sports betting now accounts for approximately 86% of Kalshi’s business, generating more than $47 billion in trading volume this year.

How Do Prediction Markets Bypass Gaming Tax Requirements?

Prediction markets classify themselves as financial exchanges regulated by the U.S. Commodity Futures Trading Commission rather than state gambling regulators. This classification creates substantial tax advantages. Platforms rebrand sports wagering as futures contracts to sidestep state and tribal regulatory frameworks governing legal sports betting.

The tax disparity becomes evident through state-by-state analysis. North Carolina subjects prediction market providers only to the 2.25% corporate income tax rate, far lower than the 18% that sports betting providers must pay. For North Carolina, this wedge exceeds 15% since the state collects 18% from a losing wager made via DraftKings but only 2.25% on Kalshi. In states with no corporate income tax, such as Nevada, Ohio, South Dakota, Texas, Washington and Wyoming, prediction market companies essentially pay no state taxes on their income. Nevada’s situation creates an infinite wedge, as Kalshi remits no corporate income taxes while DraftKings faces a 6.75% rate applied to gambling providers.

Licensed operators must comply with know-your-customer protocols, anti-money laundering safeguards, integrity monitoring requirements, responsible gaming requirements, age verification, and local gaming requirements. Prediction markets operate without these. Legal operators have invested heavily in compliance infrastructure, paid meaningful licensing fees, and continue paying taxes that flow to state budgets and public programs.

Legal Battle Intensifies Over Regulatory Authority

The Commodity Futures Trading Commission filed lawsuits in April 2026 against Arizona, Connecticut, and Illinois, challenging state efforts to regulate prediction market operators. All three states had issued cease and desist orders accusing platforms of engaging in illegal online gambling under state law. Arizona escalated actions by filing criminal charges against Kalshi for allegedly violating state gambling laws.

CFTC Chairman Michael S. Selig stated the agency would continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators. The agency contends Congress specifically rejected a fragmented patchwork of state regulations because it resulted in poorer consumer protection and increased risk of fraud.

Connecticut Attorney General William Tong accused the Trump administration of recycling industry arguments rejected in district courts across the country. According to 39 state Attorneys General, prediction market contracts violate state laws and the Indian Gaming Regulatory Act.

The most consequential decision arrived on April 6, 2026, when the Third Circuit Court of Appeals affirmed a preliminary injunction for Kalshi against New Jersey. The court held that Kalshi showed a reasonable chance of success arguing the Commodity Exchange Act preempts state gambling law as applied to CFTC-regulated event contracts. Conversely, state regulators prevailed against Kalshi at the preliminary injunction stage in Nevada, Maryland, and Ohio.