Gaming Lobby Sounds Alarm on Billion-Dollar Tax Gap From Prediction Markets

State and tribal governments are missing out on hundreds of millions of dollars in taxes as legacy sportsbook operators clash with newer prediction market platforms, industry officials say.

AGA Claims Prediction Markets Cost States Over $1B in Tax Revenue

The American Gaming Association (AGA) has stepped up its criticism, claiming the rapid growth of prediction-based trading platforms has cost more than $1 billion in potential revenue. The organization says these platforms operate under a federal framework that does not match state-level gambling taxation systems, and local authorities are not getting a share of the proceeds, as reported by CNBC.

AGA leaders pointed to increasing concerns among policymakers nationwide. More recently, a large coalition of state attorneys general, from across the political spectrum, has argued that federal regulators have a role to play in regulating financial markets, but not sports betting activities. AGA noted that the implication is that prediction platforms are operating in a regulatory gray area that deprives states and tribal entities of funds that would otherwise be used for public services and infrastructure.

Licensed sportsbooks generate substantial tax revenue for local budgets, while prediction markets are treated differently under federal law. This distinction has made it difficult for states to impose taxes or licensing requirements, even as the platforms have attracted more users interested in wagering on sports outcomes through financial-style contracts.

US States Push Legal Action and New Tax Plans on Prediction Market Platforms

In response, several states have begun to look at legal and legislative options. Some states are taking legal action against large prediction market operators, claiming their products are akin to unregulated sports betting. Others are developing new tax models that target these platforms. The proposed measures include a range of options from transaction fees to licensing fees and revenue-sharing models.

Meanwhile, the debate has drawn national attention. There were recent comments from political leadership emphasizing the importance of preserving federal oversight of prediction markets, and condemning efforts by individual states to intervene. That has added another layer of complexity to an already contentious issue, with questions of jurisdiction and regulatory authority still unresolved.

Industry sources say a big chunk of the activity on top prediction platforms centers on sports-related contracts, backing assertions from the gambling industry that these services are essentially just offering sports betting in a different form.With both sides digging in their heels, the ramifications of this dispute could be far-reaching for the future of gambling regulation in the US. States, tribes, and industry stakeholders are watching closely to see how lawmakers and regulators will respond to the shifting landscape, with billions of dollars potentially at stake.