Posted on: June 9, 2026, 06:28h.
Last updated on: June 9, 2026, 06:28h.
- Tax Policy Center says prediction markets jeopardize state gaming tax revenue
- Some states are more vulnerable than others
- There is some state-level momentum to implement prediction market taxes
With some cash-strapped states seeking new revenue sources, the rapid growth of prediction markets represents both threat and opportunity.
The threat is clear. Sports betting taxes are money makers for states, but unlike sportsbook operators, yes/no exchanges are regulated federally, making it difficult for states to get what they believe is their fair share of the tax pie until they pass related legislation. They may be inclined to do just that because as the Tax Policy Center puts it, even small amounts of lost market share from sportsbooks to prediction markets can create significant harms to states’ revenue streams.
New York provides a good example of potential fiscal exposure. In state fiscal year 2026, the state’s mobile sportsbooks generated approximately $2.6 billion in gross gambling revenue,” notes the policy group. “With one of the highest tax rates in the nation (51 percent), that activity produced roughly $1.3 billion in tax collections dedicated to New York’s education, youth programs, and problem-gambling services.”
The Tax Policy Center estimates that in New York, a mere 5% sportsbook-to-prediction market swing could cost the state $66 million in annual revenue.
Some States Are Already in the Fight
An American Gaming Association (AGA) report out in late May indicates that states and Native American tribes have already lost an estimated $1 billion in tax revenue at the hands of prediction markets. That and the Tax Policy Center commentary aren’t lost on some states.
For example, Illinois recently implemented a first-of-its-kind prediction market tax similar to the per wager scheme the state employs on online sports betting. In the Land of Lincoln, prediction market operators are now subject to a 1.75% tax on the first five million bets they process with that percentage doubling to 3.5% for each wager thereafter.
New York and Illinois combine for half the sports betting tax revenue collected in the US, according to the Tax Policy Center. Iowa and Kentucky are also among the states mulling prediction market taxes.
Across various states, policymakers are “exploring options to incorporate these platforms into existing gambling tax frameworks or proposing new taxation approaches tailored to event-based trading,” says the Tax Policy Center.
States Playing Catch-Up
States’ ability to tax prediction markets may be in the hands of the courts because the Commodities Futures Trading Commission (CFTC) regulates these companies and isn’t shy about asserting its federal regulatory privileges. In fact, the commission is expected to soon unveil a clearer regulatory proposal specific to prediction markets.
In terms of clarity, it’s obvious states want new revenue and that they’re playing catch-up to the fast evolving event contracts industry.
“The broader lesson is familiar to state budgeters everywhere: Economic activity often moves faster than tax systems. Prediction markets are just the latest example,” concludes the Tax Policy Center.
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