AGA Claims Prediction Markets Are Costing States Over $1 Billion in Lost Tax Revenue

The American Gaming Association has escalated its campaign against prediction market platforms, claiming that the rapid growth of CFTC-regulated event contract products is costing state and tribal governments more than $1 billion in annual tax revenue. The AGA made the argument in public statements released this week, framing the prediction market expansion as a structural threat to the regulated sports betting framework that dozens of states have spent years building.

The gaming lobby’s position is that platforms like Kalshi and Polymarket promo code are offering products that are functionally similar to traditional sports wagers but are classified as federally regulated derivatives, which allows them to avoid state-level taxes, licensing fees, and advertising restrictions that licensed sportsbooks must comply with. AGA officials contend that this regulatory mismatch creates an uneven playing field and diverts consumer spending away from the licensed, tax-paying operators that state legislatures authorized.

The Tax Arithmetic Behind the Claim

The AGA’s $1 billion figure reflects an estimate of what states are foregoing in gambling taxes, licensing revenue, and problem gambling fund contributions as prediction market platforms capture an increasing share of event-based wagering activity. Several states tax sports betting gross gaming revenue at rates ranging from 10 percent in states like New Jersey and Colorado to more than 50 percent in New York, and none of those taxes apply to prediction market contracts traded on CFTC-regulated exchanges.

A separate analysis released this week by Citizens JMP Securities found that prediction market users who place combination contracts, the structural equivalent of parlays, experienced worse financial outcomes on average than traditional parlay bettors at licensed sportsbooks. That finding is unlikely to slow the growth of the platforms, but it adds to a body of research suggesting that prediction markets carry similar consumer risk profiles to regulated sports betting products despite operating under a different legal framework.

The AGA’s argument has found support from the coalition of state attorneys general who have challenged Kalshi and Polymarket review in court, as well as from several state legislatures that have moved to restrict or ban prediction market activity. Minnesota became the first state to enact a felony ban on prediction market operation, and its law is now facing a federal legal challenge from both Kalshi and the CFTC itself, which argues that federal preemption prevents states from restricting CFTC-regulated event contracts.

Industry Pushback and the Road Ahead

Prediction market operators dispute the framing. Kalshi and its supporters argue that event contracts are financial instruments, not gambling products, and that imposing state gambling taxes on them would both exceed state authority and distort a market that serves legitimate hedging and forecasting functions beyond pure wagering. They also point out that CFTC regulation includes its own consumer protection and market integrity requirements, even if those differ from state-level gambling regulations.

The regulatory outcome will hinge in large part on how federal courts resolve the preemption question raised in the Minnesota litigation. If courts determine that states retain meaningful authority to impose their own restrictions and tax frameworks on event contract activity, the AGA’s legislative agenda becomes significantly more viable. If courts side with federal preemption, it would effectively establish prediction markets as a national product operating outside state gambling tax systems.

Caesars Digital president Eric Hession recently argued at an industry conference that prediction markets could ultimately serve as a catalyst for iGaming expansion by forcing states to reckon with the limits of their current frameworks. That view reflects a segment of the traditional gaming industry that sees the current conflict as an opportunity to accelerate regulatory convergence rather than simply defend existing market share.

The AGA has not indicated whether it supports a federal legislative solution that would require prediction market platforms to contribute to state tax frameworks, or whether it will continue to rely primarily on state-level litigation and legislation to press its case. Either way, the tension between prediction markets and traditional sports betting operators is shaping up to be one of the defining policy battles in the gambling industry over the next several years.