The American Gaming Association (AGA) has reported that states have potentially lost out on $1 billion in tax revenue as a result of the increasing popularity of prediction markets. AGA President and CEO Bill Miller highlighted that these platforms are not receiving adequate federal regulation.
The ongoing debate surrounding prediction market products, which offer yes/no event contracts, has intensified regulatory tensions. This conflict involves state gaming authorities, who assert that prediction markets are essentially the same as gambling, the Commodity Futures Trading Commission (CFTC), which oversees this emerging sector federally, and the companies behind these platforms, which argue that federal jurisdiction is the sole authority for regulation.
The AGA, which represents the regulated commercial gambling industry in the U.S., claims that these prediction market exchanges have deprived state and tribal governments of significant revenue that could have funded taxes, infrastructure, essential services, and community initiatives. Their live tracker indicates that the total loss has surpassed $1 billion and continues to grow.
The crux of the dispute lies in whether contracts related to sports events should be classified as federally regulated swaps and derivatives or as sports betting products governed by state and tribal gaming regulations.
Several states have initiated lawsuits against platforms like Crypto.com, Kalshi, and Polymarket, alleging that they are conducting sports wagering outside the bounds of local regulations. In response, the CFTC has filed lawsuits against states it claims are obstructing its authority. Minnesota has outright banned prediction markets, a decision now facing legal challenges from the CFTC.
In a recent Truth Social post, former President Donald Trump asserted that the CFTC's jurisdiction over prediction markets should remain intact. Additionally, the Office of Management and Budget is currently reviewing a proposal for the CFTC to take charge of regulating these markets.
During a segment on CNBC’s “Squawk Box,” AGA President Bill Miller noted that 41 state attorneys general have expressed their views, stating that while the CFTC plays a crucial role in the economy, it should not regulate national sportsbooks. He emphasized that this issue transcends the AGA and the gaming industry, focusing instead on the revenue losses impacting states and tribes.
“This is about states and tribes losing approximately $1 billion in revenue that would otherwise support vital community projects and state taxes,” Miller stated.
Miller characterized prediction markets as “backdoor sports betting,” contending that these platforms function like sportsbooks without the necessary oversight at the state level. The AGA has also criticized prediction market platforms for circumventing voter decisions, consumer protections, state and tribal laws, licensing requirements, and tax obligations.
In response to these challenges, some states are considering tax measures. Kentucky is looking at a 17.25% tax on transaction fees from prediction market operators, while Iowa is evaluating a $20 million permit fee, a $100,000 annual fee, and a 20% tax on adjusted revenue. Pennsylvania is also contemplating licensing fees and revenue taxes for yes/no exchanges.
Prediction market companies dispute the comparison to sports betting, asserting that their products provide economic value, including contracts linked to macroeconomic events and political outcomes. The Coalition for Prediction Markets, representing platforms such as Kalshi, Coinbase, and Robinhood, has questioned the AGA's revenue loss estimate on social media, stating, “Sources not found.”
Kalshi spokesperson Elisabeth Diana also challenged the AGA's figures, labeling them as “fake math from casinos” and arguing that prediction markets are “fairer, safer, and less predatory than casinos.”