Published on: June 9, 2026, 06:28h.
Recently updated on: June 9, 2026, 06:28h.
- The Tax Policy Center warns that prediction markets can threaten state gaming tax revenue
- Some states face greater risks than others
- There’s growing momentum at the state level to introduce taxes on prediction markets
As numerous financially challenged states seek innovative revenue streams, the swift rise of prediction markets poses both risks and opportunities.
The danger is apparent. Sports betting taxes generate significant revenue for states; however, unlike sportsbook operators, yes/no prediction exchanges are regulated at the federal level, complicating states’ efforts to secure their share of taxes unless relevant legislation is enacted. The Tax Policy Center highlights the concern that even minor shifts in market share from sportsbooks to prediction markets can considerably impact state revenue streams.
New York serves as a notable example of potential budgetary vulnerability. “In the 2026 state fiscal year, mobile sportsbooks in the state produced around $2.6 billion in gross gambling revenue,” states the policy group. “With one of the highest tax rates nationwide (51%), that revenue generated approximately $1.3 billion for New York’s education, youth programs, and services for problem gambling.”
The Tax Policy Center projects that a mere 5% shift from sportsbooks to prediction markets in New York could potentially deprive the state of $66 million in yearly revenue.
Some States Are Already Taking Action
A recent report by the American Gaming Association (AGA) from late May indicates that states and Native American tribes have suffered an estimated loss of $1 billion in tax revenue due to prediction markets. This concern, alongside insights from the Tax Policy Center, has not gone unnoticed by numerous states.
For instance, Illinois has introduced a novel prediction market tax akin to its online sports betting per wager system. In this state, prediction market operators are now subject to a 1.75% tax on the first five million bets, which escalates to 3.5% for any additional wagers.
According to the Tax Policy Center, New York and Illinois account for half of the total sports betting tax revenue collected in the United States, with Iowa and Kentucky also considering prediction market taxes.
Policymakers across various states are “evaluating how to integrate these platforms into current gambling tax systems or proposing new tax models specifically designed for event-based trading,” as noted by the Tax Policy Center.
States Striving to Adapt
States’ capacity to impose taxes on prediction markets may hinge on judicial decisions, as the Commodities Futures Trading Commission (CFTC) oversees these entities and is known for asserting its federal regulatory authority. The commission is expected to announce a more detailed regulatory framework specifically addressing prediction markets in the near future.
Clearly, states have a desire for new revenue and are attempting to keep pace with the rapidly changing landscape of event contracts.
The overarching takeaway is known to budget officials everywhere: Economic activities frequently outpace tax systems. Prediction markets illustrate this principle vividly,” concludes the Tax Policy Center.