AGA Puts a Number on Prediction Market Tax Losses as Platforms Expand

The American Gaming Association released figures this spring showing states have already forgone more than one billion dollars in potential tax revenue because prediction markets operate without the licensing and tax structures that govern traditional sports betting. Those markets, offered through platforms including Polymarket and Kalshi, let users wager on election outcomes, economic indicators, and other events that fall outside most state gambling statutes. Because the contracts sit in a regulatory gray area, operators collect fees and handle volume without remitting the percentages that sportsbooks pay to state treasuries.

How the Revenue Gap Developed

States that legalized sports betting after the 2018 Supreme Court decision built tax frameworks around licensed operators, yet prediction-market contracts escaped those same rules. The AGA report traces the shortfall to activity that began accelerating in 2024 and continued through the first half of 2026, when election-related contracts drew record participation. Without licensing agreements, states receive no direct share of handle, no application fees, and no ongoing regulatory assessments that licensed sportsbooks routinely pay.

Industry observers note that the same contracts often mirror the structure of point-spread or moneyline bets, yet they avoid the tax obligations attached to sports wagering. The result is a parallel market that generates fees for the platforms while states collect nothing on the activity.

State Budget Implications

States that rely on gaming taxes to fund education, infrastructure, and problem-gambling programs now face measurable shortfalls tied directly to prediction-market growth. The AGA calculation covers only the period through early 2026, and figures released in July of that year showed continued expansion of event-contract volume, suggesting the cumulative gap will widen before any regulatory changes take effect. Lawmakers in several jurisdictions have begun reviewing whether existing statutes can be amended to capture revenue from these platforms without creating new licensing categories.

Because the contracts sit outside traditional definitions of gambling in many states, enforcement options remain limited. Some attorneys general have sent inquiries to the platforms, while others wait for federal guidance from the Commodity Futures Trading Commission. In the meantime, the tax revenue that would have accompanied equivalent sports-betting handle simply does not appear in state ledgers.

Industry Response and Next Steps

The AGA has shared its findings with state gaming regulators and legislative committees, framing the issue as an unintended consequence of the post-PASPA expansion of legal betting. The organization points to data from its own tracking of sports-event contracts as evidence that the prediction-market segment now moves enough capital to warrant attention from tax authorities. AGA documentation on sports-event contracts outlines how these products generate fees yet bypass the revenue-sharing models already in place for licensed operators.

Platform representatives maintain that their products qualify as financial instruments rather than wagers, a position that has so far shielded them from state-level taxation. That stance leaves open the possibility of future legislation or court rulings that could reclassify the contracts and bring them under existing gaming tax regimes.

Looking Ahead

As trading on prediction markets continues into the second half of 2026, states that once projected steady growth from sports-betting taxes must now account for a parallel market that contributes nothing to those projections. The AGA estimate serves as a baseline figure that regulators and lawmakers can reference when evaluating whether new rules are needed to close the gap. Until those decisions are made, the one-billion-dollar shortfall stands as the clearest measure yet of revenue that has moved outside the reach of state gaming authorities.

Conclusion

The AGA report makes clear that prediction markets have created a distinct revenue stream that currently escapes state taxation. With platforms like Polymarket and Kalshi handling growing volume on contracts that resemble traditional bets, the one-billion-dollar figure represents a concrete loss rather than a hypothetical one. States now face the task of deciding whether to adjust statutes, pursue federal coordination, or accept that this segment will continue operating without contributing to the tax structures already applied to licensed sports betting.