Preface

Context: This article examines a recent estimate from a major gambling industry association that states and tribes have lost more than $1 billion in tax revenue because of the growth of prediction markets. The estimate, voiced by the association's president and CEO on national television, frames prediction markets as a form of unregulated sports wagering that diverts funds that would otherwise support public services and tribal programs. At the same time, platforms and a coalition representing them dispute both the characterization and the numbers. This piece aims to outline the competing claims, the regulatory dispute between states and the Commodity Futures Trading Commission (CFTC), and the broader implications for public revenue and market oversight.

Lazy bag

Key takeaways: An industry association says prediction markets have cost states and tribes roughly $1 billion in tax receipts. They argue these platforms operate like sportsbooks but avoid state regulation. Platform groups counter that prediction markets serve broader economic purposes and dispute the revenue estimate.

Main Body

The American Gaming Association, a prominent trade group for casinos, manufacturers and gaming employees, recently presented an estimate that state and tribal governments have lost in excess of $1 billion in tax revenue as prediction markets have grown in popularity. The association's president and CEO elaborated on this figure during a media appearance, emphasizing the potential consequences for communities that depend on regulated gambling taxes to fund civic projects and tribal programs. The claim reflects a longstanding tension between traditional gambling stakeholders and emerging financial platforms that facilitate bets or contracts tied to the outcomes of sports, politics, and economic indicators.

At the heart of the dispute is whether certain prediction market contracts are functionally equivalent to sports wagers and should therefore be subject to the same state-level regulatory regimes that govern sportsbooks. The association contends that many prediction market offerings — particularly those tied to sporting events — amount to a form of backdoor sports betting. Because these products often operate without the licenses, consumer protections and tax obligations imposed on regulated sportsbooks, the association argues they create an uneven playing field and deprive public coffers of expected revenue.

States have echoed this argument in litigation, filing suits against several prediction market platforms on the grounds that their event-based contracts violate state gambling statutes. In response, the Commodity Futures Trading Commission has asserted federal jurisdiction over many of these contracts, framing them as swaps or derivatives that fall within its regulatory remit. This jurisdictional disagreement has escalated to a series of legal actions: while states pursue enforcement based on local gambling laws, the CFTC has in some instances sued back, challenging state efforts that it views as encroachments on its authority.

The advocacy group’s claim about lost tax revenue is both a financial and political lever. By emphasizing the size of the alleged loss, the association aims to mobilize policymakers and the public around tighter controls and clearer rules that would either bring prediction markets under state regulation or restrict their operation. Such outcomes would, in turn, protect existing gaming industry revenues that support state and tribal budgets. The association also flagged the adverse effects on Native American casinos, noting that tribal governments can be particularly dependent on gaming income for funding essential services.

Prediction market platforms and their industry coalition contest both the legal characterization and the fiscal estimate. The Coalition for Prediction Markets — representing firms such as Kalshi, Coinbase and Robinhood — has challenged the association's numbers, noting a lack of transparent sourcing. Platform spokespeople argue that many prediction markets are not merely gambling outlets but financial instruments with economic utility. They point to contracts linked to macroeconomic variables, political outcomes and other non-sport events as evidence that their services have legitimate market functions beyond entertainment betting.

Public messaging from the platforms has also emphasized consumer protections and comparative safety. One spokesperson for a platform described prediction markets as fairer and less predatory than traditional casinos, suggesting that users who migrate to these platforms do so for reasons related to product design and perceived safety. Such statements are part of a broader narrative battle: traditional gaming operators seek to protect regulated revenue streams, while new entrants argue for recognition as financial-market participants subject to federal oversight rather than state gambling rules.

The regulatory environment is evolving. The CFTC’s role in this space is under active discussion; the Office of Management and Budget has reviewed a proposal to formalize CFTC authority over certain prediction market products. Some political figures have publicly supported maintaining the CFTC’s jurisdiction, underscoring the national rather than purely local nature of the markets in question. These developments could decisively shape whether prediction markets are treated as financial derivatives under federal law or as gambling products regulated primarily at the state level.

Practical implications extend beyond legal technicalities. If prediction markets are regulated as gambling at the state level, platforms might face licensing costs, tax obligations, and consumer-protection requirements that could alter their economics and product offerings. Conversely, if the CFTC or another federal framework governs these markets, platforms may operate under a different set of compliance standards focused on market integrity and derivatives regulation, potentially enabling broader nationwide offerings without navigating dozens of state regimes.

Observers note risks on both sides. States and tribal entities argue for protecting tax bases and the jobs tied to regulated casinos. Platforms warn that overbroad classification as gambling could stifle financial innovation and restrict legitimate hedging or prediction tools. Legal outcomes and regulatory decisions in this area will likely set precedents for similar digital marketplaces in the future, and stakeholders on all sides are positioning to influence that trajectory.

In the near term, expect continued litigation, regulatory filings and public statements from both industry groups and platforms. The debate will likely focus on the proper balance between consumer protection, market innovation, tax fairness and regulatory clarity. Whatever the result, the dispute highlights how emerging online products can challenge existing regulatory frameworks and force policymakers to reconcile competing public policy objectives.

Key Insights Table

Note: This article is an objective summary of competing claims and regulatory developments surrounding prediction markets and does not include promotional content.