The rise of unregulated prediction market platforms has stripped U.S. states of an estimated $1 billion in tax revenue that would have been collected under traditional sports betting frameworks.
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Prediction markets cost states $1 billion in lost tax revenue, gaming group says
Unregulated prediction market platforms have cost U.S. states an estimated $1 billion in forgone tax revenue, the American Gaming Association said Wednesday, escalating pressure on the Commodity Futures Trading Commission to assert federal oversight over the rapidly expanding sector.
"The platforms are currently not being properly regulated by the Commodity Futures Trading Commission," Bill Miller, president and CEO of the American Gaming Association, said in a statement.
The $1 billion estimate covers lost state tax revenue from sports-focused prediction markets that have surged in popularity, operating outside the regulatory framework governing traditional sports betting. The CFTC has argued it holds exclusive authority over the sector rather than allowing state-by-state regulation, putting it in direct conflict with state regulators who have sought to restrict the platforms.
The dispute carries significant financial implications for both state budgets and the future of the prediction market industry. If states begin taxing prediction market transactions, annual revenue could reach hundreds of millions of dollars. The CFTC is currently engaged in multiple legal battles with states over jurisdiction, with the Trump administration backing the federal regulator's position in those disputes.
The Regulatory Battle Over Prediction Markets
The clash echoes the post-2018 landscape after the Supreme Court struck down the Professional and Amateur Sports Protection Act in Murphy v. NCAA, which opened the door for states to legalize sports betting. Since then, 38 states have authorized sports wagering, collectively generating more than $3 billion in state tax revenue, according to the American Gaming Association. The current regulatory vacuum for prediction markets means that revenue stream is being bypassed entirely.
New sports-focused prediction markets operate differently than traditional sportsbooks, using event-based contracts that the CFTC classifies as derivatives. The agency's argument for exclusive authority rests on the Commodity Exchange Act, which gives it jurisdiction over futures contracts and options. State regulators counter that the platforms constitute illegal gambling under state law.
President Donald Trump's backing of the CFTC in these disputes marks a significant shift, giving the agency's chairman a major boost in his clash against state officials. The outcome of these legal fights will determine whether prediction market platforms face state-level restrictions or federal oversight — and whether states can capture a share of the growing revenue. Platforms such as Kalshi and Polymarket have seen trading volumes surge, with some contracts drawing scrutiny from both federal and state authorities over whether they constitute regulated derivatives or unlawful gambling.
This article is for informational purposes only and does not constitute investment advice.
[1] Gaming association says states have lost $1 billion in tax revenue due to prediction markets[2] Prediction markets regulation proposal by CFTC eyed by White House[3] What Sports Executives Need to Know About Prediction Markets[4] ‘SCUM’: Trump enters prediction market fight with swing at regulator's critics[5] Trump voices support for CFTC in battle for authority to regulate prediction markets
