AGA Report Details Billion-Dollar Revenue Gap Tied to Prediction Markets

The American Gaming Association has released figures showing states and Native American tribes stand to lose more than one billion dollars in potential tax collections because prediction markets operate under federal oversight through the Commodity Futures Trading Commission rather than state licensing frameworks. Contracts on platforms such as Kalshi and Polymarket generate substantial trading volume yet fall outside the taxation structures that apply to traditional gaming operators, and the association points to this regulatory separation as the core driver of the shortfall. Data compiled by the group indicates sports-related event contracts account for the majority of activity on these platforms, creating a direct overlap with markets that many states already tax when conducted through licensed sportsbooks. Because the CFTC treats these contracts as derivatives, operators avoid the licensing fees and tax rates that apply to state-regulated entities, and observers note this structure has persisted even as trading volumes climbed sharply in recent years.

Litigation and Legislative Responses Emerging in Multiple Jurisdictions

State attorneys general have filed suits challenging the reach of federal preemption in this area, and proposed tax measures have surfaced in Kentucky, Iowa, and Pennsylvania as lawmakers seek to capture revenue from contracts that resemble wagers on sporting outcomes. In each of these states, bills under consideration would impose taxes or require licensing for platforms that offer event contracts tied to sports, elections, or other measurable occurrences, although the legal path forward remains contested because the CFTC currently holds primary jurisdiction.

Those who have reviewed the filings note that Native American tribes face similar exposure since their gaming compacts with states typically cover only activities conducted under tribal-state agreements, leaving prediction market activity unregulated and untaxed at the tribal level. The association's analysis connects these gaps to the broader growth of event contracts, where participants trade positions on future results without triggering the same tax obligations that licensed operators meet.

Volume Trends and Market Composition

Figures released alongside the report show sports-related contracts dominating daily and monthly volume, outpacing contracts on elections, weather, or economic indicators. This concentration matters because many states already collect taxes from sportsbooks at rates ranging from 6 percent to more than 50 percent depending on jurisdiction, and the absence of comparable collections from prediction platforms represents the estimated billion-dollar shortfall. The association links these numbers directly to data tracking open interest and settlement volumes on the two major platforms.

Researchers tracking the sector point out that the CFTC's regulatory umbrella covers these products as swaps or futures, which means operators register at the federal level and comply with rules on transparency and clearing but do not remit state-level taxes on handle or revenue. This distinction creates the revenue displacement the American Gaming Association has quantified, and the report presents the $1 billion figure as a cumulative estimate across multiple states and tribes since the platforms scaled up operations.

State-Level Actions and Ongoing Legal Developments

In Kentucky, lawmakers have advanced proposals that would classify certain event contracts as sports wagering subject to existing tax statutes, while Iowa regulators have examined whether prediction platforms require separate licensing when their contracts mirror outcomes already covered by state sportsbooks. Pennsylvania has seen similar discussions, with draft legislation aiming to close the gap by extending taxation to any platform offering contracts on events that occur within state borders. Each of these efforts faces potential challenges under federal preemption doctrines, and court rulings expected in coming months could clarify whether states may impose additional requirements.

The association has published a live tracker that updates estimates of lost revenue as trading volumes shift, and the data source connects directly to ongoing monitoring of sports-event contracts. Those reviewing the tracker observe that the majority of lost collections stem from contracts on professional and collegiate sports rather than other categories, reinforcing the overlap with existing state gaming tax systems.

Broader Implications for Gaming Taxation Structures

Because prediction markets settle contracts based on verifiable outcomes, they share functional similarities with traditional sportsbooks even though their regulatory classification differs. The association's report emphasizes that this similarity drives the revenue impact, and it presents the billion-dollar estimate as the result of applying average state tax rates to the portion of platform volume attributable to sports-related contracts. States that have already built robust sports wagering frameworks therefore see the largest projected shortfalls, while tribes operating under compacts experience parallel losses when bettors migrate activity to federally regulated platforms.

Legal proceedings continue in several districts, and the outcomes will determine whether states can require registration or collect taxes without conflicting with CFTC authority. In the meantime, the reported figures provide a baseline for policymakers evaluating adjustments to licensing statutes or tax codes.

Conclusion

The American Gaming Association's assessment outlines a clear revenue gap created by the current division between federal and state oversight of prediction markets. With sports contracts driving the bulk of activity and multiple states pursuing legislative or litigation remedies, the situation centers on how taxation authority will be allocated going forward. The live tracker referenced in the report offers ongoing visibility into volume trends that underpin the billion-dollar estimate, and developments in Kentucky, Iowa, and Pennsylvania will likely shape the next phase of regulatory alignment.