AGA Says States Have Lost $1B as Prediction Markets Avoid Gaming Taxes

The American Gaming Association (AGA) has warned that states have missed out on roughly $1 billion in tax revenue as prediction markets expand outside state gambling systems. 

The trade group said the lost-tax figure reflects activity that would otherwise be taxed under state-regulated sports betting rules to which the best sports betting sites are subject. Prediction market operators argue that their event contracts are financial products overseen by the Commodity Futures Trading Commission (CFTC). State gaming officials and casino operators say many sports-linked contracts closely resemble wagers. 

The disagreement has grown sharper as prediction market apps have moved beyond politics and economics. Sports contracts have become a major growth area. That has put firms such as Kalshi and Polymarket closer to the regulated sportsbook market, where operators hold state licenses and pay gaming taxes. 

The AGA's claim gives the state side of the dispute a direct fiscal argument. Regulated sportsbooks pay different rates depending on the jurisdiction. Prediction platforms do not pay those state gaming taxes when they operate under federal commodities law. 

The association said the impact should be viewed alongside other untaxed or lightly taxed gambling-style products, including sweepstakes casinos and skill machines. Its argument is that legal operators face a heavier compliance and tax burden while rival products reach similar customers through different legal structures. 

The issue is no longer limited to regulatory theory. States are weighing enforcement actions, bans, and lawsuits as prediction markets continue to grow. Operators, meanwhile, say federal law controls the contracts they list. 

Trump's CFTC backing raises the stakes for states 

That tax dispute now sits within a larger political fight after President Donald Trump publicly sided with the CFTC. 

Trump said the federal regulator should retain authority over prediction markets. His intervention came as states were pushing harder against platforms that offer event contracts tied to sports, elections, and other outcomes. 

The president's position supports the industry's main legal argument. Prediction platforms say their contracts belong under federal commodities law, not state gambling statutes. The CFTC has taken a similar position in court, arguing that states cannot override federally registered markets. 

Several state officials have rejected that view. Former New Jersey Gov. Chris Christie, New York Attorney General Letitia James, Illinois Gov. JB Pritzker, and Minnesota Gov. Tim Walz have all been involved in efforts to challenge or restrict prediction markets. 

Minnesota has moved especially far. Walz signed legislation that would ban prediction markets in the state. The CFTC sued to block the law, saying it would criminalize products already supervised at the federal level. 

Trump's statement gives the CFTC a clearer political mandate while litigation continues. It also widens the split between gambling regulators and federal market regulators. 

For states, the question is whether prediction markets can offer sports-style products without local gambling approval. For the CFTC and the platforms, the issue is whether state laws can interfere with contracts listed on federally regulated exchanges.