Prediction Markets Leave States Short More Than $1 Billion in Expected Tax Revenue

The American Gaming Association has put forward new figures indicating that states across the country missed out on more than one billion dollars in tax collections because unregulated prediction markets continue to operate without oversight. Platforms such as Polymarket and Kalshi offer contracts on election outcomes, economic indicators and other events, and these products mirror the structure of sports betting yet remain outside most state gambling statutes as of early 2026.

Those figures come from an industry analysis that compares the volume handled by these platforms against the tax rates states apply to licensed sportsbooks. Observers note the gap widened steadily through the first half of the year, and the shortfall has carried forward into July 2026 without new legislation closing the regulatory difference.

How Prediction Markets Operate Differently From Licensed Betting

Prediction markets allow users to buy and sell shares in specific outcomes, with prices reflecting the collective view of probability. When an event concludes, holders of the correct position receive a fixed payout, and the mechanism functions much like placing a wager on a sports result. Because many state laws define gambling around games of chance or athletic contests, these event contracts often escape the same licensing and tax requirements that apply to traditional sportsbooks.

Data from the American Gaming Association shows the combined handle on major prediction platforms reached levels that would have generated roughly one billion dollars in state taxes if the activity had fallen under existing sports-betting frameworks. The calculation rests on average tax rates of between 6 and 10 percent that states currently collect from regulated operators, and the analysis applies those rates to the estimated volume moving through unregulated channels.

State Budget Impacts and Revenue Tracking

State revenue offices track collections from licensed gambling daily, yet prediction-market activity registers only indirectly through corporate filings or user reports. Because the platforms locate their operations outside traditional regulatory boundaries, states lack direct access to transaction data that would allow precise tax assessments. The resulting blind spot means budget forecasters must rely on third-party estimates rather than audited figures when projecting gambling-related income.

Figures released in late May 2026 placed the cumulative shortfall above the one-billion-dollar mark, and subsequent monthly reviews through July have not altered that aggregate total. Lawmakers in several jurisdictions have begun reviewing whether existing statutes can be amended to capture this activity, yet no comprehensive changes have taken effect by midsummer.

Industry Comparisons and Market Growth Patterns

Regulated sports-betting markets expanded rapidly after the 2018 Supreme Court decision that lifted the federal ban, and states moved quickly to license operators and impose taxes. Prediction platforms entered the same environment but positioned their products as information markets rather than wagers, which allowed continued operation without state-level approvals. The American Gaming Association report links the two categories by showing parallel user growth curves and similar per-transaction margins, and it applies those parallels to estimate lost collections.

Volume on the unregulated side has risen alongside major news events, including elections and economic data releases, while licensed sportsbooks have reported steady but slower gains during the same periods. The divergence in regulatory treatment remains the central factor cited for the revenue difference.

Regulatory Discussions Underway

State attorneys general and gaming commissions have circulated proposals that would bring event contracts under existing gambling definitions or create a separate licensing category. Proponents of new rules point to the American Gaming Association analysis as evidence that current gaps produce measurable fiscal effects. Opponents argue that prediction markets serve informational purposes and should remain distinct from traditional betting products.

As of July 2026, legislative committees in at least four states have scheduled hearings on the topic, yet no bills have advanced to final votes. Federal regulators have also signaled interest in clarifying oversight for platforms that offer contracts on political and economic events, though those discussions remain preliminary.

Conclusion

The American Gaming Association estimate establishes a clear numerical baseline for the revenue states have not collected from prediction-market activity. The one-billion-dollar figure reflects volume handled outside licensed channels and applies current sports-betting tax rates to that volume. Through July 2026 the underlying regulatory distinction that created the gap continues unchanged, leaving states without a direct mechanism to capture the associated tax revenue. Additional data releases expected later in the year will indicate whether the trend persists or whether new rules alter the landscape.