In its recent warning, the AGA said sports prediction market platforms may have cost state governments nearly $950 million in potential gaming tax revenue since the start of 2025. Its live tracker for sports event contracts has since put the estimated loss above $1 billion.
The claim comes while regulated U.S. gaming continues to generate heavy tax revenues for state budgets.
Revenue Claim Hits a Sensitive Point
According to AGA, regulated gaming generated $4.67 billion in gaming tax revenue for state programs in Q1 2026, up 11% year over year. The group argues that the amount could be greater if the state and tribal systems could tax sports prediction markets in the same way as licensed sportsbooks.
Licensed sportsbooks pay taxes locally and are regulated by states, in addition to having responsible gaming measures. Prediction markets fall into the federal commodities system. That federal framework makes it difficult for states to apply the same gaming taxes, licensing rules, and consumer safeguards used for licensed sportsbooks.
State Officials Push Back on Federal Oversight
The dispute extends beyond the AGA. A bipartisan coalition of 41 attorneys general has petitioned the Commodity Futures Trading Commission to acknowledge state jurisdiction over sports-related event contracts. According to officials, such products look and function like sports betting despite being described as financial contracts.
They believe that gambling on sports games has always been regulated by individual states. States regulate age requirements, taxes, licensing, dispute resolution, and local measures. The attorneys general say that the CFTC was created to regulate commodity markets, not national sports betting.
However, prediction market operators have another viewpoint on the matter. For instance, Kalshi and Polymarket believe that event contracts fit into federal regulation on derivatives. This view has even led to legal battles between prediction market platforms and state regulators.
One example of this is Minnesota. The state passed a first-in-the-nation ban, Governor Tim Walz signed it, and the CFTC sued on May 19, 2026 to block the law before its August 1 effective date. CFTC argues that these markets fall under federal derivatives jurisdiction.
Why Operators Are Watching the Tax Debate
The tax argument could carry more weight than just the legal theory. Many states already use regulated gaming tax revenue for public programs, including education, infrastructure and responsible gaming services. Some use the gaming tax to finance their schools, roads, utilities, or other projects. Should sports trading move from the regulated sportsbooks to the new prediction market platform, the state stands to lose part of that expected income.
It is also a matter affecting licensed operators. Although sportsbooks are highly regulated at the state level, prediction market exchanges could attract similar customers without carrying similar costs. This raises a regulatory dilemma of whether products that are similar should be treated the same way.
For the CFTC, however, the risk is quite different. If it retains sole authority over sports event contracts, then the agency could find itself dealing with gambling-like consumer protection issues. These include minimum age requirements, advertising standards, and integrity controls – the areas that are typically dealt with by state gaming regulators.
Final Notes
The dispute shows that two regulatory regimes now touch the same sports consumer in the U.S.: state gambling oversight and federal commodities regulation. The next step will probably depend on decisions in rulemaking, state courts, and federal litigation. In case states win, sports prediction markets could face regulation similar to that governing sportsbooks. If the federal view prevails, prediction markets have a chance to continue growing outside the state boundaries.
