The American Gaming Association has warned that states are losing major gambling tax revenue as prediction markets expand across the U.S. Event contract platforms are taking gambling activity outside state-regulated systems.
AGA estimates that prediction markets have cost states nearly $1bn in gaming tax revenue since the start of 2025. The warning adds to a growing dispute between licensed sportsbooks, state regulators and federally regulated prediction market platforms.
Sports contracts lead the warning
The AGA’s concern is focused mainly on sports-related event contracts. These products allow users to trade on outcomes linked to games, teams and player performances.
Licensed sportsbooks must follow state rules, pay state taxes and meet requirements on age checks, responsible gambling and integrity monitoring. Prediction market platforms may operate under federal derivatives rules instead, depending on their structure.
That difference is key to the AGA’s argument. If sports trading continues to grow outside state betting systems, states may collect less tax from activity that looks similar to sports wagering.
States are already challenging platforms
Several states have moved against prediction market operators. New Jersey, Nevada, Ohio, Tennessee, Massachusetts and Rhode Island have all been involved in legal disputes or enforcement actions linked to sports event contracts.
The legal question is whether state gambling laws can apply to contracts listed through CFTC-regulated exchanges. Kalshi has argued that its products are federally regulated financial contracts, while state regulators have treated sports contracts as unlicensed betting. Courts have not delivered one national answer. Some rulings have protected Kalshi from state action, while other disputes remain active.
AGA pushes licensed market comparison
The AGA has long argued that regulated sportsbooks provide stronger protections than offshore or unlicensed alternatives. Its latest warning puts prediction markets in the same wider debate over tax leakage and consumer safeguards.
The group’s position is also tied to state budgets. Sports betting taxes fund public programmes in many states, and lower taxable betting activity can reduce money available for those uses.
Tax tracker highlights state impact
The AGA has used revenue-tracking tools to show how much states may be losing from prediction market activity. The figures estimate what states could collect if similar activity happened through licensed sportsbooks.
The tracker gives lawmakers a state-by-state way to view the issue. It also gives regulators another argument for treating sports event contracts as gambling when they are offered to local users.
na agencies will need to make sure employees understand the new limits. That means explaining what nonpublic information is and when a prediction market trade could create a conflict. The order also lets agencies handle prediction market activity as an ethics matter. That makes the rules part of employee conduct, not only an issue for gambling or financial regulators.
