States and Tribes Face Over One Billion Dollars in Lost Revenue from CFTC-Regulated Prediction Markets
The American Gaming Association has released figures showing that states along with Native American tribes stand to lose more than one billion dollars in potential tax revenue because prediction markets such as those run by Kalshi and Polymarket operate under federal oversight from the Commodity Futures Trading Commission rather than through state licensing frameworks. These platforms function outside traditional taxation systems yet capture substantial trading activity especially in sports-related contracts which dominate overall volume according to the group's analysis.
Background on the Regulatory Divide
Federally approved prediction markets have expanded rapidly in recent years while state gaming authorities watch revenue streams flow elsewhere and the AGA points to this structural gap as the core issue because contracts tied to sports events generate the bulk of activity yet contribute nothing to state or tribal budgets that would normally collect taxes from licensed operators. Observers note that this setup creates an uneven field where platforms regulated at the federal level sidestep the licensing and tax obligations that apply to other forms of gaming within individual jurisdictions.
Details from the AGA Analysis
Data compiled by the association indicates cumulative losses exceeding one billion dollars across multiple states and tribal lands with sports contracts accounting for the majority of trades on these CFTC-supervised exchanges. The report connects this trend directly to ongoing litigation in several jurisdictions where officials seek to clarify boundaries between federal commodity rules and state authority over event contracts that resemble traditional wagers.
State-Level Responses in Kentucky Iowa and Pennsylvania
Kentucky officials have advanced proposed tax measures aimed at capturing revenue from prediction market activity while similar legislative efforts appear in Iowa and Pennsylvania as lawmakers respond to the revenue shortfall highlighted in the AGA findings. These initiatives reflect attempts to address platforms that remain exempt from state-level taxation because their primary regulator sits at the federal level through the CFTC and the proposals focus on contracts involving sports outcomes which represent the dominant share of trading volume.
Legal challenges continue in multiple states as attorneys general pursue clarity on whether these markets fall under existing gaming statutes or remain insulated by their federal designation and the AGA tracks these developments alongside the associated revenue impacts for both state governments and tribal enterprises that operate their own gaming facilities.
Impact on Native American Tribes
Tribal gaming operations which already navigate complex regulatory environments now confront additional revenue leakage as prediction markets draw activity away from state-tribal compacts that historically channel funds into tribal programs and community services. The AGA emphasizes that this dynamic affects tribes across several regions where sports-related contracts on federally overseen platforms generate significant volume without triggering the tax mechanisms built into tribal-state agreements.
Trading Volume Patterns and Market Dominance
Figures from the association reveal that sports event contracts constitute the primary driver of activity on these platforms with Kalshi and Polymarket handling the majority of such trades and this concentration amplifies the scale of lost state and tribal revenue because those contracts would otherwise fall under taxation structures applicable to licensed sportsbooks. The association's data provides ongoing tracking of these volumes and their corresponding fiscal effects across affected jurisdictions.
Litigation outcomes remain pending in the identified states while proposed tax legislation moves through various stages of consideration and industry participants monitor developments for signs of broader regulatory shifts that could alter how prediction markets interact with state and tribal taxation systems.
Conclusion
The AGA report underscores a growing fiscal tension between federal regulation of prediction markets and the revenue expectations of states and tribes that have built gaming frameworks around licensed operations. As litigation proceeds and legislative proposals advance in Kentucky Iowa and Pennsylvania the situation continues to evolve with sports contracts remaining central to the volume driving these losses. Those following the sector note that resolution of these issues will shape future interactions between CFTC oversight and state-level gaming authorities.