Prediction Markets Draw Scrutiny as States and Tribes Track Over $1 Billion in Missed Tax Revenue

The American Gaming Association released details in May 2026 showing that states along with Native American tribes have missed out on more than $1 billion in potential tax revenue because prediction markets continue to handle sports-related contracts without state or tribal oversight. These platforms, including Kalshi and Polymarket, function through yes-or-no exchanges on event outcomes, and the association argues they amount to unregulated sports betting that bypasses established regulatory systems. Data from the group indicates the lost revenue figure keeps climbing in real time through its monitoring system, which reflects ongoing activity across multiple jurisdictions.

Details Behind the Revenue Tracking System

The association maintains a live tracker that updates the cumulative losses as prediction market volumes grow, and observers note how this tool connects specific contract activity to estimated tax shortfalls in states that license and tax sports betting through official channels. Figures reveal the total exceeded $1 billion by early 2026, driven by contracts tied to sporting events that would otherwise fall under regulated frameworks where operators pay taxes on handle or revenue. Those who've examined the data point out that the tracker breaks down losses by state and tribe, highlighting how certain markets capture significant portions of what regulated operators would generate in tax contributions.

Bipartisan backing from 41 attorneys general has strengthened calls for action, with letters and statements underscoring shared concerns across party lines about platforms operating outside existing sports betting laws. State legislatures have responded through various measures, including attempts to impose taxes on prediction market activity or pursue outright bans where operators fail to secure proper licensing. These efforts reflect coordinated pushes to bring such exchanges under frameworks already applied to licensed sportsbooks, where tax collection supports public programs and tribal gaming compacts.

Volume Data and Market Composition

Research from the Pew Research Center shows that sports derivatives accounted for 80 percent of Kalshi’s trading volume between July 2024 and April 2026, a period when overall activity on prediction platforms expanded rapidly. This breakdown illustrates how event contracts on athletic outcomes dominate the market share, even as these platforms position themselves as tools for broader event forecasting. Analysts who reviewed the Pew findings emphasize that the heavy concentration in sports-related trades aligns closely with the association’s claims about overlap with traditional betting categories that states regulate and tax.

Platform operators have maintained that their contracts differ from standard wagers because they settle on event results rather than direct point spreads or moneylines, yet state regulators and tribal authorities continue to challenge this distinction in ongoing legal and legislative proceedings. The association’s report connects this volume data directly to the revenue tracker, demonstrating how each percentage point of sports-related activity translates into measurable tax gaps when compared against regulated markets in states like New Jersey, Pennsylvania, and others with established licensing.

State and Tribal Responses in 2026

Throughout spring 2026, multiple states advanced bills aimed at either taxing prediction market operators or restricting their access to residents, while tribal nations explored compact amendments that would address similar activity on their lands. Attorneys general from both parties have cited the tracker’s real-time updates as evidence supporting enforcement actions, and several jurisdictions have initiated discussions with federal agencies about clarifying oversight boundaries. These developments occur against a backdrop where licensed sports betting has already generated billions in tax revenue nationwide since its expansion following the 2018 Supreme Court decision.

The association highlights how prediction markets avoid the licensing fees, responsible gaming requirements, and tax structures that apply to state-approved operators, creating an uneven competitive landscape. Data indicates that as volumes on these platforms rise, the gap between potential and actual collections widens, prompting renewed focus on enforcement tools already used against unlicensed betting sites. Those monitoring legislative calendars note that several states have scheduled hearings for later in 2026 to examine proposals that would integrate prediction platforms into existing regulatory systems or impose penalties for non-compliance.

Ongoing Developments and Broader Context

Native American tribes have joined state efforts because many operate gaming facilities under compacts that include sports betting provisions, and unregulated prediction markets represent direct competition that diverts activity away from taxed venues. The association’s tracker incorporates tribal revenue loss estimates alongside state figures, providing a combined picture of impacts across sovereign and state jurisdictions. Evidence from the report shows that contracts on major sporting events contribute disproportionately to the tracked totals, mirroring patterns seen in regulated markets where high-profile games drive the largest handle volumes.

Legal challenges continue in courts where operators defend their business models, while regulators seek injunctions or clarification on whether these exchanges qualify as sports betting under state statutes. The bipartisan letter from attorneys general serves as one marker of consensus, though implementation of new rules varies by jurisdiction and faces potential federal preemption questions. As volumes continue through mid-2026, the association plans further updates to its monitoring system to reflect any shifts in contract types or platform participation.

Conclusion

The American Gaming Association’s report and accompanying tracker establish a clear connection between prediction market growth and measurable tax revenue shortfalls for states and tribes, backed by volume data showing heavy sports derivative concentration. Ongoing legislative and enforcement actions reflect responses to these figures, with 41 attorneys general expressing support for measures that would bring such activity under regulatory frameworks. The situation continues to evolve as platforms, regulators, and lawmakers navigate the boundaries between event contracts and traditional sports betting in an expanding market.