AGA Raises Concerns Over Prediction Markets' Growing Threat to State Gaming Taxes

The American Gaming Association (AGA) is escalating its campaign against prediction markets, warning that states across the country could lose billions in gaming tax revenue as federally regulated event contract platforms continue expanding into sports related markets.

The warning comes as prediction market operators such as Kalshi and Polymarket face growing scrutiny from state regulators and gaming stakeholders who argue the products closely resemble traditional sports betting while operating outside state licensing frameworks.

According to the AGA, regulated gaming operators generated more than $18 billion in gaming tax revenue for state and local governments last year, helping fund public services, infrastructure projects, and education programs. The organization argues that the continued growth of prediction markets threatens that ecosystem by diverting betting activity away from state regulated sportsbooks and into federally supervised exchanges.

Growing Tension Between State Regulators and Federal Oversight

The debate surrounding prediction markets has become one of the most contentious issues in U.S. gaming.

Unlike traditional sportsbooks, prediction market platforms operate under the oversight of the Commodity Futures Trading Commission (CFTC), which regulates financial derivatives markets. Companies in the sector maintain that event contracts are financial instruments rather than gambling products, placing them under federal jurisdiction instead of state gaming laws.

State regulators and gaming industry groups disagree. The AGA has repeatedly argued that sports related event contracts function similarly to conventional wagers while avoiding the licensing requirements, consumer protection measures, and tax obligations imposed on legal sportsbooks. The association has also warned lawmakers that prediction markets are increasingly offering products that mirror traditional sports betting experiences.

Legal Battles Continue to Intensify

The tax revenue debate is unfolding alongside a growing number of legal disputes between states and prediction market operators. Rhode Island recently became one of the latest battlegrounds after state officials challenged prediction market activity tied to sporting events. In response, both Kalshi and the CFTC moved aggressively to defend federal authority over event contract markets, arguing that states cannot override federal jurisdiction established under the Commodity Exchange Act.

The conflict is not limited to Rhode Island. Minnesota recently enacted legislation targeting prediction market platforms, prompting additional legal challenges and further intensifying the broader dispute over who ultimately controls regulation of sports-related event contracts in the United States.

Industry Divide Continues to Widen

The rise of prediction markets has also exposed fractures within the broader gaming industry. While the AGA has emerged as one of the sector’s most vocal critics, several major sports betting companies have moved in the opposite direction. DraftKings and FanDuel have both embraced prediction market opportunities, signaling a significant shift in how leading operators view the future of event-based wagering products.

That split highlights a larger question facing regulators and operators alike: whether prediction markets should be treated as financial products, gambling products, or some combination of the two.

With prediction market volume continuing to surge and legal challenges spreading across multiple states, the answer could have major implications for state tax revenue, consumer protections, and the future structure of the U.S. betting industry. Analysts increasingly view the ongoing disputes as a defining regulatory battle that could ultimately require federal courts, or potentially the Supreme Court, to establish clear boundaries between state gaming authority and federal market oversight.