Prediction market growth pressures New York gambling tax revenue

New York gambling tax revenue faces pressure from prediction market growth

Business Insider reported that New York collected over $1 billion in tax revenue from gambling in the most recent fiscal year, and state officials are now examining whether the expansion of prediction markets could erode that base.

New York sued Polymarket earlier this year, and the state's concern is partly fiscal: prediction markets transact outside the state licensing regime that generates the tax take. Under current federal treatment, event contracts on platforms such as Kalshi and Polymarket are not subject to the same gross gaming revenue taxes that apply to sportsbooks operating under state compacts.

New York taxes sportsbook gross wagering revenue at 51 percent, the highest rate among regulated states. If a meaningful share of sports-adjacent wagers migrates to federally regulated prediction markets, the state loses both the direct tax and the political leverage that comes with licensing.

No prediction market contract currently resolves on this question, and the dollar magnitude of any shift depends entirely on how the Supreme Court rules on the CFTC preemption cases now on its docket. A ruling that validates federal preemption would remove the state's primary legal tool for capturing that revenue. New York knows this, which is why the Polymarket lawsuit was filed before any court had settled the underlying question.