Why prediction markets might take a bite out of New York's tax revenue

Mobile sports betting has become New York's second-largest driver of gambling revenue.

The rise of prediction markets, which aren't taxed the same in the state, could be a revenue hit.

More problem gamblers and gamblers turning to prediction markets could cause financial strain.

New York has turned mobile sports betting via apps like DraftKings and FanDuel into a lucrative source of state revenue. This raises a question for lawmakers and state finances: Can platforms that offer sports-related contracts compete with sportbooks — and avoid the state's 51% tax rate?

In the first quarter of 2026, mobile sports betting brought in around $328 million in tax receipts for the state, according to a report from the state comptroller's office. Nationwide, New York accounts for a third of all state tax collections on sports betting revenues.

But prediction markets like Polymarket and Kalshi have begun offering sports gamblers a new way to play — and they are taxed at a lower federal level. Early evidence from DraftKings suggests those platforms might be attracting different customers — a company spokesperson said in a statement that only about 1% of its sportbook customers overlap with Kalshi in states where sports betting is legal.

Even still, if 1% of sportsbook activity in New York moved to prediction markets, it could result in a $13 million revenue hit, according to an analysis from the Tax Policy Center .

"For a user, it's not clear that engaging in activity on a prediction market is a substantially different activity than placing a wager on a mobile sports betting platform," said Maria Doulis, the New York State deputy comptroller for budget and policy analysis. "But from the state's perspective, those two activities are taxed differently and can yield two different outcomes."

Prediction markets argue that they fall under federal oversight as derivatives exchanges, rather than being subject to state gambling laws .

Most recently, New York moved to sue Polymarket, with Governor Kathy Hochul saying that she'll "always stand up for New Yorkers when bad corporate actors prey on consumers and threaten tax dollars that fund schools and critical public services."

Prediction markets' growth has accelerated since they added sports . Trading volume on Kalshi rose nearly thirteenfold a year after it added sports contracts. And Polymarket also saw skyrocketing growth after adding sports to its platform, according to a report from the New York State Comptroller.

Kalshi also disputes that its growth is eating traditional sportsbook revenue.