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

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. “We can operate under federal regulation while continuing to generate vital tax revenue for states,” Dani Lever, a spokesperson for Kalshi, said in a statement.

New York doesn’t just face revenue loss from prediction markets capturing sportsbook customers.

It’s also responsible for costs associated with gambling activity.

Calls to a state gambling hotline have risen 8.5% since 2020, and New York has already doubled its funding for problem gambling services from $6 million to $12 million, per the Comptroller.

And even traditional sportsbooks have their own volatility.

Ironically, the New York Knicks’ historic NBA finals win was a loss for sportsbook platforms.

Since the Knicks were underdogs going into the series, their eventual upset meant mobile sportsbooks lost $14.4 million in gross revenue.

Larger scale, though, any volatility in what’s been fairly consistent sportsbook revenue could sting for New York. “The state will make conservative assumptions on what it expects from gaming activities, but if there is some volatility, or these prediction markets really soar and affect the revenues from sports betting, then it will have revenue implication for the state,” Doulis said.