Key facts
- New York collected $328 million in tax receipts from mobile sports betting in Q1 2026.
- New York accounts for one-third of US state tax collections on sports betting.
- Prediction markets like Polymarket and Kalshi are taxed at a lower federal rate than sportsbooks.
- A 1% shift of sportsbook activity to prediction markets could cost New York $13 million in revenue.
- New York's governor is suing Polymarket, citing consumer protection and tax revenue concerns.
- Calls to New York's state gambling hotline have risen 8.5% since 2020.
New York faces a potential threat to its significant tax revenue derived from mobile sports betting, as prediction markets offer a similar but lower-taxed alternative. While mobile sports betting generated approximately $328 million in tax receipts for the state in the first quarter of 2026, prediction markets like Polymarket and Kalshi are attracting users with a different regulatory and tax structure.
These prediction markets argue they operate as derivatives exchanges under federal oversight, thus avoiding the state's 51% tax rate on sports betting. Early data from DraftKings suggests a low overlap of customers between sportsbooks and prediction markets, with only about 1% of sportsbook users also participating in Kalshi where both are legal. However, even a small shift of activity could result in a substantial revenue loss for New York, estimated at $13 million annually if 1% of sportsbook activity migrated.
New York's Deputy Comptroller for Budget and Policy Analysis, Maria Doulis, noted the ambiguity for users, stating, "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." However, she highlighted the distinct tax implications for the state.
Governor Kathy Hochul has taken a firm stance, with New York suing Polymarket and the governor stating her commitment to protecting consumers and tax dollars. The growth of prediction markets has been fueled by the addition of sports contracts, with Kalshi reporting a thirteenfold increase in trading volume and Polymarket also experiencing significant growth.
Kalshi disputes that its expansion is directly cannibalizing sportsbook revenue, with a spokesperson stating, "We can operate under federal regulation while continuing to generate vital tax revenue for states." Beyond potential revenue loss, New York also faces increasing costs associated with gambling activity, including an 8.5% rise in calls to its gambling hotline and a doubling of funding for problem gambling services to $12 million.
The state's revenue projections for gaming activities are based on conservative assumptions, but volatility from prediction markets could impact these forecasts, according to Doulis.