Prediction Markets Hit $24B/Month as States Fight Back

⏱ 4 min read

Prediction markets are breaking US gambling open. Monthly trading volume has exploded from under $5 billion in late 2025 to $24 billion by April 2026, outpacing the roughly $14 billion a month that licensed sportsbooks process across 39 states. Operators like Kalshi and Polymarket owe their reach to one structural advantage: they are classified as federally regulated commodity markets by the Commodity Futures Trading Commission (CFTC), meaning they operate in all fifty states — including California and Texas, the two largest untapped betting populations in the country.

The tax maths are stark. State-licensed sportsbooks pay between 10% and 51% of gross gaming revenue to state governments. Prediction markets pay only the standard corporate income tax on their fee income, which sits far below any state gaming levy. The American Gaming Association (AGA) estimates platforms have already diverted more than $500 million in potential sports-betting tax revenue. Now, state legislators are moving to close that gap — and this week North Carolina delivered the boldest counter-move yet.

---

North Carolina: Authorise and Tax

On July 1, 2026, Republican legislative leaders in Raleigh unveiled a $34 billion state budget (Senate Bill 257) containing a 6% tax on prediction market operators' net trading-fee revenue. The provision passed both chambers in under 48 hours and now awaits the signature of Governor Josh Stein (D). Senate President Pro Tem Phil Berger was direct about the rationale: North Carolinians are already trading on platforms like Kalshi and Polymarket, so the state might as well start collecting revenue from that activity.

The approach is distinct from every other state response. Rather than banning prediction markets or treating them as unlicensed sportsbooks, North Carolina's budget provision explicitly acknowledges that CFTC-registered platforms may operate lawfully in the state — while attaching a tax. That makes North Carolina the first US state to formally authorise prediction markets, even as 41 attorneys general, including North Carolina's own AG Jeff Jackson, previously signed briefs calling the platforms contrary to the public interest.

---

Kentucky and Illinois: The Tax Pioneers

Kentucky moved first. House Bill 757, enacted April 14, 2026 over a governor's veto, imposed a 14.25% excise tax on prediction market operators' transaction fees, mirroring the rate applied to Kentucky's online sportsbooks. The Coalition for Fair Markets — comprising Kalshi, Polymarket, Crypto.com's Nadex, and others — filed suit in Franklin Circuit Court arguing the tax is discriminatory, unconstitutional, and preempted by the federal Commodity Exchange Act.

Illinois took a different route, embedding prediction markets inside its existing Sports Wagering Act through a June budget amendment. Kalshi challenged the law; Illinois agreed not to enforce the provisions while a preliminary injunction motion is pending.

---

The CFTC's Nine-State Legal Campaign

The federal response to state tax and enforcement actions has been unusually aggressive. Since April 2026 the CFTC has sued nine states — including Kentucky (June 23), Arizona, Illinois, Connecticut, Nevada, Maryland, New Jersey, Ohio, and Montana — arguing that state gambling laws conflict with its exclusive authority over designated contract markets. CFTC Chair Mike Selig, a Trump appointee, frames sports event contracts as legitimate financial innovation. The AGA, the licensed-operator lobby, has urged Congress to pass the bipartisan Prediction Markets Are Gambling Act, introduced by Senators John Curtis (R-UT) and Adam Schiff (D-CA), which would explicitly strip the CFTC of authority over sports-related contracts.

---

State-Level Enforcement Scoreboard

Courts have returned contradictory verdicts, leaving operators navigating a patchwork map:

State	Action taken	Current status
Arizona	Criminal charges against Kalshi	Federal judge permanently blocked charges; appeals ongoing
Ohio	$5m fine by Casino Control Commission	Lower court upheld fine; CFTC filed amicus at Sixth Circuit
New Jersey	Attempted to block Kalshi	Federal appeals court ruled in Kalshi's favour
Rhode Island	AG sued Kalshi and Polymarket (May 2026)	17th state to pursue legal action; case active
Kentucky	14.25% excise tax + AG enforcement actions	CFTC counter-suit filed June 23; coalition injunction pending
North Carolina	6% tax via state budget (SB 257)	Passed legislature July 2026; awaiting governor's signature

---

What This Means for Operators and Bettors

For licensed sportsbook and casino operators the structural exposure is significant. Prediction markets charge transaction fees of roughly 1–2 cents per contract rather than holding a percentage of outcome risk, so their unit economics scale profitably at volumes traditional books cannot match at equivalent margin. Platforms also access California and Texas — representing an estimated 22% of the US adult population — states where not a single licensed sportsbook is permitted to operate.

• Handle diversion: US sportsbooks processed around $14 billion per month in the first quarter of 2026; prediction markets matched that figure by April and are still growing.
• Tax arbitrage: Even Kentucky's 14.25% prediction-market tax is far below the 51% New York levies on sportsbook GGR; the playing field remains uneven.
• Consumer protections: Licensed operators must meet responsible gambling standards and age-verification requirements; prediction markets currently face no equivalent state mandates outside enforcement litigation.
• Regulatory uncertainty: With contradictory court rulings in multiple circuits, operators — and bettors — cannot rely on consistent rules until a Supreme Court decision or an Act of Congress resolves the CFTC-versus-states dispute.

The North Carolina budget model — authorise, tax, move on — may become a blueprint for states that prefer revenue extraction to the legal attrition of prohibition. Whether it survives a federal preemption challenge is the defining question for the second half of 2026.

---

Sources

Reporting draws on primary regulatory filings, official press releases, state legislative records, and contemporaneous news coverage from established gaming and legal-affairs publishers.

Sports betting belongs under state and tribal regulation. That's how consumers are protected and how communities share in the benefits.

— Bill Miller, President & CEO, American Gaming Association · AGA press release, February 26, 2026