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New York’s move against Polymarket is testing whether sports-related prediction markets can sit outside the state’s sports betting tax framework, even as licensed sportsbooks pay a 51% tax rate.
That matters because New York is one of the country’s biggest sports betting tax generators. According to the state comptroller’s office, mobile sports betting produced about $328 million in tax receipts in the first quarter of 2026 alone, and the broader tax base at issue is worth more than $1 billion a year.
Why the dispute matters for New York
The central question is whether sports contracts offered by prediction-market platforms such as Polymarket and Kalshi should be treated differently from bets placed through state-licensed sportsbooks.
Prediction-market operators argue they are federally regulated derivatives venues rather than gambling operators subject to state betting laws. Kalshi spokesperson Dani Lever said, “We can operate under federal regulation while continuing to generate vital tax revenue for states.”
But New York officials are focused on how similar the products may appear to consumers and how differently they are taxed. Maria Doulis, New York State deputy comptroller for budget and policy analysis, said, “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.” She added that, from the state’s perspective, those activities “are taxed differently and can yield two different outcomes.”
A Tax Policy Center analysis cited in the source estimates that if just 1% of New York sportsbook activity shifted to prediction markets, the state could lose $13 million in revenue.
Sports contracts are growing as the legal questions stay open
The issue has become more urgent as prediction-market activity has expanded. Kalshi’s trading volume rose nearly thirteenfold in the year after it added sports contracts, while Polymarket also saw rapid growth after adding sports, according to a New York State Comptroller report.
Traditional operators are watching closely. DraftKings said about 1% of its sportsbook customers overlap with Kalshi in states where sports betting is legal.
For players in New York, the immediate takeaway is that the rules around sports-related prediction markets are still unsettled. The source says New York has not identified a hearing, deadline, or other procedural next step in its move against Polymarket.
The broader policy debate also extends beyond taxes. Calls to New York’s gambling hotline have risen 8.5% since 2020, and the state has doubled funding for problem-gambling services from $6 million to $12 million.
For now, New York bettors should watch for details on the state’s legal action, any response from federal regulators, and whether lawmakers or regulators move to clarify how these products fit into the state’s gambling framework.
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Source: As reported by readwrite.com.
