New York Sues Polymarket Over Prediction Market Tax Losses

Governor Kathy Hochul has initiated legal action against the prediction market platform Polymarket, accusing the company of being a "bad corporate actor" that threatens tax dollars used for schools and public services. The lawsuit follows concerns that prediction markets are cannibalizing revenue from traditional mobile sportsbooks, which generated approximately $328 million in tax receipts during the first quarter of 2026.

Unlike traditional sports betting, which is subject to a 51% state tax rate in New York, prediction markets operate as federal derivatives exchanges and avoid these state-level taxes. The Tax Policy Center estimates that a shift of just 1% of betting activity to these platforms could cost the state $13 million in lost revenue. This volatility comes as platforms like Kalshi have seen trading volumes increase thirteenfold after introducing sports contracts.

Prediction markets argue they operate under federal regulation and do not necessarily drain revenue from traditional books. This position is supported by DraftKings, which reported that only 1% of its customers overlap with Kalshi users.