Report warns prediction markets could strip gaming of $39bn yearly

Tribal and commercial casinos stand to lose between $7.3bn and $39.4bn in annual gaming revenue if prediction markets continue operating across all 50 states under federal rather than state oversight, according to a forthcoming report from economic consultancy KlasRobinson Q.E.D.

Economists James Klas and Matt Robinson previewed the findings during a webinar hosted by the Indian Gaming Association (IGA) on Wednesday. The firm produced the study for the IGA, and the organisation's executive director, Jason Giles, said it could be published as soon as next week.

The analysis models four scenarios built around the Commodity Futures Trading Commission (CFTC) continuing to permit prediction market platforms to list sports event contracts nationwide. The legality of that activity remains contested, with federal circuit courts divided and multiple parties pressing the US Supreme Court to intervene.

Each successive scenario widens the scope of products on offer and the number of operators moving into the space. Klas and Robinson discussed three of the four during the webinar, leaving the third to be detailed in the written report.

Under the mildest scenario, in which prediction markets simply keep selling sports contracts with no new restrictions, KlasRobinson projects tribal gaming revenue would fall by $1.5bn annually, equivalent to roughly 3% of the $46.2bn tribes generated in 2025. Commercial casinos and online operators would lose a further $5.8bn, bringing the combined hit to $7.3bn, alongside about 38,000 direct jobs and $546m in lost non-gaming revenue.

Klas noted that many tribes share gaming revenue with state governments under compact arrangements, so those payments would shrink too. He said his model assumes tribes keep paying at current rates despite lower revenue, though he called it an open question whether they would continue those payments at all if states can no longer protect the exclusivity those agreements were meant to secure.

The second scenario envisions more major sportsbook brands shifting toward the prediction market structure nationwide, even at the risk of their existing state licences. Robinson said this is already happening, pointing to operators marketing prediction market products and launching them in states where they hold no sports betting licence. "They clearly believe more money is to be made there," he said.

That scenario does not assume every sports bettor migrates to exchanges; some business would remain with smaller operators and tribally run sportsbooks. Even so, KlasRobinson puts the losses at $3.6bn for tribes and $14.3bn for commercial casinos and online operators, totalling $17.9bn, plus $3.6bn in lost state tax revenue, 92,000 jobs and $4.8bn in lost wages.

Klas said every scenario is measured over a three- to five-year window after the market stabilises, and that losses would likely continue to climb beyond that. "As generations come up and become more accustomed to a prediction market-style operation being their means of access, the effect grows and grows," he said. "The bleeding does not stop."

He added that shrinking revenue would strain state budgets but hit tribal governments harder still, since gaming profits often fund tribal infrastructure and services directly. "In the case of tribes, it is the profits from the business that fund the government and build their infrastructure," Klas said.

The unexplored third scenario folds iGaming-style products into prediction market offerings alongside sports contracts. Klas said it is not hard to imagine operators applying the same legal arguments used for sports contracts to casino-style products, predicting platforms "are going to be aggressive and seize any crack, crevice they can to expand." He noted the CFTC's own proposed rules would not currently permit casino-game-style contracts.

The fourth and most severe scenario assumes the CFTC approves both sports and iGaming-style contracts and that major online gaming companies shift as much business as possible onto exchange platforms nationwide. KlasRobinson puts the combined toll at $39.4bn a year — a $7.8bn hit to tribal gaming and $31.6bn to commercial casinos and non-tribal online operators — alongside roughly 225,000 jobs lost and $8.3bn stripped from state gaming tax collections.

Klas framed the entire study around displacement of consumer spending rather than simple market competition. In conventional gambling, he said, operators retain only a small cut of what is wagered while most money flows back to winning bettors, who tend to live in the same community as the losers, keeping the cash local.

Prediction markets work differently, he argued, because winning traders are scattered nationally and profits concentrate among a narrow group of sophisticated players. Klas said roughly 75% of net profits on Kalshi and Polymarket accrue to the top 1% of accounts, calling the effect "95% leakage" away from local economies, according to Robinson.

Klas added that traditional sportsbooks typically restrict large betting syndicates because they distort odds, whereas exchanges profit from trading volume and therefore benefit from well-funded groups placing large trades — an incentive structure he said runs opposite to that of conventional sports betting operators.