Prediction markets could threaten Tennessee’s sports betting revenue, official says
Tennessee officials are warning about the potential effect of prediction markets on the state’s sports betting revenue.
Since Tennessee launched online sports betting, more than US$19 billion has been wagered, generating US$345 million in tax revenue, much of which has been allocated to education, including private school tuition scholarships.
That funding stream may be at risk as prediction markets such as Kalshi and Polymarket surge in popularity.
These platforms, which are regulated by the US Commodity Futures Trading Commission, allow users to buy and sell peer-to-peer sports event contracts outside of the sports betting laws and without contributing tax revenue to the state.
Speaking at a presentation, Mary Beth Thomas, Executive Director of the Tennessee Sports Wagering Council, explained that prediction markets have expanded rapidly, with Kalshi reporting US$1 billion in weekly trading volume in October, 95% of it tied to sports.
Nationally, the American Gaming Association estimates that states with legal sports betting may have lost more than US$151 million in tax revenue.
The Tennessee Sports Wagering Council has urged federal regulators to block sports-related contracts, arguing they violate state law.
Officials fear that the Education Freedom Scholarship Act, which redirects sportsbook revenues to school building improvements and pays for private-school vouchers, could be affected by the growth of prediction markets.
With the program facing a constitutional challenge and funding shortfalls, state officials say they are closely watching the numbers and the effectt of prediction markets.
Last week, Kalshi was named in a nationwide class-action lawsuit for allegedly offering illegal sports betting.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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The Backstory
A fast-expanding loophole
Tennessee’s online sports betting market was built to capture consumer demand, tax it and channel the proceeds to public priorities. More than US$19 billion has flowed through legal books since launch, producing US$345 million in state tax revenue. That model now faces a fast-moving challenge from prediction markets, which let users trade contracts on sports outcomes under federal commodities rules rather than state gaming laws. With weekly trading reportedly reaching US$1 billion on at least one exchange and a heavy tilt toward sports, state officials warn the activity could siphon handle from regulated operators without contributing tax dollars. Their concern is not theoretical: national estimates suggest states may already be missing out on tens of millions in revenue because sports-like trading is occurring outside sports wagering statutes.
The question at the heart of Tennessee’s response is whether contracts tied to game results are essentially sports bets by another name. Local regulators argue they are. The Sports Wagering Council has urged federal authorities to curb sports-related contracts listed by these platforms, saying they run afoul of state law and undercut a regulated system designed for consumer protections, integrity monitoring and tax collection. The threat lands as lawmakers and agencies track the impact on the Education Freedom Scholarship Act, which steers sportsbook revenue to school facilities and private school vouchers. With legal challenges and funding pressures already surrounding the program, any diversion of betting activity to untaxed venues could widen the gap.
Exchanges counter that they are fundamentally different from sportsbooks because users trade against each other rather than a house and operate under the Commodity Futures Trading Commission’s framework. But that distinction has little practical comfort for state budgets. If consumers can buy and sell sports event contracts with no state license and no wagering tax, the base of taxable activity shrinks. Tennessee is not alone in facing the dilemma, yet it sits at an early pressure point where policy, enforcement and market behavior will decide whether these platforms grow alongside the regulated books or take share from them.
State enforcers tighten the other screws
While prediction markets test jurisdictional lines, state regulators have pressed hard where their authority is unquestioned: illegal offshore sportsbooks targeting Tennesseans. The Sports Wagering Council has stacked up penalties and cease-and-desist orders against unlicensed sites this year. In one action, the council levied US$250,000 in fines against five operators based in Costa Rica, Panama and Curacao after finding they took bets in the state without approval. The crackdown follows a steady cadence of cases, including a US$50,000 fine on BUSR after the site ignored a cease-and-desist letter, part of a series of escalating violations permitted under the Tennessee Sports Gaming Act.
In those decisions, regulators emphasize consumer risk as much as tax leakage. Offshore sites do not comply with state requirements on identity checks, problem-gambling tools, secure payments or data protection. Officials have urged bettors to withdraw funds from unlicensed books, warning that personal information and balances are not safeguarded by state oversight. The enforcement drive also shows the council’s intent to defend market share for licensed operators—an important backdrop as prediction markets present a competing venue for sports outcome trading that is not plainly illegal, just differently regulated at the federal level.
That two-track fight—against outright illegals on one side and federally supervised rivals on the other—shapes Tennessee’s approach. It reinforces why the council is asking Washington to limit sports-focused contracts on prediction exchanges. If offshore sites are being squeezed, but sports-like trading is expanding under commodity rules, the state risks swapping one tax hole for another.
Read more: The council’s recent penalties against offshore sites are detailed in a US$250,000 multi-operator fine and a separate case in which BUSR was fined US$50,000.
Leagues draw a line on lookalike markets
The NFL has weighed in, adding pressure to exchanges by telling players and league personnel that prediction markets mimic traditional sports betting and are prohibited under league policy. League officials said the platforms lack critical safeguards that state-regulated books must provide, including integrity monitoring, data sharing and restrictions on markets vulnerable to manipulation. The timing matters for Tennessee: as the state argues prediction contracts should not be allowed for sports, the country’s most influential sports league is instructing its workforce to treat them as betting. That does not settle the legal debate, but it bolsters the case that sports outcome trading belongs inside the established wagering regime.
Read more: The NFL’s policy stance is outlined in the league’s warning on prediction markets.
Licensed books push to hold ground
Licensed operators are continuing to invest in Tennessee despite the headwinds. VIP Play recently secured a renewal of its sports gaming operator license through May 2026, positioning the company to keep growing a mobile app that offers hundreds of leagues and bet types. The renewal signals two things: the regulatory apparatus is functioning as intended for compliant companies, and operators still see a path to scale in the state. That matters as price-sensitive customers consider where to place sports-related bets or contracts and as sportsbooks lobby for a level field on products masquerading as something else.
Read more: VIP Play’s plans for Tennessee and beyond are in the company’s license renewal update.
Why the tax stakes extend beyond sports
The core concern for Tennessee is fiscal, not philosophical. Sports betting’s social license was tied to taxation and consumer protections. If a growing share of sports event speculation migrates to platforms that do not pay state wagering taxes, programs dependent on those dollars suffer. The Education Freedom Scholarship Act, already under strain, is a high-profile example, but the risk spans responsible gambling funding, enforcement and technology investments that keep the regulated market safe.
Other jurisdictions are confronting similar balancing acts, sometimes with blunt instruments. In the Philippines, the president has weighed an online gaming ban that could imperil more than 50,000 jobs across compliance, game development, customer service and marketing, according to local reporting summarized in an analysis of the potential fallout. Industry advocates there argue prohibition would drive play to the black market, undermining both consumer safeguards and tax collection. Tennessee is not considering a ban, but the cautionary tale is relevant: aggressive moves that push regulated demand into unregulated channels can backfire, especially when the alternative lacks oversight and pays no taxes.
For now, the state is pursuing a two-pronged strategy—tightening enforcement against unlicensed sportsbooks while pressing federal regulators to restrict sports contracts on prediction exchanges. The path forward will likely hinge on how Washington defines the line between financial contracts and wagers and whether exchanges adopt more of the integrity and consumer-protection obligations that come with state licensure. If they do not, Tennessee’s regulated books could face erosion in wagering activity just as they battle offshore operators, and the state’s education and public programs could bear the cost.
The upshot: Tennessee’s sports betting economy remains robust, but the perimeter is shifting. How the state, federal regulators and leagues align on prediction markets will determine whether the tax base grows with demand or fragments across platforms built to look like betting without the obligations that come with it.
