According to a new report from American Bettor’s Voice, the gambling tax provisions in the “One Big Beautiful Bill” could significantly hurt the sports betting industry.
The non-profit group advocates for the rights of American sports bettors. The group’s recent study said the industry could sustain an annual handle loss of $18 billion. Additionally, operators will see a $1.5 billion reduction in gross revenue, and states will lose $420 million in tax revenue.
Provisions in the OBBA limit gambling loss deduction to 90% of actual losses starting on Jan. 1. The scenario creates “phantom income” where bettors owe taxes on money they never actually won.
For example, a poker player wins a tournament for $100,000. Then, the player loses $100,000 throughout the rest of the year. That player broke even, but would have a tax bill as if he won $10,000.
It was mostly poker players that sounded the alarm when the bill was signed into law. However, the report states that this change in the tax code will hurt sports bettors as well. The report says the law “poses an existential threat to the regulated sports betting industry in the United States.”
High-Volume Bettors Will Look Elsewhere
The tax adjustment could have a major impact on a key segment of sports bettors. According to the report, 10% of wagering markets is comprised of professional and high-volume recreational gamblers. That 10% generates 80% of the total handle in regulated sports betting markets.
“The financial implications are staggering,” the report reads. “More severe scenarios project handle losses exceeding $48 billion annually.”
The segment of bettors that generates most of the handle will seek out other betting options. These other options could include sports prediction markets like Kalshi, or offshore operators. But it’s clear they won’t be betting with regulated operators.
Kalshi is facing several lawsuits and legal obstacles regarding their sports prediction markets. But the offering is finding traction among sports bettors. The platform processed $303 million in sports-focused volume during a single weekend in September.
The American Gaming Association recently reported that offshore gambling operators account for one-third of the U.S. market. Offshore online sports betting represents $5 billion of that, with states missing out on roughly $1 billion in tax revenue.
According to the ABV study, New York, Illinois, Pennsylvania, New Jersey, and Ohio could be immensely affected as bettors look elsewhere. New York could face annual tax losses of at least $129 million and Illinois could lose at least $41 million.
Operators would also get hurt in this situation. The report estimates FanDuel’s handle to drop between $7.2 billion and $19.2 billion. DraftKings could lose between $6.2 billion and $16.8 billion.
“The convergence of phantom income taxation, regulatory arbitrage opportunities, and the industry’s dependence on a small customer base creates the perfect storm that could fundamentally reshape American sports betting,” the study reads. “Without legislative intervention through the FAIR BET Act or a similar remedy, the regulated industry faces an unprecedented migration of its most valuable customers to platforms operating under different regulatory frameworks.”
