NYU tax lawyers argue that sports prediction-market bets should face the same federal tax rules as conventional sports gambling. Michael McCann reports on their analysis for Sportico. Their conclusion would put gambling loss limits and a federal wagering tax behind products marketed as financial trading.
The analysis comes from Seth Hanlon, Miles Johnson, Michael A. Kaercher, Kyle Sweeney and Sophia Yan at NYU Law’s Tax Law Center. They examine sports event contracts, bets on sports outcomes sold as financial products. Their argument follows the transaction: someone risks money on an uncertain sporting event for a possible payout. Trading against another customer changes the counterparty, but the authors say it leaves the underlying wager intact.
The consequences fall on customers as well as operators. Gambling winnings are taxed as ordinary income. Starting in 2026, only 90% of wagering losses are deductible, with the deduction still capped by wagering gains. That can leave a customer with taxable income even when their bets produce no net profit. Unclear treatment makes it harder for customers to know the tax cost of trading before they place a bet.
A separate federal excise tax applies to the amount wagered, including charges and fees, regardless of the outcome. McCann reports rates of 0.25% for wagers authorized under state law and 2% for unauthorized wagers. The NYU authors argue that sports event contracts fall within that tax too. These are existing wagering-tax rates; their application to prediction markets remains disputed.
Registration with the Commodity Futures Trading Commission, the federal derivatives regulator, does not settle a tax question, the authors argue. Nor would a financial label necessarily override the transaction’s economic substance. The court fight over state gambling authority and the tax treatment of a customer’s winnings are separate questions.
This is a legal analysis calling for IRS guidance, not a new IRS ruling. McCann says neither courts nor the agency have taken a position on whether these contracts count as wagers under tax law. Until they do, customers and businesses face uncertainty over obligations that the platforms’ language of trading cannot resolve.