Prediction market betting would be authorized in NC’s new budget. What it means for sports betting

Wanna bet prediction markets will face new costs in North Carolina? Odds are it’ll happen if the state’s new budget becomes law. 

Across the country, prediction market companies are facing scrutiny over concerns that they might fuel insider trading or otherwise run afoul of gambling laws and regulations. But in North Carolina, the state legislature is seeking to become the first to formally authorize — and start taxing — the companies.

Tucked into page 626 of the new 634-page state budget bill is a proposal that could have massive implications for how these companies can operate in North Carolina. Some lawmakers say it’ll create new revenue. Others worry it’ll cost the state millions.

Prediction market companies such as Polymarket and Kalshi offer bets on all sorts of outcomes. Some of most popular in the past week have included bets on the outcomes of World Cup soccer matches, what tariff rates the U.S. will impose on China, when the U.S. will sign a new nuclear deal with Iran, which NBA team basketball star free agent Lebron James will sign with next, or when certain tech companies might begin publicly trading their stocks.

They’re legal in the eyes of federal law, which doesn’t regulate the companies as gambling but rather as a futures market, such as those for oil or cattle prices. But no states explicitly authorize the companies. North Carolina would become the first to do so, if the budget becomes law. 

The idea is supported by some Republicans, including top state legislative leaders.

“It's pretty clear that it's something that seems to be growing both in popularity and in terms of just recognition that it's out there,” Senate leader Phil Berger told reporters Thursday. “Whether it's something that eventually is going to take over from the sports betting, I don't know.”

But other conservatives fear it’s bad policy, and too permissive to prediction markets companies. The bill doesn’t propose a single rule that prediction market betting companies would have to follow to continue doing business in North Carolina — a sharp contrast to the state’s heavily regulated sports betting laws.

“There’s no reason a state should favor these rogue operators over the licensed sportsbooks who fully comply with regulations and tax structures,” Mick Mulvaney, President Donald Trump’s former chief of staff, told WRAL in a written statement. Mulvaney now serves as director of the group Gambling Is Not Investing, which advocates for consumer protections and other regulations in the gaming industry.

Polymarket and Kalshi spokespeople didn’t respond to requests for comment on the budget provision authorizing them in North Carolina, or the criticisms lobbed against the industry.

Allowing prediction market betting companies to operate in North Carolina would let the state tax them. Although the negotiations over legalizing sports betting took years, this provision authorizing prediction markets was made public Tuesday and had passed both chambers of the legislature by Thursday with little opportunity for public debate, causing some critics to question lawmakers’ motives. WRAL previously reported the change was likely coming.

House Speaker Destin Hall said North Carolinians are already betting with companies like Polymarket and Kalshi, so the state might as well start collecting taxes from them. “A lot of it's going on in this state anyway, in terms of the prediction markets, and so [it’s] just time to deal with it,” he said.

The budget is awaiting action from Democratic Gov. Josh Stein, who can sign it, veto it, or let it become law without his signature. 

The budget would institute a 6% tax rate on the net revenues prediction market companies make, much less than what sports betting companies pay — currently 18%, but which will be raised to 23% if the budget becomes law. Sports betting companies also must pay the state $1 million for a license to operate.

So far, the state has collected more than $287 million from sports betting companies since it became legal in March 2024, WRAL has reported.

Opponents worry all that revenue could disappear if sports betting companies simply rebrand themselves as prediction market companies. If they did that, based on the current language of the bill, those companies would pay only a small fraction of the current tax bill, and no license fees. Representatives of the Sports Betting Alliance, a national industry group, didn’t provide comment.

“The revenue that we've been getting from sports betting, it's going to plummet,” Sen. Julie Mayfield, D-Buncombe, told reporters after a budget vote Wednesday. “... And then that has all sorts of implications. Not just for our budget, but for the schools that have again come to rely on this money for their athletic programs.”

Sports betting revenue in North Carolina is split between the state’s general fund and individual universities. The money has previously helped only schools with smaller athletic departments, but UNC and N.C. State officials argued that since so many people bet on their teams, they should get a cut of the revenue, too. This year’s budget obliges, allowing the Tar Heels and Wolfpack to each receive up to $5.8 million a year from sports betting revenue.

But if gamblers move to prediction markets, that revenue could dry up.

“This was a poor decision to include this in the budget,” Rep. Pricey Harrison, D-Guilford, said during legislative debate over the new budget plan. “While I think it's a great idea to raise revenue, I think this should have been more thoughtful, and we should have considered all the ramifications.” 

Republican lawmakers didn’t engage in extensive debate over the proposal, unlike when the legislature decided to legalize sports betting in 2024 following years of public debate and negotiation. Hall and Berger only spoke about it after being questioned by reporters.

Because prediction markets offer bets on such a wide variety of outcomes, opponents worry that the nature of some of the bets encourages insiders to bet using confidential information, or possibly even to change the outcome of events — minor or world-altering — to earn a betting profit.

The companies welcome experts trading on their specialized knowledge, and while the companies have rules against insiders trading on confidential knowledge, it’s unclear how strictly those are or even can be enforced. 

“Prediction markets are often more accurate than pundits because they combine news, polls, and expert opinions into a single value that represents the market’s view of an event’s odds,” Polymarket says on its website.

Kalshi’s website adds that on its bets, “prices reflect the aggregated beliefs of traders with skin in the game, attracting people with genuine domain expertise: economists trading Fed markets, meteorologists trading weather events, political analysts trading elections.”

The concept is still relatively new, having gained broader public awareness in the past few years. For the most part, state governments have been expressing skepticism — including North Carolina, which has recently signed onto multiple court briefs and regulatory letters expressing concern about prediction market betting. 

Democratic Attorney General Jeff Jackson signed onto the briefs for North Carolina. A Jackson spokeswoman declined to comment on the new budget provision but referred WRAL to those briefs.

One of them, signed by 41 states, says prediction markets “are contrary to the public interest” and need to face stricter federal regulations.

“Gambling has grown exponentially in recent years, so robust state gambling laws are vital,” the attorneys general wrote. “… And while some use sports betting as mere entertainment, gambling is dangerous for many. Millions of Americans qualify as problematic or pathological gamblers.” 

Hall defended using the budget to bless the companies’ operations in North Carolina. While they would face zero state regulations under this proposal, he said they do face some federal regulations.

“Folks were comfortable with the way sports betting had been implemented,” Hall told reporters. “This didn't seem like it was a great extension from what's currently allowed under sports betting. And a lot of it's going on in this state anyway, in terms of the prediction markets. So it was just time to deal with it.”

Mulvaney, the former Trump chief of staff, disagrees.

“Prediction markets are unlicensed sports gambling apps — full stop,” he said. “The proposed North Carolina budget legitimizes and gives a sweetheart deal to the same prediction market operators that are trampling on the state’s gambling regulations while opening a pathway for underage users to gamble on sports through prediction markets.”