KPMG: Taxes and operating costs as much of a threat as prediction markets

This week, KPMG hosted a webinar centered around the potential tax implications of gaming's most prominent developments across 2025, including the growth of prediction markets and President Donald Trump's One Big Beautiful Bill Act.

Outside predictions

Beginning with US Gaming Leader and Las Vegas Managing Partner Rick Arpin, KPMG shared how concerns stemming from lower consumer spending and increased operating costs have been ignored due to the rise of prediction markets.

Operators such as FanDuel, DraftKings and Fanatics have already begun preparations to offer prediction markets, with Fanatics Markets having gone live on December 3 in 10 states across the US.

FanDuel and DraftKings have each stated its respective platforms will be launched by the start of 2026, as all three operators chose to relinquish its membership with the American Gaming Association (AGA) once the initiatives were announced.

Arpin attempted to shed light on the remaining storylines currently being introduced in gaming, having said, "It's easy for folks to focus on prediction markets, but there are plenty of other things to worry about in gaming.

"There are also plenty of other opportunities to take advantage of. With the legal and regulatory pushback seen with prediction markets, we expect it to lead to slower expansion for operators."

Arpin also commented on how potential concerns differ even from those raised in 2022, when developments like the Metaverse overtook gaming headlines throughout the year. Now, Arpin states, attention falls greater upon prediction markets and anti-money laundering failures.

From KPMG's standpoint, ignoring heightened concerns such as lower consumer spending and increased costs may "add up to potential gotchas" for operators since it's "hard to focus on one thing" in gaming.

Arpin would go on to identify online sports betting, peer-to-peer gaming, sweepstakes-style gameplay, betting exchanges and daily fantasy sports (DFS) as the emerging US verticals in iGaming.

While the KPMG executive believes half of gaming views prediction markets as "completely illegal," Arpin has also met those who foresee event contract trading as the "future," given there is "too perfect of a path" for expansion.

"From a personal view, it will probably end up somewhere in the middle," Arpin said. "I certainly don't see it going away in the next one-to-three years, but the pace of change is quite rapid."

Big, but not so beautiful

KPMG US Managing Director Laura Zhivich and Lead Gaming Tax Partner Robert Stoddard would then delve into the potential tax ramifications of President Trump's One Big Beautiful Bill Act, which was officially signed into law on July 4.

President Trump's budget reconciliation bill only allows for gamblers to deduct 90% of their losses along with any winnings made throughout the year, meaning if a player won $100,000 in 2025 but also lost $100,000, they still have to pay $10,000 in taxes.

The potential break-even tax payments were described as a "terrible result" by Stoddard, who confirmed the reconciliation bill may "incentivize" bettors to find alternatives such as sweepstakes casinos, prediction markets and black-market operators.

Zhivich stated the new tax considerations have been a "hot topic" in gaming over the past six months, including "outcry from industry professionals and high-value players."

"We've seen a lot of lobbying efforts made for the gambling loss limitations put into place," Zhivich said.

"It's been particularly challenging due to the possible taxation of what could be viewed as phantom income, as well as the deduction of US research & engineering expenditures."

Nevada Representative Dina Titus introduced the Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET) Act to counter President Trump's reconciliation bill, but was unable to pass the legislation through the US Senate and House of Representatives.

Titus' bill would have reimplemented the country's full deduction tax code, but the One Big Beautiful Bill Act will still go into effect by the start of 2026.

KPMG US Managing Director of Tax, Trade & Customs Nicole Porpiglia also spoke on the new tariffs put into place by President Trump in 2025, claiming operators "basically have to be a scientist to figure out how certain tariffs will be applied."

Due to the increased costs for obtaining hardware such as aluminum, copper and steel, Porpiglia believes operators will now face a "complex decision" of where tariffs apply within respective yearly budgets.

A 'frantic' outlook

Concluding the webinar with a greater focus on prediction markets, Stoddard shared how its growth "seems to be almost frantic at this point" and "incredibly fast-moving." He also called attention to how certain states have responded to operators' prediction market efforts, including Arizona "openly threatening" Underdog Fantasy on December 13.

"The difference between how prediction markets are viewed from a federal level and a state level is a much different animal," Stoddard said.

"Given the ability to self-certify with the CFTC (Commodity Futures Trading Commission), this almost inevitably has to end up in the Supreme Court, and it will be interesting to see how they define prediction markets."

If prediction markets and the trading of event-based contracts are defined as gambling by the US government, operators would be subjected to similar tax considerations witnessed with fellow gaming verticals.

Prediction market operators would still have to pay the federal excise tax as well as respective state taxes on gross gaming revenue, while all winnings reported by players would be deemed ordinary gambling income.

Despite entities such as KPMG taking the time to better explain prediction markets' growth to consumers and industry professionals, a variety of questions still surround the newest attraction in gaming.

How will prediction markets affect offerings such as retail casino gameplay and even forms of more traditional sports betting? Will the CFTC handle regulatory concerns, or does the responsibility fall greater upon states? As more operators continue to join the predictions race, 2026 could hold many of the answers being sought after by those involved with gaming.