North Carolina First State First To Authorize Prediction Markets

Key Highlights

North Carolina became the first state to explicitly authorize platforms like Kalshi and Polymarket on July 7. Prediction market platforms are federally regulated, but several states have recently tried to restrict user access amid ongoing lawsuits over their legality.

Prediction Markets Get Budget Spotlight

North Carolina’s move to approve prediction markets was first proposed as part of its state budget. The provision, which was hidden near the end of the 634-page budget bill, allows Kalshi and Polymarket, among others, to operate in the state while paying state taxes. Gov. Josh Stein approved the budget on Tuesday.

Prediction markets allow users to trade contracts tied to future outcomes, ranging from sports results to politics, tariffs, business events, and other public questions. 

As opposed to state-licensed sportsbooks and North Carolina online casinos, prediction markets are viewed through a futures-market framework, regulated by the Commodity Futures Trading Commission (CFTC). North Carolina’s decision marks a notable shift by creating state-level authorization while also collecting tax revenue from the activity.

Lawmakers Target A New Revenue Stream

The underlying motive behind the taxation measure is a belief that people are already using prediction market platforms, so the state should start collecting revenue rather than leaving that activity untaxed. Under the new law, prediction market operators will be taxed at 6% of their net revenues.

House Speaker Destin Hall acknowledged it was “time to deal with it” because prediction markets are already present in the state. Senator Phil Berger also acknowledged the category’s growth, saying prediction markets are becoming more popular and more widely recognized.

Despite being approved by the governor, the timing of the provision drew scrutiny because it became public shortly before the budget cleared both chambers. It was made public on June 30 and passed the House and Senate just two days later, allowing critics little time to debate the potential effects.

Prediction Markets Regulated Differently Than Sportsbooks

The prediction market ruling stands out because it doesn’t impose the same regulatory structure North Carolina created for sports betting. Sportsbooks are heavily regulated, pay a $1 million license fee, and are taxed at 18% on net revenues. That figure will increase to 23% once the new budget takes effect.

With only a 6% tax on net revenue for prediction markets, critics worry the taxation differences will create an incentive for companies to shift activity away from sports betting toward event contracts.

North Carolina has collected more than $287 million in taxes from sports betting sites since legal online wagering launched in March 2024. Some lawmakers fear that revenue could fall if bettors migrate to lower-taxed products.

The concern also reaches college athletics. Sports betting revenue currently supports the state’s general fund and colleges with smaller athletic departments. The new budget allows NCAA Division-I schools UNC and NC State to each receive up to $5.8 million per year from sports betting revenue.