Lobbying effort to restore gambling loss tax deductions

Gambling Industry Tax Push

The gambling industry’s campaign to restore full federal tax deductions on gambling losses has gained fresh urgency in 2026, propelled by record-breaking Super Bowl wagering, a patchwork of state gambling developments, emerging regulatory challenges from crypto prediction markets, and heightened public health concerns spurred by large lottery jackpots and high-profile problem gambling cases. As lawmakers prepare for the 2026 midterms, the debate over gambling tax reform sits at a delicate crossroads—balancing economic fairness, fiscal responsibility, and consumer protection amid a rapidly evolving betting landscape.

Super Bowl LX’s Historic Betting Volumes Amplify the Push for Tax Deduction Restoration

Super Bowl LX set unprecedented wagering records, further fueling industry lobbying for the restoration of full federal gambling loss deductions:

DraftKings disclosed an eye-popping $2.5 trillion in potential payouts, reflecting the deepening mainstreaming of legalized sports betting.
High-stakes bets captured headlines, including a $500,000 wager in Biloxi, Mississippi, and a two-leg parlay at Hard Rock Bet that netted over $1.6 million from a $280,000 bet.
Celebrity involvement heightened public debate—rapper Drake’s admission of a $1 million gambling loss reignited fairness questions about federal tax treatment, which currently taxes all winnings fully but disallows full deductions on losses.

Industry advocates contend that restoring full loss deductions would align gambling tax treatment with other financial risk activities, such as stock market investments where losses can offset gains. This, they argue, promotes economic fairness, supports consumer confidence, and helps stabilize revenues amid surging betting volumes.

State-Level Divergence Highlights Challenges for Federal Reform Consensus

The fallout from Super Bowl LX wagering reveals a fragmented and uneven state gambling landscape, complicating efforts for uniform federal tax reform:

Massachusetts sportsbooks saw a 7% rise in betting handle to $816 million, buoyed by local team performances and Super Bowl enthusiasm; however, revenue gains varied widely among operators.
Illinois reported a decline in betting revenues, attributed to market saturation and shifting bettor preferences.
Missouri’s nascent sports betting market faced early losses, with promotional costs outpacing revenues in its first full month of operation.
Oregon generated $1.3 million in state revenue from $8.4 million wagered during Super Bowl weekend, showcasing the benefits of a mature regulatory environment.
Wisconsin recently legalized online sports betting, expanding the U.S. wagering map and signaling new market dynamics.

This patchwork of performances raises fiscal conservatives’ concerns that restoring full gambling loss deductions at the federal level could reduce taxable revenues and destabilize state budgets, complicating legislative consensus.

Crypto Prediction Markets and Regulatory Scrutiny Intensify

The rise of crypto-enabled prediction platforms, notably Kalshi, adds new dimensions to gambling policy debates and regulatory oversight challenges:

Kalshi’s Super Bowl LX influencer marketing campaigns significantly expanded its user base but provoked legal action; notably, a Massachusetts Superior Court ruling classified Kalshi’s contracts as gambling instruments, effectively banning its operations in the state.
Controversial promotional content, such as the “Pro Gambler” video, has drawn criticism for glamorizing risky betting without sufficient risk disclosures.
Ongoing anti-money laundering (AML) compliance issues, exacerbated by crypto’s inherent opacity, threaten Kalshi’s regulatory standing and operational viability.

These developments force policymakers to weigh innovation and consumer choice against the imperative for regulatory clarity, consumer protection, and financial integrity.

Technological Innovation Spurs Product Complexity and Compliance Demands

Rapid advances in betting technology continue to transform the ecosystem, elevating compliance and consumer protection challenges:

In-play and proposition bets—which allow wagers on granular, real-time events and player stats—have surged, increasing product complexity and consumer risk.
“Sharp” bettors leverage AI-driven analytics to identify value bets, prompting sportsbooks to invest heavily in algorithmic risk management and real-time liability monitoring.
Payment infrastructures are evolving:
- Operators like FanDuel and DraftKings have restricted credit card deposits to mitigate problem gambling risks.
- DraftKings expanded crypto-to-cash deposit options, improving accessibility but heightening regulatory scrutiny and compliance burdens.

The industry faces a continuous balancing act between offering innovative products and upholding responsible gambling safeguards and regulatory compliance.

Lottery Windfalls and High-Profile Losses Heighten Public Health and Integrity Concerns

Record-breaking lottery jackpots and notable individual gambling losses have escalated public health alarms and integrity risks:

The Mega Millions jackpot surged to $438 million for the February 25, 2026 drawing, continuing a trend of historic lottery windfalls.
Other notable lottery stories include:
- A $1.5 million Powerball win in Escondido, California.
- A Kentucky winner of $167.3 million embroiled in legal disputes post-win.
- A Massachusetts man claiming two separate $1 million Powerball prizes in the same drawing, coinciding with a $416 million Mega Millions jackpot.
- A Michigan Lottery player’s record-setting Lotto 47 jackpot won with just a $1 ticket.
The Colorado Lottery’s odds (1 in 25 for any prize; 1 in 292 million for the jackpot) underscore the extreme unlikelihood of major wins despite aggressive promotions.

Public health advocates warn that increased gambling exposure, amplified by high-profile cases such as NBA star Fred VanVleet’s public gambling dispute, may exacerbate gambling-related harms among vulnerable populations.

An especially striking case spotlighting problem gambling and integrity risks is the arrest of former New Haven Police Chief Karl Jacobson, who reportedly lost $4.4 million betting on FanDuel and DraftKings in one year. His case has drawn attention to vulnerabilities among high-profile individuals and the need for stronger safeguards.

Additionally, a Mooresville, North Carolina woman recently won $1 million on Powerball, illustrating the emotional highs and societal impacts of large lottery wins.

Intensifying Lobbying Ahead of 2026 Midterms Frames Tax Reform as a Fairness Issue

With the 2026 midterms approaching, industry lobbying and political contributions have surged, particularly in battleground states:

Leading operators—FanDuel, DraftKings, BetMGM—have ramped up efforts in swing states such as Nevada, New Jersey, Pennsylvania, and Wisconsin.
The industry frames restoring full federal gambling loss deductions as a matter of economic fairness and consumer rights, drawing parallels to investment loss deductions to broaden appeal.
Grassroots campaigns emphasize gambling’s job creation, tax revenue generation, and local economic benefits to build public and legislative support.

Opposition remains strong and multifaceted:

Fiscal conservatives warn that restoring deductions without clear revenue offsets risks expanding federal deficits and undermining state budgets.
Public health advocates demand coupling tax reform with enhanced consumer protections and dedicated funding for gambling addiction treatment.
Wall Street analysts remain cautious, as reflected in DraftKings’ fluctuating stock amidst regulatory uncertainties and intensifying competition.

Industry Perspective: Innovation Paired with Consumer Protection

FanDuel CEO Amy Howe articulates a pragmatic industry stance emphasizing:

Sustaining market leadership through diverse product offerings, official league partnerships, and robust consumer safeguards.
Viewing crypto prediction markets like Kalshi as complementary rather than cannibalizing traditional sportsbooks, expanding consumer choice.
Embracing innovation cautiously, balancing growth ambitions with regulatory compliance and responsible gambling commitments.

Policy at a Crossroads: The Need for Integrated Fiscal and Consumer Safeguards

The restoration of full federal gambling loss deductions remains unsettled amid competing priorities:

Proponents argue that deductions would stabilize revenues, support frequent and high-stakes bettors, and incentivize innovation.
Opponents caution that expanded deductions could worsen gambling-related financial harms and fiscal uncertainties without robust safeguards.
The Congressional Budget Office (CBO) has yet to issue a formal fiscal impact analysis, leaving revenue implications unclear and complicating legislative decisions.
Public health advocates emphasize that tax reforms must be integrated with strengthened regulatory oversight, comprehensive consumer protections, and funding for harm reduction to ensure safer gambling participation.

Conclusion

Super Bowl LX’s historic wagering volumes and high-profile losses have intensified the gambling industry’s push to restore full federal gambling loss deductions. Meanwhile, divergent state market performances, pioneering legalization efforts like Wisconsin’s online sports betting law, and emerging crypto prediction market challenges complicate federal reform prospects.

Simultaneously, record-setting lottery jackpots and individual jackpot stories—coupled with high-profile problem gambling cases such as the former New Haven Police Chief’s multi-million-dollar sportsbook losses—underscore urgent public health and integrity concerns. The industry’s technological evolution further raises compliance and consumer protection stakes.

As lobbying efforts peak ahead of the 2026 midterms amid sharply divided stakeholder views and awaiting critical CBO analysis, policymakers face a pivotal moment. Crafting gambling tax and regulatory policies that balance economic fairness, fiscal responsibility, and robust consumer protections will be essential to fostering a safe, sustainable, and equitable betting ecosystem—one that places responsible gambling and harm reduction at its core.

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