MW This Super Bowl, the game to watch is prediction markets versus sportsbooks
By Andrew Keshner and Weston Blasi
If you're risking money on the big game, one of these methods could be a surprising tax win
Betting on Super Bowl LX? Putting your money in prediction markets could come with a tax advantage - even if you lose.
Forget the Seattle Seahawks versus the New England Patriots. This Super Bowl, the game to watch is prediction markets versus sportsbooks.
For fans willing to risk money on the Super Bowl, the savvy financial move might be going with prediction markets over sportsbooks, because prediction-market bets might yield a lower tax bill than bets made on sportsbooks, some experts say.
Just beware that the IRS could throw a flag later.
Kalshi started allowing sports event contracts just a few weeks before last year's Super Bowl, but this weekend's matchup is the first time that prediction markets will have a big piece of the betting action after exploding in popularity over the past year. Polymarket, Robinhood (HOOD) and Crypto.com are other places offering outcome forecasting.
Meanwhile, traditional wagering at sportsbooks like DraftKings $(DKNG)$ and FanDuel $(FLUT)$ has been happening for years, surging in popularity after the 2018 Supreme Court ruling that effectively legalized sports betting in the U.S.
So what's the difference? Prediction markets allow users to buy event contracts with "yes" or "no" outcomes, like: "Will the Patriots win the Super Bowl?" Each contract ranges in price between $.01 to $0.99, representing what the collective market thinks of the likelihood of an event happening. A winning contract goes to $1 and a losing contract goes to $0.
With traditional gambling, people bet based on odds that are set by the sportsbook. There's no trading ahead of the event and bettors can't back out once the money is down.
There's plenty of appetite to put money on the big game. Americans are expected to legally wager a record $1.76 billion on this year's Super Bowl, according to the American Gaming Association - a figure that doesn't include things like office pools or Super Bowl boxes.
As of Thursday, Kalshi had already seen over $180 million worth of trading volume on some of its Super Bowl markets, and those numbers will only continue to grow as the game draws closer.
Here's what MarketWatch followers say they are doing with their money this Super Bowl Sunday:
Why prediction markets might have the tax edge
There are many similarities between sports betting and prediction markets, but one major difference to keep in mind before going all in on either one is how a player's winnings and losses could be taxed.
There's "a very noticeable tax difference between the two," said James Creech, a principal with Baker Tilly's specialty tax practice. He noted there may be "a distinctly better tax treatment doing the same bet through prediction markets."
By betting money with sportsbooks, fans' winnings are fully taxable. A new Republican tax law lets gamblers write off 90% of their losses, up to their winnings, each year starting in 2026. The tax code previously let bettors deduct 100% of their losses up to their winnings.
In other words, taxes weren't easy for gamblers already - and now they are getting tougher, blocking even more losses from a write-off.
Compare that to sports prediction markets. It's a fast-evolving arena where the Internal Revenue Service has not offered guidance, according to Creech and others. This means prediction-market users don't have definitive rules on how to classify their winnings and losses when they file taxes - and if it counts as investment income, then that could save them money on their taxes.
Many event contracts are held for less than a year, meaning any profits could be taxed the same as wages. So if someone makes money on an investment like stocks, then their prediction-market losses could offset their short-term capital gains and can potentially go toward an annual $3,000 deduction on all capital losses. Unused losses exceeding $3,000 also get carried forward to future years.
Everyone hopes to win on their prediction-market bets, but losses in the Super Bowl could conceivably trim the tax bill for an investor who won in the stock market, Creech said. "The losses are where we are going to move the needles," he said.
It's these favorable rules on capital losses that may give prediction markets the edge over traditional sports betting for now, said Patrick Camuso of Camuso CPA.
Camuso thinks event contracts generally should be subject to capital-gains tax rules, though he weighs his clients' circumstances. Others play it differently; that includes Zak Zimbile, an accountant working with gamblers across the country. Zimbile views event-contract proceeds as gambling, for tax purposes. "Since we don't know, I have to go and do what I think is best," he said.
Investing income, gambling winnings and the 'very gray, murky, no man's land'
The big concern to keep in mind with prediction markets is that lawmakers, regulators and courts still haven't settled whether prediction markets - especially sports-related event contracts - are gambling or investments.
"We are left in the very gray, murky, no man's land," said Creech. "I think we are going to have to live with inconsistency and unknowns for a while."
The American Gaming Association says sports event contracts wrongly bypass regulations and taxes applied to gambling. "We do believe sports event contracts are a sports-betting product, and therefore they should be taxed as such," AGA spokesperson Dara Cohen told MarketWatch.
States have lost over $423.5 million in tax revenue since the rise of sports event contracts, according to a running count from the gaming-industry trade organization. ("No Matter the Name, It's Still Sports Betting," the AGA claims on its website.) That's likely why many states, including Nevada and Massachusetts, have pursued legal action against prediction markets, saying they need gambling licenses for their sports event contracts.
Meanwhile, companies like Robinhood are fighting to keep their prediction-markets businesses under the sole supervision of the Commodity Futures Trading Commission.
"We believe in the power of prediction markets and the important role they play at the intersection of trading, news, economics, politics, culture and sports," according to a Robinhood spokesperson, who said all eligible customers should have access to the company's federally regulated markets.
The Commodity Futures Trading Commission did not immediately respond to a request for comment. An IRS spokesperson declined to comment. (Prediction-market operator Polymarket has a data partnership with Dow Jones, the publisher of MarketWatch.)
What we do know: Prediction-market users have to report the money they make on their taxes. The platforms are sending out a range of forms for users to file with their taxes - and they are quick to note they can't give any tax advice.
For example, Robinhood isn't reporting event-contract trades to the IRS and isn't sending a 1099 form on the event contracts. Users will get an event-contract statement, and then it's up to them how to report it on their tax returns.
IRS computers might be expecting the numbers received from the tax forms of certain prediction-market platforms to match up with taxpayer returns. If there's no match, that might delay the processing of the taxpayer's return.
There are ways to file disclosures explaining why someone is putting money categorized as investments as gambling, Zimbile said. Creech, however, reports the money on the return as displayed on the tax form: "Otherwise, we risk opening a whole can of worms."
So, after all that, where's the tax-smart place to put money for Super Bowl LX?
"Classic tax answer incoming: It depends," said Robert Stoddard, KPMG's lead U.S. tax partner for the gaming industry.
What it depends on, Stoddard noted, is whether courts and regulators classify the money as gambling or investing. If it's investing, he says it also depends if the event contracts are taxed like a stock profit or like a futures contract, which has a different set of rules.
But that's something that won't be known before Super Bowl Sunday.
How to bet may also depend on a person's willingness to deal with possible IRS hassles if the taxman later turns around to say the money was misreported. So it's best to hold on to records and do a gut check.
"You have to look at your risk tolerance," said Stoddard.
-Andrew Keshner -Weston Blasi
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 06, 2026 13:34 ET (18:34 GMT)
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