OBBB ‘Phantom Income’ Tax Threatens $1.1 Billion in State Betting Revenue
The proposed One Big Beautiful Bill Act (OBBBA) Gambling Tax Provision poses an existential threat to the U.S. legal sports betting industry, according to the American Bettors Voice (ABV) advocacy group. The group’s OBBB Migration Impact Financial Model, released in September 2025, projects the federal tax change will trigger a significant exodus of high-volume bettors, leading to massive state tax revenue losses.
The OBBBA tax provision fundamentally alters how bettors can deduct losses. Previously, taxpayers could fully deduct losses against winnings, ensuring taxation only on net income. The OBBBA now mandates that only 90% of a player’s total losses for the year are deductible.
The Phantom Income Crisis
The most contentious consequence of the OBBBA is the creation of “phantom income.” This effect forces bettors to pay taxes on money they did not actually win. The provision directly targets the segment of players—largely professionals—who operate on high volume and low margins. ABV’s analysis relies on the academic consensus that 10% of players generate 80% of the industry’s total handle.
ABV projects swift and severe financial fallout once the OBBBA takes effect on January 1, 2026.
- Immediate Exodus (Q1 2026): ABV expects a 5% to 10% immediate exit of professional players.
- Critical Phase (April 2026): Migration will accelerate to 15% to 25% during tax season, as players confront the phantom income reality. At this point, cumulative state tax losses will reach $420 million.
- Mature Phase (2027–2028): The full migration is projected to hit 25% to 40%.
Projected Annual Losses (U.S. Total)
ABV underscores that the OBBBA creates a grave risk for state revenues, especially for states with high tax rates and large betting volumes.
The group classifies New York (NY), Illinois (IL), and Pennsylvania (PA) as facing Critical Risk. These three states alone face a combined threatened tax loss of $513 million in the severe scenario. New York, with its 51% tax rate, is the most exposed state, projecting a potential tax loss reaching $345 million annually.
The irony of the OBBBA is its federal revenue target. The Joint Committee on Taxation estimated the bill would generate $1.1 billion in new federal revenue over eight years. ABV argues that this same amount — $1.1 billion — is what states stand to lose annually in the severe scenario. The political trade-off involves generating marginal federal revenue at the expense of established state funding streams.
Operator Vulnerability and Market Migration
The OBBBA provision essentially incentivizes high-volume players to abandon the regulated market. These players will likely seek out alternative platforms to avoid the tax burden.
- Prediction Markets: Exchanges regulated by the CFTC, such as Kalshi, maintain 100% loss deductibility and would not create phantom income. These platforms will benefit greatly.
- Offshore Sportsbooks: Illegal, offshore sportsbooks will also gain customers abandoning legal platforms.
ABV’s model also details the vulnerability of major operators:
ABV concludes that the OBBBA is a fundamental policy error. It will result in immediate losses of hundreds of millions in state tax revenue, severely harm regulated operators, and push the most valuable players out of the legal market. This outcome fundamentally changes the value proposition of legal sports betting for high-volume recreational and professional bettors alike.
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