Taxing Luck: How the 90% Gambling Loss Deduction Rule Could Uproot High-Stakes Industries

The proposed reduction of the gambling loss deduction from 100% to 90%—set to take effect in 2026 under Section 70014 of the One Big Beautiful Bill Act (OBBBA)—isn't just a tax tweak. It's a seismic shift with far-reaching implications for high-stakes industries, regulatory frameworks, and the migration of betting activity to unregulated or offshore markets. For professional bettors, this rule effectively creates “phantom income,” forcing them to pay taxes on money they never actually earned. The ripple effects could reshape everything from casino revenue to the viability of online sports betting platforms.

The Tax Arithmetic: Phantom Income and Margin Pressure

Under current law, gamblers can deduct 100% of their losses against their winnings, allowing them to report zero taxable income if they break even. The proposed rule would cap deductions at 90%, meaning a gambler with $500,000 in both winnings and losses would now owe taxes on $50,000. For high-rollers and professional bettors—whose livelihoods depend on meticulous tracking of net gains—this creates a new layer of tax liability that could erode profitability.

The Joint Committee on Taxation estimates this provision could raise $1.14 billion by 2034. But the cost to the gaming industry could be far higher. Both companies have seen declines of over 3% in 2025 as investors price in regulatory uncertainty.

Legislative Limbo: Will the Rule Survive?

The provision's fate remains uncertain. While the Senate passed OBBBA with Section 70014 intact, the House version excludes it. Lawmakers like Nevada's Rep. Dina Titus are pushing to remove the rule, arguing it risks driving bettors to unregulated offshore markets. The American Gaming Association (AGA) warns that this could cost states billions in tax revenue and jobs.

The House has until July 4, 2025, to finalize the bill. If the rule stays, it becomes law in 2026. If it's stripped out, the status quo prevails. Investors should monitor negotiations closely. A compromise—such as extending the deduction to non-itemizers or softening the 90% cap—could also emerge.

Market Migration: Where Will the Money Flow?

The rule's most significant impact may be on market migration. High-stakes bettors will seek tax-friendly alternatives:

1. CFTC-Regulated Event Futures: Platforms like Kalshi allow losses to offset traditional investment gains without the 90% cap. This could attract professional traders.
2. Offshore Markets: Unregulated offshore bookies, already a $200 billion industry, may see surges in U.S. bettors seeking full deduction eligibility.
3. Casino Recovery (Temporarily): Traditional casinos could see short-term boosts as bettors shift from taxable online platforms to brick-and-mortar venues.

The risk? A long-term exodus of revenue to unregulated spaces.

Investment Strategies: Navigating Regulatory Risk

• Short-Term Plays: Short positions in pure-play online gambling stocks like DraftKings (DKNG) and FanDuel (FDKU) could profit if the rule passes. Inverse ETFs like the Fidelity Consumer Discretionary Inverse ETF (FSDC) offer hedging.
• Long-Term Bets:
• Casino Resilience: Companies with diversified revenue streams, like Las Vegas Sands (LVS) or MGM Resorts (MGM), may outperform if Macau's recovery offsets U.S. tax headwinds.
• Event Futures Exposure: Invest in platforms with CFTC-regulated products (e.g., Kalshi's parent company) as they capitalize on tax arbitrage.
• ETF Diversification: The Sports Betting & iGaming ETF (BETZ) offers sector exposure but requires caution. Its 6–8x EV/EBITDA multiple suggests limited upside unless margins stabilize.

Conclusion: A Crossroads for the Gaming Industry

The 90% deduction rule isn't just a tax change—it's a stress test for the gaming ecosystem. If passed, it could accelerate a shift toward unregulated markets, squeezing U.S. operators and regulators. If struck down, it leaves the industry in limbo until Congress revisits tax policy.

Investors should treat this as a binary event. Monitor House negotiations post-July 4, and position portfolios to capitalize on either outcome. The stakes—literally—are high.

Final Note: Regulatory clarity is expected by mid-July . Until then, volatility will dominate.