Trump's Potential Tax Cut on Gambling Winnings and Its Impact on the U.S. Gaming Sector

The U.S. gaming sector is navigating a pivotal moment as tax policy shifts under the One Big Beautiful Bill Act (OBBBA) and potential future reforms, including President Donald Trump's proposed elimination of federal taxes on gambling winnings, reshape the industry's financial landscape. For investors, these developments present both opportunities and risks, requiring a nuanced understanding of how tax changes influence consumer behavior, corporate profitability, and legislative dynamics.

The OBBBA's Immediate Impact: Phantom Income and Industry Backlash

The OBBBA, enacted in July 2025, introduced a 90% cap on the deductibility of gambling losses starting in 2026, effectively taxing "phantom income" for many gamblers. Under this rule, individuals who break even or incur small losses may still face tax liabilities, as deductible losses can no longer exceed 90% of reported winnings. For example, a gambler with $100,000 in winnings and $100,000 in losses would owe taxes on $10,000 of "phantom income". This provision has drawn sharp criticism from professional gamblers and lawmakers, particularly in gambling-heavy states like Nevada and New Jersey, who argue it penalizes skilled players and disrupts the economics of the industry according to industry analysis.

The American Gaming Association and industry stakeholders have pushed for legislative fixes, such as the FAIR BET Act, which seeks to restore 100% deductibility of gambling losses. However, these efforts remain stalled in Congress, leaving operators and gamblers to adapt to the new tax regime. Analysts warn that the OBBBA's rules could drive high-volume gamblers to offshore or unregulated markets, potentially eroding revenue for U.S.-based operators.

Trump's Proposed Tax Cut: A Game Changer?

While no formal proposal has been introduced, Trump has indicated openness to eliminating federal taxes on gambling winnings, aligning with his broader tax-cut agenda. This move, if enacted, could significantly boost the sector by increasing disposable income for recreational and professional gamblers. For instance, removing the 24% federal withholding on gambling earnings exceeding $600 could incentivize higher participation in casinos, sports betting, and online platforms.

However, the plausibility of such a tax cut remains uncertain. Trump's remarks, made during a conversation aboard Air Force One, were framed as a "thought exercise" rather than a concrete plan according to a report. Critics argue that eliminating taxes on gambling winnings would reduce federal revenue at a time when the OBBBA already projects a $5 trillion deficit over the next decade. Proponents, meanwhile, contend that the policy could stimulate economic activity in the gaming sector, which generated nearly $3 billion in state tax revenues from online gambling in 2024.

Investment Opportunities Amid Tax Policy Shifts

For investors, the gaming sector's performance post-OBBBA has been mixed. While the 90% loss deduction cap poses challenges, other provisions in the OBBBA-such as 100% bonus depreciation for qualifying assets-have enhanced cash flow for capital-intensive companies. For example, gaming firms investing in new facilities or technology can now fully deduct the cost of qualifying property, reducing taxable income and improving profitability according to industry analysis.

Analyst projections highlight divergent trends. Electronic Arts (EA) is expected to report a 26.6% year-over-year increase in earnings per share for fiscal 2025, driven by strong gross margins and shareholder returns, despite a 5% drop in Q4 revenue according to financial reports. Similarly, iGaming stocks like DraftKings and Flutter are forecasted to see 25% growth in online gross gaming revenue (GGR) in 2025, buoyed by rising betting turnover and market expansion.

Yet risks persist. The OBBBA's tax changes could deter casual gamblers, particularly if they perceive the new rules as unfair. A report by the Tax Foundation notes that the 90% loss deduction cap may reduce the appeal of reporting gambling activities, potentially shrinking the tax base for states reliant on gaming revenues. Investors must also weigh the likelihood of legislative rollbacks, such as the FAIR BET Act, which could reverse the OBBBA's provisions and create regulatory uncertainty.

The Road Ahead: Balancing Fiscal Policy and Market Dynamics

The interplay between tax policy and gaming stock valuations hinges on several factors:
1. Legislative Outcomes: The success of bipartisan efforts to restore 100% loss deductions will determine whether the OBBBA's provisions remain in place or are amended.
2. Consumer Behavior: If gamblers shift to unregulated markets, U.S. operators may face declining revenues, though online platforms could offset this with international expansion.
3. Corporate Adaptability: Companies leveraging OBBBA incentives-such as bonus depreciation and R&D tax credits-may outperform peers, particularly in tech-driven segments like esports and virtual reality gaming.

For now, the gaming sector appears resilient. Despite tax pressures, the U.S. gaming market is projected to grow by 12% in 2025, with online gaming leading the charge. However, investors should remain cautious about long-term fiscal risks, including potential deficits from expansive tax cuts and the volatility of regulatory environments.

Conclusion

Trump's potential tax cut on gambling winnings, if realized, could catalyze a boom in the gaming sector by increasing disposable income and participation. However, the OBBBA's existing rules-particularly the 90% loss deduction cap-pose immediate headwinds that may require legislative intervention. For investors, the key lies in balancing optimism about pro-business tax policies with prudence regarding fiscal sustainability and regulatory shifts. As the industry navigates this complex landscape, companies that innovate while optimizing for tax efficiency are likely to emerge as top performers.