Texas Senate weighs if prediction markets are gambling

Texas senators questioned on Tuesday, September 15, whether sports event contracts sold on prediction markets such as Kalshi count as gambling under state law. The Senate State Affairs Committee hearing put Kalshi’s federal regulatory defence against the gaming industry, responsible gambling advocates and senators who said the products break the Texas ban on wagering.

The hearing followed an interim charge from Lieutenant Governor Dan Patrick titled “Closing Gambling Loopholes”, part of the priority list he issued in March 2026. Patrick opposes expanding legal gambling in Texas and has made restrictions on prediction markets a priority for the 90th Legislative Session, which opens on January 12, 2027.

Senators challenge the federal argument

Committee chair Bryan Hughes (R-Mineola) described prediction markets as a “loophole” around the state’s gambling ban. Sports betting is not legal in Texas in any form, online or retail, and the Texas Constitution restricts gambling.

Robert DeNault, Kalshi’s head of enforcement and legal counsel, told the committee that Kalshi runs an exchange where users trade “yes/no” event contracts with each other, under the jurisdiction of the Commodity Futures Trading Commission (CFTC).

“What we offer is a financial product that lets Texans engage in well regulated trading,” DeNault said.

DeNault argued that regulating the contracts would serve Texas better than prohibition, which he said would push customers to offshore sites.

Senators were not persuaded. Adam Hinojosa (R-Corpus Christi) asked DeNault to explain the legal difference between a Kalshi contract and a direct bet on a Dallas Cowboys game.

“If I wanted to, instead of going through Kalshi, bet 100 bucks, the Cowboys win next week, what makes that a legal transaction in Texas?” Hinojosa asked.

Bob Hall (R-Edgewood) said his reading of the Texas Constitution settled the question.

“I’m just a simple engineer from East Texas, but I can read our Constitution and understand what it says,” Hall said. He concluded: “It is gambling.”

Hall added that lawmakers are “going to have to do something”, despite what he called “experts that thrive on getting around the law.”

Gaming industry lines up against Kalshi

Tres York, vice president at the American Gaming Association (AGA), told senators that sports event contracts are sports betting under another name. The AGA represents licensed casino and sportsbook operators and has pressed state and federal regulators to treat sports contracts on prediction markets as gambling.

“If you’re stringing together three different things to happen in a sporting event game, at the end of the day this is simply gambling on sports,” York said.

York said the platforms “expose young Texans to sports gambling.” He also alleged that a separate trading arm linked to Kalshi operates on both sides of bets placed on the exchange.

Harm and youth protection concerns

Brianne Doura-Schawohl, a problem and responsible gambling advocate, told the committee that the legal label on the product makes no difference to gambling-related harm. Kalshi is registered with the CFTC as a designated contract market (DCM).

“The brain doesn’t care whether you call it a DCM or a sportsbook, right?” Doura-Schawohl said.

A Common Sense Media report raised during the hearing found that one-third of teenage boys had gambled in the past year. Dr. Lindy McGee, a pediatrician testifying on behalf of the Texas Medical Association, and Jonathan Covey, director of policy at conservative group Texas Values, also gave evidence.

States test federal oversight

Texas is the latest state to examine whether CFTC registration shields prediction markets from state gambling law. Kalshi has argued in disputes with several states that federal oversight of event contracts overrides state rules. This month, Connecticut ordered nine prediction markets to stop offering sports contracts.

On the supplier side, Genius Sports’ chief executive said this week that prediction market demand will last.

What comes next

The House State Affairs Committee held its own hearing on the issue immediately after the Senate session. No bill is before either chamber yet. Interim hearings feed recommendations that lawmakers can turn into legislation once the 90th Legislature convenes in January.

With Patrick controlling the Senate agenda and backing a crackdown, a bill targeting sports event contracts is a likely item for the 2027 session. Any Texas ban would likely face a federal preemption challenge from Kalshi.

Source: Texas Senate State Affairs Committee