Texas lawmakers question legality of prediction markets

Texas lawmakers are raising questions about the legality of prediction markets, which have grown into a common alternative to sports betting in the state. The industry’s expansion comes against the backdrop of a Texas constitutional prohibition on most traditional sports gambling.

Two legislative committees , the Texas Senate State Affairs Committee and the Texas House State Affairs Committee , met Tuesday with experts on prediction markets. The companies behind them are licensed by the Commodity Futures Trading Commission rather than the state, and they offer event-based contracts that resemble sports wagers.

Robert DeNault, Kalshi’s head of enforcement, said the platforms operate differently from sportsbooks. “These are financial exchanges that are regulated much like a stock exchange,” DeNault said. “They’re peer-to-peer systems for people to set prices by trading with one another in an open and fair marketplace.”

State Sen. Bob Hall, R-Rockwall, took the strongest position among lawmakers in both chambers. “I don’t understand why or how it continues to operate,” Hall said. “I’m not sure why the law is not even being enforced today because I think the law is adequate to enforce it because it is gambling.”

Hall was joined by Brianne Doura-Schawohl, a pro-mental health, anti-gambling advocate. “The brain doesn’t care (what you call it),” she said. “You are putting something of value, you’re risking it, for the potential to get something of value.” Doura-Schawohl also said, “Problem gambling has the highest suicide rate of all the addictions.”

The sportsbook industry has also pushed back. “It’s the exact same functionality. It is indistinguishable,” Tres York, vice president of government relations with the American Gaming Association, said. “They’re betting on the exact same stuff and putting money on the outcome of the exact same things.”

The legal landscape around prediction markets nationwide is unsettled. Federal appeals courts have split on whether states can regulate them, setting up a potential Supreme Court test. The Third Circuit Court of Appeals ruled that Kalshi cannot be regulated by state gambling laws because it is governed under the federal Commodity Exchange Act. This month, the Ninth Circuit agreed with a contrary position, allowing Nevada to regulate Kalshi. Texas has not taken Kalshi or any other prediction market to court.

Hall rejected the federal-preemption reasoning. “If (the Federal Government) decided to set up Murder Incorporated and said, ‘We’re going to regulate the murdering of people, so states, you can’t do anything about that because it’s going to be federally regulated,’ we’d find that absurd,” Hall said. “When our founders wrote our constitution… they made it patently clear that gambling was illegal in Texas.”

Kalshi has also drawn political attention in Texas. According to a recent Politico report, Attorney General Ken Paxton did not sign onto a bipartisan letter from 34 state attorneys general asking the Third Circuit to let states regulate prediction markets. The letter was published four days after Kalshi CEO Tarek Mansour donated $7,000 to Paxton’s campaign. In December, Paxton was one of 12 state attorneys general who did not sign onto an amicus brief supporting Maryland in its fight against Kalshi.

The Paxton campaign and the Attorney General’s Office did not respond to requests for comment.

In a statement, a Kalshi representative said: “Like many leaders at U.S. regulated companies, ours support candidates on both sides of the aisle.”