Texas lawmakers have begun examining how prediction markets fit within the state’s gambling framework as federally regulated platforms continue offering contracts tied to sports and elections. The issue received detailed attention during a September 15 hearing before the Senate Committee on State Affairs, several months before lawmakers return to Austin for the 2027 legislative session.
Texas continues to prohibit traditional sports betting, while prediction-market operators such as Kalshi make event contracts available under federal commodities regulation. That distinction formed a central part of the hearing as senators questioned whether contracts based on game results or player performances should receive different legal treatment from sportsbook wagers.
The review follows Lieutenant Governor Dan Patrick’s decision in March to include “Closing Gambling Loopholes” among the subjects he wanted senators to study. Patrick, who also serves as president of the Senate, has opposed gambling expansion and has said he would require support from the Republican majority before allowing a gambling bill to receive a vote. The next regular legislative session starts January 12, 2027.
Lawmakers Examine Sports Contract Structure
Five witnesses appeared before the Senate committee: Texas Values Director of Policy Jonathan Covey, Kalshi Head of Enforcement and legal counsel Robert DeNault, problem and responsible gaming advocate Brianne Doura-Schawohl, pediatrician Dr. Lindy McGee and American Gaming Association Vice President Tres York. A House State Affairs Committee hearing followed the Senate proceeding.
Senator Bob Hall questioned whether the structure of prediction-market sports contracts creates a meaningful difference from conventional betting. Referring to sports event contracts, he said, “They’re just dressed up differently,” followed by, “They’re different costumes on gambling is what it is.”
York also argued that contracts involving game winners and individual player outcomes closely resemble products available through regulated sportsbooks. He suggested that states could pursue court action to establish their authority to apply state gambling laws to prediction-market sports products. Courts around the country continue to consider questions involving federal preemption and the legal classification of these contracts.
Kalshi defended its federal regulatory status during the hearing. DeNault explained that customers trade contracts against other market participants rather than placing wagers against a sportsbook. Kalshi operates as an exchange regulated by the Commodity Futures Trading Commission, and the company maintains that qualifying event contracts traded through a federally regulated exchange fall under federal rules governing swaps.
Kalshi received approval as a prediction market from the CFTC in the fall of 2024 ahead of the presidential election and began providing sports event contracts in January 2025. Its event contracts covering sports and elections are currently available in 47 states. Courts in Michigan, Nevada and Washington have allowed those states to enforce gambling laws against certain prediction-market contracts.
Texas carries particular significance in the debate. An April Prediction Market Monitor from Eilers & Krejcik Gaming found that California and Texas together accounted for 43% of sports event contract volume on prediction markets. Neither state has legalized sports betting.
Age Rules and Consumer Controls Draw Attention
The senators also considered safeguards applied to customers using prediction markets. Testimony addressed know-your-customer procedures and the difference between minimum-age rules for prediction markets and regulated sportsbooks. Prediction-market customers can participate from age 18, while regulated sports betting commonly uses a minimum age of 21.
McGee raised concerns about access among younger Texans. Covey questioned whether internal exchange compliance provides sufficient oversight when companies also receive revenue from the contracts offered on their platforms. Doura-Schawohl focused on how users experience risking money regardless of the legal terminology attached to a product.
“The brain doesn’t care whether you call it a DCM [Designated Contract Market] or a sportsbook, right? It’s about that experience,” Doura-Schawohl said.
The offshore gambling market also entered the discussion. DeNault argued that Texas should direct greater attention toward offshore operators and warned that restricting federally regulated prediction markets could push some customers toward platforms with fewer protections. He suggested cooperation between state officials and prediction-market companies on areas including advertising standards and risk disclosures.
Doura-Schawohl responded that authorities have limited ability to control offshore companies that disregard US laws. She suggested examining whether safeguards applied to operators regulated by the CFTC provide enough protection for customers.
State and Federal Authority Remains Unsettled
Election contracts formed another part of the hearing because Texas law prohibits wagering on election outcomes. Lawmakers discussed the possibility of manipulation alongside the broader question of whether state gambling restrictions can apply to contracts offered through federally supervised exchanges.
Kalshi sent customers an alert after the hearing asking them to sign a petition supporting the company. Meanwhile, arguments presented to lawmakers showed the continuing disagreement over which regulatory system should govern sports event contracts.
The committee reached no resolution on the underlying legal dispute. Its work could contribute to proposals introduced after the Texas Legislature begins its next regular session in January 2027, when lawmakers may again consider gambling-related legislation and the status of prediction markets within the state.
Source:
Texas Senators Scrutinize Prediction Markets and Sports Bets, news.worldcasinodirectory.com, September 16, 2026.
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