Texas Senate hearing sharpens clash over Kalshi’s sports prediction contracts

Texas senators on Tuesday heard sharply opposing arguments over whether online prediction markets are federally regulated financial products or sports gambling that the state should restrict. The Senate State Affairs Committee heard from Kalshi, gambling-policy specialists and industry representatives as concern focused on contracts tied to sports outcomes.

The hearing comes as prediction markets gain national attention by allowing users to put money on outcomes ranging from elections and weather to sports and popular culture. Kalshi describes itself as the first Commodity Futures Trading Commission-regulated exchange dedicated to trading on future events.

Robert Denault, Kalshi’s head of enforcement and legal counsel, told the committee that the company offers a financial product through which Texans can trade in an open market and manage financial risk. Users buy contracts taking a yes-or-no position on an event, and trade with one another rather than betting against a house, he said.

Denault likened the products to derivatives and argued that similar financial instruments need not receive identical regulation simply because they touch on comparable subjects. Weather derivatives and sports insurance, he said, can create similar exposures without being regulated as gambling.

He agreed that sportsbooks, casinos and offshore gambling sites have a predatory record, but said federally regulated, peer-to-peer prediction markets offer customers a safer alternative. Trying to ban them, he argued, could drive Texans to offshore platforms without consumer protections or federal oversight.

Critics told senators that the practical offerings resemble betting. Tres York, the American Gaming Association’s vice-president for government relations, pointed to contracts on the Cowboys-Giants game, including which team would win, whether the Cowboys would win by at least three points, and player performance by Dak Prescott. Those were sports, spread and proposition bets identical to products offered by legal sportsbooks, York argued.

York urged Texas to sue prediction-market operators in state court to obtain an order excluding them while the underlying legal question is resolved, then consider statutory language to prevent what he described as a workaround for sports gambling. He said states had won 36 of 42 state and federal rulings so far, an 86% success rate, and asserted that 85% of the platforms’ gambling volume involved sports and parlays.

Sen. Bob Hall framed the dispute as a consumer-protection matter, saying gambling businesses prey on people. Brianne Doura-Schawohl, a problem-gambling policy expert, cited a 2026 American Institute for Boys and Men survey in which 61% of Americans viewed prediction markets as gambling rather than investing.

Age restrictions were also contested. Houston pediatrician Lindy McGee criticized Kalshi for not endorsing a minimum age of 21, while York cited an analysis estimating that people aged 18 to 21 had wagered $5.4 billion on Kalshi this year. McGee said gambling addiction affects people of all ages and their families.

The committee also heard concerns about political-event contracts. Jonathan Covey, Texas Values’ director of policy, said Kalshi’s detection of an insider-betting incident was favourable evidence for the company, but also demonstrated that sensitive non-public political information could be monetized on the platform. Denault said election-related transactions are closely monitored and that some customers holding political office face restrictions.

Federal oversight remains central to Kalshi’s case. The CFTC said it has full authority under the Commodity Exchange Act to police illegal trading practices on designated contract markets, including KalshiEX, while the exchanges themselves must maintain audit trails, conduct surveillance and enforce rules against prohibited conduct. The agency described prior Kalshi disciplinary actions involving a candidate trading on his own candidacy and a trader affiliated with the subject of a YouTube-related contract.

The federal regulator is also considering broader rules. In June, the CFTC proposed amendments defining categories of event contracts that could be contrary to the public interest and setting factors for such determinations. Its background document said CFTC-registered prediction markets had more than $25 billion in trading volume in 2025.

The legal question has already reached federal courts. An April Third Circuit opinion held that Kalshi’s sports-related event contracts were swaps traded on a CFTC-licensed designated contract market and fell within the Commodity Exchange Act’s exclusive-jurisdiction framework. The court noted that the CFTC had not yet reviewed or prohibited sports-related event contracts at the time of its decision.

After the hearing, Kalshi sent users an alert urging them to sign a petition supporting the company. Texas’s next legislative session is slated to begin Jan. 12.