Texas lawmakers are examining whether prediction markets offering sports event contracts should fall under the state’s gambling restrictions, setting up a debate over the boundary between federally regulated financial products and sports wagering.
The Texas Senate Committee on State Affairs held a hearing on September 15 to examine prediction markets, with particular attention to contracts tied to sporting events and elections. Traditional sports betting remains prohibited in Texas, while platforms such as Kalshi offer event contracts to customers in the state under federal commodities regulation.
According to InGame, the hearing came several months before the 2027 legislative session and followed Lieutenant Governor Dan Patrick’s decision to include “Closing Gambling Loopholes” among issues assigned to senators for study. The committee heard testimony from Kalshi representative Robert DeNault, American Gaming Association Vice President Tres York and other witnesses involved in gambling policy and consumer protection.
The discussion focused heavily on whether a sports event contract functions differently enough from a conventional sports wager to justify separate treatment under the law.
Senators Question Sports Event Contracts
Senator Bob Hall expressed a critical view of prediction markets during the hearing, arguing that changing the legal classification of an activity does not necessarily change what consumers experience.
“They’re just dressed up differently,” Hall said of sports event contracts. “They’re different costumes on gambling is what it is.”
Hall also emphasized consumer protection during exchanges with witnesses. He described the broader gambling industry as predatory while rejecting the suggestion that restrictions on prediction markets would amount to an anti-business position.
The American Gaming Association also argued that sports contracts available through prediction markets closely resemble products offered by licensed sportsbooks. York pointed to contracts covering game winners and individual player performances as examples of products that, in the AGA’s view, operate like conventional sports bets.
York urged lawmakers to consider state court action as one possible response. He said states that have challenged prediction-market sports products have pursued cases seeking authority to enforce their own gambling laws. The broader question of federal preemption remains part of ongoing litigation over the sector.
Kalshi Defends Federal Regulatory Model
Kalshi disputed the characterization of its products as sports betting. DeNault told lawmakers that customers trade contracts with other market participants rather than wagering against a sportsbook acting as the house.
“What we offer is a financial product that lets Texans engage in well-regulated trading activity in a free and open market, as well as manage real financial risk,” DeNault said.
Kalshi operates as a federally regulated exchange under the Commodity Futures Trading Commission. DeNault argued that federal law treats qualifying products traded on regulated exchanges as swaps instead of gambling products. The legal status of sports event contracts and the extent to which state gambling laws can apply remain subjects of court disputes around the country.
He also warned senators that prohibiting regulated prediction markets could move some customers toward offshore platforms with fewer protections. DeNault suggested that Texas could instead work with prediction-market companies on areas such as advertising standards and risk disclosures.
Following the hearing, Kalshi sent users an alert asking them to sign a petition supporting the company.
Consumer Protection Enters the Debate
The hearing extended beyond the regulatory classification of event contracts. Lawmakers also heard concerns about consumer safeguards and the potential impact on younger users.
Problem and responsible gambling advocate Brianne Doura-Schawohl told senators that the experience of risking money remains relevant regardless of the terminology regulators or companies use.
“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 committee also examined differences between prediction markets and state-regulated sportsbooks in areas such as customer verification and minimum age requirements. InGame reported that witnesses discussed the fact that prediction markets can accept customers from age 18, while regulated sports betting commonly carries a minimum age of 21.
Pediatrician Lindy McGee raised concerns about younger Texans accessing the products, while Doura-Schawohl discussed potential exposure to gambling-related harm. Lawmakers also considered election-related contracts and concerns about possible manipulation, an issue that carries additional significance because Texas law prohibits betting on election outcomes.
Texas lawmakers now face the question of how far state authority extends over prediction-market operators regulated at the federal level. The State Affairs Committee’s work could influence proposals considered when the Texas Legislature returns for its next regular session in January 2027. The hearing left the core legal dispute unresolved, with industry representatives continuing to disagree over whether sports event contracts belong within financial-market regulation or state gambling law.