Texas lawmakers are considering potential action against sports prediction markets as the state examines whether event contracts offered by platforms including Kalshi fall within federal commodities regulation or Texas gambling restrictions.
The Texas Senate Committee on State Affairs held an interim hearing on prediction markets on 15 September.
The committee's formal charge includes examining the relationship between federally regulated derivatives markets and state-prohibited gambling, alongside potential recommendations concerning Texas elections and sports.
The scrutiny follows another unsuccessful attempt to legalize sports betting in Texas. Proposed constitutional amendments introduced during the 2025 legislative session did not progress sufficiently to put legalization before voters.
During Tuesday's hearing, lawmakers focused on sports contracts that allow customers to take positions on outcomes including game winners, point spreads and individual player performances.
American Gaming Association VP of Government Relations, Tres York, argued that those products replicate wagers available through regulated sportsbooks.
Kalshi Legal Counsel and Head of Enforcement, Robert Denault, said: "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."
Kalshi operates as a designated contract market regulated by the Commodity Futures Trading Commission and maintains that its event contracts fall under federal commodities law. The distinction has become the subject of litigation across several states.
In August, the Ninth Circuit found Kalshi had not demonstrated that the Commodity Exchange Act preempts Nevada gaming regulations covering its sports event contracts. It also concluded the contracts were not swaps under the relevant statutory definition.
That decision differed from the Third Circuit's approach in Kalshi's New Jersey litigation, where preliminary relief preventing state enforcement was upheld in April.
New Jersey has since asked the US Supreme Court to review the dispute as courts consider the boundary between federal derivatives regulation and state gambling authority.
Following the Texas hearing, Kalshi urged users to sign a petition supporting prediction markets. Lawmakers also heard proposals for state litigation and legislative clarification as Texas considers how existing gambling restrictions apply to the products.
A Wisconsin federal court has certified two questions in Ho-Chunk Nation's challenge against Kalshi for interlocutory appeal, potentially giving the Seventh Circuit an opportunity to consider whether federal commodities law overrides tribal gaming authority governing sports-related event contracts.
The Ninth Circuit said more than 90% of Kalshi's trades during 2025 were sports-related and accounted for 95% of its revenue
