Texas lawmakers consider expanding state control over prediction markets

Texas lawmakers weigh state authority over federally regulated prediction markets

Senator Bryan Hughes convened the Texas Senate Committee on State Affairs to examine a question that has been circling state capitals for months: whether a state that has declined to authorize sports betting can stop its residents from accessing platforms that offer sports event contracts under federal commodity law. The hearing was preparation for the 2027 legislative session, which opens in January.

The room split along a line that has become familiar. Tres York, vice president of the American Gaming Association, told the committee that Texas should take prediction market operators to state court and classify sports event contracts as illegal gambling under existing Texas law. He cited a record of 36 wins out of 42 state and federal rulings in favor of states, and his argument was essentially political: this legislature made a choice, and a federally licensed platform overrode it without asking.

Robert DeNault, Kalshi's head of enforcement and legal counsel, made the counterargument that any practitioner of mechanism design would find structurally interesting. He did not dispute the state's right to its preference. He disputed the enforceability of a ban. Drive the regulated platform out, he told the committee, and you push Texas users to offshore alternatives that operate outside any regulatory perimeter. This is not a hypothetical — it is the demonstrated outcome in every jurisdiction that has tried prohibition without a substitute.

DeNault's offer was the familiar industry concession package: advertising limits, risk disclosures, age protections. The implicit message was that Kalshi's CFTC authorization is not a technicality Texas can litigate away, and that the better use of the committee's attention is the terms on which federal platforms operate in the state rather than whether they operate at all.

Jonathan Covey, from Texas Values, introduced a third thread that neither side fully engaged. He noted that Kalshi's ability to detect insider trading on political contracts was evidence the platform worked — and simultaneously evidence that sensitive, non-public political information could be priced there. That is a sharper observation than it might appear. The mechanism design literature would call it a feature: markets aggregate private information. The policy concern is precisely that the aggregation is working.

Where I part from the consensus framing is here. Most coverage of these hearings treats them as a prelude to litigation, with the outcome depending on which precedent a court reaches first. I think that misweights the variable. The Ninth Circuit's ruling that sports prediction contracts are gambling, and the Senate's failure to pass the CLARITY Act, have shifted the legal terrain in ways York's 36-of-42 count does not fully capture. Those rulings do not resolve the federal preemption question, but they complicate Kalshi's position going into any state proceeding. DeNault knows this, which is why his argument in Austin was about consequences rather than law.