States gain veto power over sports prediction markets under Cruz bill

Ted Cruz bill would hand states veto power over sports prediction markets

Senator Ted Cruz intends to introduce legislation that would require prediction market operators to obtain approval from state and tribal governments before offering sports-related contracts — a direct challenge to the federal framework that platforms like Kalshi have used to operate nationwide since the CFTC cleared their exchange registration.

The bill has not yet appeared on Congress's website. Cruz plans to file after the November 3 midterm elections, which leaves the 119th Congress a narrow window before it expires in early January. The arithmetic alone makes passage unlikely in this session. What the bill does regardless of whether it passes is give every state attorney general a congressional imprimatur for the position they have already been litigating in court.

That matters because the legal ground under the federal preemption argument has been shifting. The Third Circuit found in April that the Commodity Exchange Act likely gives the CFTC exclusive jurisdiction over Kalshi's sports contracts in New Jersey. The Ninth Circuit reached the opposite conclusion in August as applied to Nevada. A Sixth Circuit panel ruled in September that the contracts are not swaps at all, cutting off a separate preemption theory. Three circuits, three different readings of the same statute. Cruz's bill would make the question of which circuit was right considerably less important — if Congress itself reassigns jurisdiction to the states, the preemption debate collapses into the narrower question of what the bill actually covers.

The Texas dimension is the one the reporting has not fully priced. Eilers & Krejcik Gaming estimated that Texas and California together accounted for 43% of Kalshi's trading volume, and that the 19 states without legal online sports betting collectively generated 69%. Cruz is a Texas senator proposing legislation that would, in his home state, give Lieutenant Governor Dan Patrick — who has blocked sports betting legalization twice — effective veto authority over prediction market sports contracts. Patrick has already directed a Senate committee to study the issue. The committee heard testimony in September. The institutional machinery for a Texas prohibition is further along than the federal bill Cruz is filing.

Kalshi's head of enforcement told that same committee that blocking prediction markets would drive Texans to unregulated offshore platforms. That is the correct legal and economic argument. It is also the argument the sports betting industry made about online gaming for a decade before states concluded that licensing revenue outweighed the harm-reduction case. Texas concluded differently, twice. There is no structural reason to expect a different outcome when the product is reframed as a prediction market rather than a sportsbook.

The consensus read on Cruz's bill is that it dies in committee with the session. I think that misses the mechanism. The bill does not need to pass to move the market. Every state that has been litigating against Kalshi — New Jersey, Ohio, Utah — now has a sitting senator signaling that their position is legislatively defensible at the federal level. That changes the settlement calculus for any platform weighing whether to contest or negotiate state-by-state. The litigation costs of fighting 19 states that collectively represent 69% of your volume are not the same number once congressional cover arrives, even in draft form.