Texas Republicans consider suing over federal prediction markets

Texas Republicans weigh state lawsuit against federally licensed prediction markets

Senator Bryan Hughes opened the Texas Senate Committee on State Affairs to a question his chamber has circled twice before without answering: whether a state that has declined to authorize sports betting can do anything about federally regulated platforms that have brought it anyway. The hearing was formally about study, preparation for the session beginning January 12. In practice, it was a room of people deciding how angry to get.

The American Gaming Association's Tres York gave them a direction. Sue in state court. Treat sports event contracts as illegal gambling under existing Texas law. His underlying argument was a win rate: states have prevailed in 36 of 42 combined state and federal rulings so far. That number carries weight in a statehouse. It also deserves scrutiny, because the cases where states lost tend to be the ones with federal preemption at their center, which is precisely where Kalshi operates.

Kalshi's head of enforcement and legal counsel, Robert DeNault, offered the committee a different frame. Ban us and your residents go offshore to something less regulated. Accept us and negotiate advertising limits, risk disclosures, protections for younger users. This is a reasonable argument and also a negotiating position, and it is worth holding both things at once.

What struck me about the hearing's record, reading it straight, is that neither side addressed the structural question that actually matters here. York's litigation strategy depends on state courts being willing to rule that CFTC-regulated event contracts are illegal gambling under Texas law — a position that puts state courts in direct conflict with a federal regulatory determination. That is not impossible. It is the posture Connecticut has taken. But Connecticut is now fighting the CFTC in federal court, not winning in state court, and the outcome of that fight is not settled.

The insider trading point raised by Jonathan Covey of Texas Values was analytically interesting in a way the room appeared to miss. He noted that Kalshi's detection of insider trading was favorable evidence for the company — and simultaneously evidence that politically sensitive, non-public information was being monetized on the platform. That double-edged reading is correct. A market that catches insider trading is functioning. A market where insider trading is worth attempting tells you something about information asymmetry in the underlying contracts. Those two facts coexist.

Texas has refused gambling expansion in two consecutive sessions. The legislature's posture has been consistent. What has changed is that the expansion arrived without legislative approval, through a federal regulatory framework the state did not anticipate and cannot directly override. Hughes framed this as exploitation of federal law. DeNault framed it as federal law operating as designed. The distance between those framings is where litigation lives.

The consensus read is that Texas will sue, courts will split, and the question eventually reaches the same federal track Connecticut is already on. I don't think that's quite where this lands. The AGA's 36-of-42 figure is the tell. If state-court litigation were reliably failing, York wouldn't be recommending it. The cases where states have won are worth examining before the next session opens in January.