Texas hearing finds no common ground as Kalshi and AGA clash

Robert DeNault walked into the Texas Senate State Affairs Committee and said, more or less, that the state had no business being in the room. He is Kalshi's head of enforcement and legal counsel, and his argument was the one the company has made in Nevada, in Connecticut, in every jurisdiction that has tried to treat sports event contracts as gambling: the CFTC already regulates these products, the federal framework is sufficient, and states moving against it will simply hand the market to offshore platforms with no consumer protections at all.

Tres Yok, representing the American Gambling Association, sat across from him and made the opposite case. If a Texan puts money on the Cowboys to beat the Giants and gets paid when they do, that is a sports bet. The legal classification does not change the experience of the person holding the contract.

Both arguments are coherent. Neither convinced the other side, which is not surprising — these two positions have been litigated in federal court and are still being litigated. What is worth watching is the specific texture of this Texas hearing, because it differs from the Nevada and Connecticut episodes in ways the reporting has not quite connected.

Nevada forced geofencing. Connecticut sued. Texas, at this point, is still deliberating. That gap matters. A state that reaches a legislative resolution — actual statute, not regulatory order, not court injunction — changes the legal terrain in a way that individual enforcement actions do not. The AGA has been pushing for exactly this kind of durable state-level record, because accumulated legislative findings give federal courts something durable to weigh against the preemption argument Kalshi has been running.

DeNault's offshore warning is the argument Kalshi has deployed everywhere, and it has real force. I have watched regulatory overreach in other thin markets push volume to jurisdictions with worse oversight, and the outcome is invariably worse for the users the regulation was meant to protect. But the argument proves less than Kalshi wants it to. The existence of bad offshore alternatives does not, by itself, establish that a state lacks the authority to regulate. Courts have never accepted "or they'll go somewhere worse" as a preemption doctrine.

The study Brianne Doura-Schawohl cited — showing a substantial majority of Americans view prediction markets as a form of gambling — is the kind of finding that legislative committees take seriously even when it proves nothing about the legal question. Public perception shapes political will, and political will is what produces statutes. If Texas moves toward legislation rather than simply issuing regulatory guidance, it joins a body of state action that makes the Supreme Court's refusal to grant preemption review considerably more consequential than it looked when the decision came down.

DeNault is right that federal regulation exists. He is not right that its existence forecloses state action, and the Ninth Circuit's current posture suggests the courts are not prepared to settle that question in Kalshi's favor anytime soon. Texas, moving slowly and deliberately, may be building toward the cleanest legislative test of that proposition the industry has yet faced.