Texas Senators Hear Kalshi and the AGA Argue Over Who Regulates Sports Contracts

A state that bans sports betting and casinos spent Tuesday studying "the sudden inundation of prediction market gambling". The casino lobby told senators to sue in state court; Kalshi told them a ban would send Texans offshore. The session that could act on it opens on 12 January.

• The Texas Senate Committee on State Affairs, chaired by Senator Bryan Hughes, took testimony on 15 September under an interim charge from Lieutenant Governor Dan Patrick to study "the sudden inundation of prediction market gambling and the exploitation of federal law to circumvent Texas gambling prohibitions"
• American Gaming Association vice president Tres York urged Texas to sue prediction market operators in state court and treat sports event contracts as illegal gambling, saying states have won 36 of 42 rulings so far, according to Focus Gaming News
• Kalshi's head of enforcement and legal counsel Robert DeNault said a ban would push Texans "offshore to an even more dangerous platform", and offered advertising limits, risk disclosures and protections for younger users instead
• Senator Bob Hall called sports event contracts "different costumes on gambling"; witnesses raised the 18 minimum age on exchanges against 21 for regulated sportsbooks and Texas's ban on election betting, World Casino Directory reports citing InGame
• Texas prohibits sports betting and commercial casinos and considered expansion in its 2023 and 2025 sessions; the next regular session begins on 12 January 2027, and Kalshi sent users a petition alert after the hearing

A Study Charge Written as an Accusation

The Texas Senate Committee on State Affairs held a hearing on Tuesday, 15 September, on prediction markets, the committee's own records show. The session answered one of the interim charges Lieutenant Governor Dan Patrick assigned to senators for study ahead of the 2027 session, under the heading "Closing Gambling Loopholes". The charge, as published on the committee's page, directs it to "study the sudden inundation of prediction market gambling and the exploitation of federal law to circumvent Texas gambling prohibitions by allowing users to place bets on the outcome of elections and other events". The committee is chaired by Senator Bryan Hughes, with Angela Paxton as vice-chair.

The United States casino industry's representative told the committee what it wanted to hear. Tres York, vice president at the American Gaming Association, said Texas should sue prediction market operators in state court and treat sports event contracts as illegal gambling under existing law, according to Focus Gaming News. He said states had won 36 of 42 state and federal rulings issued so far, and pointed to contracts on game winners and individual player performances as products that operate like conventional sports bets. "This legislature has made the decision to not authorise sports betting in the state for now," York said, "but whether you want it or not, prediction markets like Kalshi have defied your authority and given it to Texans anyway."

Kalshi sent Robert DeNault, its head of enforcement and legal counsel. He told senators the company offers "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", that customers trade against each other rather than against a house, and that federal law treats qualifying contracts on regulated exchanges as swaps rather than gambling, World Casino Directory reports citing InGame. "You could go the combative route and try to ban something that's here in the United States and already federally regulated," he said, "but what you'll end up with is a bunch of customers here in Texas just going offshore to an even more dangerous platform." He suggested advertising limits, risk disclosures and protections for younger customers could address the state's concerns without a prohibition. After the hearing, Kalshi sent users an alert asking them to sign a petition supporting the company.

The Senators Were Not Persuaded by the Vocabulary

Senator Bob Hall put the committee's scepticism plainly. "They're just dressed up differently," he said of sports event contracts. "They're different costumes on gambling is what it is." He described the wider gambling industry as predatory and rejected the suggestion that restricting prediction markets would be an anti-business position. Jonathan Covey, director of policy at Texas Values, said Kalshi's detection of insider trading was "favourable evidence for Kalshi" but also showed that "highly sensitive, non-public political information can be monetised on the platform".

The consumer-protection witnesses widened the frame. Brianne Doura-Schawohl, a problem and responsible gambling advocate, told senators that "the brain doesn't care whether you call it a DCM or a sportsbook", and paediatrician Lindy McGee raised access by younger Texans. Witnesses discussed the fact that exchanges accept customers from 18 while regulated sports betting commonly requires 21, and the committee considered election contracts, which carry extra weight in a state whose law prohibits betting on election outcomes.

Texas prohibits sports betting and commercial casino gambling. The legislature considered expansion proposals in its 2023 and 2025 sessions without passing them. The next regular session begins on 12 January 2027, and the committee's work on the charge feeds into what senators file for it.

The AGA Has a Litigation Strategy, and It Is the Same One That Is Winning Elsewhere

York's advice to Texas was not to legislate but to sue, and the reason is the scoreboard he cited. State courts have been the states' most effective venue: Nevada and Washington are enforcing under state rulings while the federal question sits with the Ninth Circuit and the Supreme Court, and Michigan is levying daily penalties. A state with no sports betting statute to defend, and an attorney general's office that does not need a new law to bring a case under existing gambling prohibitions, is the cleanest plaintiff of all. That is why the industry witness spent his time on the courtroom rather than the chamber, and why Kalshi's counsel spent his on what a ban would cost.

Kalshi's Offer Is Regulation on Its Own Terms

DeNault's alternative, advertising limits, risk disclosures and youth protections, is the package the exchanges have offered wherever a legislature has looked hostile, and it has the same structure everywhere: measures a federally regulated exchange can adopt voluntarily, without conceding that the state has any authority to impose them. The offshore warning that accompanies it is the channelisation argument the licensed gambling industry has made for years, now deployed by a company the licensed industry regards as unlicensed. Texas is an unusual place to make it, because the state has already decided it would rather have no legal sports betting than a regulated market; the leakage argument assumes a legislature that wants channelisation, and this one may not.

The Election Contracts Are the Part Texas Cannot Ignore

Sports contracts are a fight about jurisdiction. Election contracts, in a state whose law bans election betting outright and whose interim charge names them first, are a fight about something senators of both parties care about more, and Covey's point that insider detection proves the information is being monetised cuts against Kalshi even when the detection works. If the 2027 session produces anything, it is more likely to start there than with football, because a bill on election contracts does not need the Supreme Court to have ruled on sports first.

Texas heard both sides on Tuesday and its senators used the word "costumes". The CLARITY Act's failure the same afternoon means nothing in Washington will pre-empt what they decide to do about it.