Kalshi Hearing Tests Texas Authority Over Prediction Markets

The Texas Senate State Affairs Committee convened a hearing on Tuesday to discuss whether online prediction markets, such as Kalshi, should be regulated by federal financial authorities or overseen by state governments. The debate centered on Texas's potential response to these platforms and the constraints federal regulation might impose on state control.

Testimonies were heard from representatives of Kalshi, policy experts on gambling, and representatives from the gaming industry. Kalshi identifies itself as the first CFTC-regulated exchange aimed at trading on future event outcomes, offering contracts on elections, sports, weather, and pop culture, with a flat fee of around one cent per transaction.

Robert DeNault, enforcement and legal counsel head at Kalshi, argued during the committee that the platform provides Texans with a regulated financial product for financial risk management. Comparing prediction-market contracts to derivatives, he posited that they can resemble insurance or sports-related risk management without being classified as gambling.

DeNault also cautioned that attempting to ban a federally regulated platform might redirect customers to offshore services lacking consumer protections or federal oversight. He proposed that prediction markets could collaborate with states on consumer-protection measures, including marketing, advertising, risk disclosures, and protections for specific demographic groups, without causing preemption issues.

Critics, however, contested Kalshi's characterization as a financial exchange. Tres York, of the American Gaming Association, contended that 85 percent of Kalshi's gambling volume is tied to sports and parlays, likening the platform to a sportsbook. He suggested that Texas should pursue prediction-market operators in state court, citing rulings that favor states in disputes over sports gambling via prediction markets.

Brianne Doura-Schawohl, a problem-gambling policy expert, cited a 2026 American Institute for Boys and Men survey indicating that 61 percent of Americans perceived prediction markets as gambling rather than investing. She also pointed to research on problem gambling's high suicide rate and Kalshi's responsible-trading page's link to the 988 Suicide and Crisis Lifeline.

Jonathan Covey of Texas Values expressed concerns about election integrity, discussing a case where a former White House teleprompter operator was fined for insider betting on presidential speeches. Covey noted that Kalshi detected the activity, providing favorable evidence for the company while highlighting the platform's potential to monetize sensitive, non-public political information.

Pediatrician Lindy McGee advocated for a minimum age of 21 for these products, warning that gambling addiction can affect families, leading to financial instability and adverse outcomes for children. York also cited an estimate that young adults aged 18 to 21 had wagered approximately $5.4 billion on Kalshi during the year. Covey informed the lawmakers that Texas would need to consider regulating prediction markets without conflicting with federal preemption. The next legislative session of Texas is set to commence on January 12.