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The Texas Senate State Affairs Committee heard testimony Tuesday on whether online prediction markets such as Kalshi should be treated as federally regulated financial exchanges or as gambling platforms subject to state oversight and restrictions. The hearing documented a continuing policy debate over how Texas might address the platforms and the limits that federal regulation could place on state action.

The committee heard from Kalshi, gambling-policy experts, and gaming-industry representatives. Kalshi describes itself as the first CFTC-regulated exchange dedicated to trading on the outcome of future events. The company offers contracts tied to elections, sports, weather, and pop culture, and says it charges a flat fee of about one cent per transaction.

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Kalshi head of enforcement and legal counsel Robert DeNault told the committee that the platform offers Texans a regulated financial product for trading and managing financial risk. He compared prediction-market contracts with derivatives and argued that products can have similarities to insurance or sports-related risk management without being regulated as gambling.

DeNault also argued that an effort to prohibit a federally regulated platform could direct customers to offshore services without consumer protections or federal oversight. He said prediction markets could work with states on consumer-protection measures, including marketing, advertising, risk disclosures, and protections involving particular demographics, without creating preemption problems.

Critics Push Back on the Exchange Framing

Tres York of the American Gaming Association challenged the view that prediction markets should be treated as financial exchanges. York told the committee that 85 percent of Kalshi’s gambling volume is tied to sports and parlays, and he characterized a platform focused on sports betting as a sportsbook. He recommended that Texas pursue prediction-market operators in state court and cited rulings that he said had favored states in disputes over sports gambling offered through prediction markets.

Problem-gambling policy expert Brianne Doura-Schawohl cited a 2026 American Institute for Boys and Men survey finding that 61 percent of Americans view prediction markets as gambling rather than investing. She also pointed to research describing problem gambling as having the highest suicide rate among addictions and noted that Kalshi’s responsible-trading page links to the 988 Suicide and Crisis Lifeline.

Election Integrity and Youth Access Concerns

Jonathan Covey of Texas Values raised concerns about election integrity. He discussed the case of a former White House teleprompter operator who was fined $172,000 for using insider knowledge to place Kalshi bets on presidential speeches. Covey said Kalshi’s detection of the activity was favorable evidence for the company, while also showing that sensitive, non-public political information could be monetized on the platform.

Houston pediatrician Lindy McGee argued that the minimum age for these products should be 21. She warned that gambling addiction can affect families and contribute to financial instability and adverse outcomes for children. York also cited an estimate that young adults between 18 and 21 had wagered roughly $5.4 billion on Kalshi during the year.

Covey told lawmakers that the Legislature would need to consider how to regulate prediction markets without running into federal preemption. The next Texas legislative session is slated to begin January 12, according to the committee hearing.

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