Texas Lt. Gov. Dan Patrick in March directed state senators to examine ways to close what he called “gambling loopholes” that allow online prediction markets to operate in Texas, as state and federal officials debate how the platforms should be regulated.
Patrick instructed the Senate State Affairs Committee to study prediction markets, which allow users to trade contracts based on outcomes such as elections, sports events, and weather. He asked lawmakers to recommend safeguards ahead of the 2027 legislative session to address potential impacts on elections and sports integrity.
Prediction markets expanded rapidly in the United States beginning in 2025, according to industry estimates. The platforms operate by offering “event contracts” tied to specific outcomes, including political races and athletic results.
Federal regulators and courts have taken competing positions on oversight. The Commodity Futures Trading Commission (CFTC) has asserted primary authority over the markets and has taken legal action to block several states from pursuing enforcement. The Trump administration has also argued that federal oversight applies.
Several states have filed lawsuits or issued enforcement actions against prediction market operators, while Texas has not joined multi-state legal efforts seeking to challenge federal jurisdiction, according to records cited by state attorneys general groups.
Operators, including Kalshi, argue that prediction markets fall under federal commodities law rather than state gambling statutes. Kalshi corporate development head Sara Slane said the company operates under federal regulation and engages with state officials about its framework.
Opponents in Texas, including advocacy groups Texans Against Gambling and Texas Values, argue that prediction markets function as gambling and raise concerns about addiction, election wagering, and financial harm. They also point to Texas Penal Code provisions that prohibit betting on elections.
Prediction markets currently offer contracts on sports outcomes, political races, and other events. Industry data cited in the report indicates sports-related contracts make up the majority of trading volume on major platforms.
The CFTC allows operators to self-certify contracts, subject to agency review. CFTC Chair Michael Selig has described the structure as one in which exchanges serve as the first line of review, with federal regulators acting as a secondary check.
The commission has also opened a public comment period on potential rule changes for prediction markets. State groups, including the National Conference of State Legislatures, have urged regulators to treat sports-related contracts under state gambling laws.
Legal disputes over jurisdiction are ongoing in multiple federal courts, and no case involving Texas has reached the U.S. Court of Appeals for the Fifth Circuit.
Several members of Congress have also proposed legislation to restrict prediction markets, including limits on sports and election-related contracts. The U.S. Senate has separately approved a resolution barring senators from participating in prediction markets.
Meanwhile, major sportsbook operators have introduced prediction market-style products in states where online sports betting is restricted, including Texas.
Texas officials have not scheduled additional committee hearings on prediction markets following Patrick’s March directive.