U.S. Senator Ted Cruz (R-TX) intends to introduce legislation following the midterm elections that would allow state and tribal authorities to regulate sports contracts on prediction markets. This proposal would prohibit prediction markets from offering contracts associated with gambling events, including sports betting, unless they receive authorization from the relevant state or tribal government.
Texas currently outlaws sports betting, and Lieutenant Governor Dan Patrick is advocating for action against what he calls a prediction market "gambling loophole."
Cruz's bill is set to be filed shortly after November 3, as reported by Bloomberg Law. If enacted, it would significantly alter the current regulatory framework for prediction markets, which presently operate under a federal structure that allows exchanges like Kalshi and others registered with the Commodity Futures Trading Commission (CFTC) to offer sports contracts across the nation.
The new legislation would require any prediction market exchange to secure permission from a state or tribe before proceeding, potentially creating obstacles in Texas, a state that has no legal casinos or sports betting and represents a critical market for prediction operators.
As of now, the proposed bill is not available on the Congressional website, and with the 119th Congress concluding in early January, timing is essential. A submission during the lame-duck session would necessitate a quick passage, or it could be reintroduced in the next Congress.
During a Senate Commerce subcommittee hearing on May 20, Cruz emphasized the need to address two essential questions: how to safeguard sports integrity amid legalized betting and whether prediction markets are compliant with existing laws or infringe state sovereignty.
Cruz described sports contracts as effectively being equivalent to sports bets, noting the current legal uncertainties as justification for legislative intervention. "There is serious disagreement about whether the CFTC can unilaterally allow prediction markets to offer sports events contracts pursuant to the Commodity Exchange Act," Cruz stated. He suggested that unless Congress takes action, the Supreme Court may need to resolve the matter.
He clarified that the bill aims to empower states and tribes rather than eliminating sports contracts altogether. This approach distinguishes Cruz's bill from other proposals in Congress that seek outright bans on sports and similar contracts on CFTC exchanges.
The stakes are particularly high in Texas, where sports betting and casinos are not permitted. Lt. Gov. Patrick has been a significant barrier to legalizing state-level sports gambling. Despite the Texas House passing a sports betting bill in 2023, Patrick did not allow it to proceed in the Senate. Efforts for legalization in 2025 also failed.
Without legal sportsbooks, Texas represents a large potential audience for prediction markets, with Eilers & Krejcik Gaming estimating that Texas and California account for 43% of Kalshi's trading volume. Additionally, 19 states without legal online sports betting contribute to 69% of overall market activity.
Earlier this year, Patrick ordered the Senate State Affairs Committee to investigate the rise of prediction market gambling and make recommendations to uphold the integrity of Texas elections and sports. In a September meeting, industry representatives voiced concerns that banning such markets without regulation could force Texans to unregulated offshore platforms.
Cruz's bill will be entering a complex legal landscape, marked by conflicting court rulings. The Third Circuit Court of Appeals ruled in April in favor of Kalshi, indicating that the CFTC likely holds exclusive jurisdiction over sports contracts in New Jersey, a decision currently under review by the Supreme Court. Conversely, other appellate courts have reached different conclusions. For instance, the Ninth Circuit determined in August that Kalshi may not be able to claim that federal law preempts Nevada's gambling law regarding sports contracts. Additionally, a Sixth Circuit panel ruled in September that federal law does not preempt gambling laws in Ohio and Tennessee concerning Kalshi's contracts.
Further complicating matters, the Trump administration's CFTC has taken steps in the opposite direction, enacting a recent rule that excludes casino-style products from the definition of swaps, affecting state- or tribal-marketed gambling products while also defining event contracts within its jurisdiction.
