Cruz Bill Seeks to Empower States and Tribes Over Sports Contracts on Prediction Markets

U.S. Sen. Ted Cruz (R-TX) plans to introduce legislation after the Nov. 3 midterm elections that would prevent prediction markets from offering event contracts tied to gambling activities, including sports, unless a state or tribal government authorizes them. The proposal would shift control from the current federal framework to state and tribal oversight.

As reported by SBC Americas, the bill arrives as federal appeals courts remain split on CFTC jurisdiction and as New Jersey seeks Supreme Court review. It would not ban such contracts outright but would defer the decision to individual states and tribes.

Effects on Kalshi and Key Markets

The legislation would flip the default rule for CFTC-registered exchanges. Kalshi and similar platforms currently operate sports contracts nationwide under federal rules. Under the Cruz bill, operators would first need state or tribal permission.

The stakes are high in Texas, which bans sports betting and casinos. Lt. Gov. Dan Patrick has called for closing the prediction market “gambling loophole” and directed the Senate State Affairs Committee to study the issue. Eilers & Krejcik Gaming estimated that Texas and California accounted for 43% of Kalshi’s volume. Overall, the 19 states without legal online sports betting delivered 69%.

The 119th Congress ends in early January. A post-midterm filing in the lame-duck session would likely require reintroduction in the next Congress unless it advances quickly. At a May 20 Senate Commerce subcommittee hearing, Cruz stated that sports contracts are “for all intents and purposes, sports bets.”

The Federal-State Tension

Cruz highlighted serious disagreement over whether the CFTC can unilaterally allow these contracts under the Commodity Exchange Act. He noted that many view prediction markets as a workaround to state gambling laws, with courts split and the Supreme Court potentially required to decide absent congressional action.

The Third Circuit Court of Appeals sided with Kalshi in April. In contrast, the Ninth Circuit ruled in August that the Commodity Exchange Act likely does not preempt Nevada gaming law on sports contracts. The Sixth Circuit held in September that Kalshi’s sports contracts are not swaps and that federal law would not preempt Ohio and Tennessee gambling laws. The Tenth Circuit declined to block enforcement, and Utah Attorney General Derek Brown sued Kalshi and two Susquehanna entities.

In Texas, the Senate committee heard from Kalshi Head of Enforcement Robert DeNault and American Gaming Association Vice President Tres York. DeNault warned that prohibition would push users to offshore platforms. York noted that 85% of Kalshi’s volume ties to sports and parlays. Texas Attorney General Ken Paxton has not joined the multistate Supreme Court brief.

The Trump administration’s CFTC adopted an interim final rule, effective this week, that excludes certain off-exchange gambling products from the swap definition while proposing to classify event contracts as swaps under its jurisdiction. This proposal reinforces a fragmented environment. Operators face the risk of limited market access in jurisdictions like Texas that choose not to authorize sports contracts, with compliance costs rising as courts and Congress continue to clash.

Reporting: SBC Americas

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