US Senator Ted Cruz is seeking state control of Prediction Markets through new legislation that would give state and tribal governments jurisdiction over sports-related contracts offered by trading platforms. The Texas senator plans to introduce the measure after the November 3 midterm elections. Under the proposal, prediction market operators would be prohibited from offering contracts linked to sports wagering without explicit approval from local or tribal authorities.
The proposed transition toward state regulation could significantly alter how platforms like Kalshi operate under Commodity Futures Trading Commission regulation. Currently, these exchanges offer sports event contracts across the nation under federal oversight. However, states like Texas prohibit sports betting and land-based casinos, making prediction exchanges a popular alternative for residents. Estimates indicate that Texas and California represent 43% of Kalshi trading volume, while 19 states without legal online sports betting account for 69% of its total activity.
Debate over the state control of Prediction Markets has intensified following conflicting judicial decisions regarding regulatory preemption. The Third Circuit Court of Appeals ruled in April that federal authorities likely hold exclusive jurisdiction over sports contracts in New Jersey, leading to a Supreme Court review petition. Conversely, the Ninth Circuit determined in August that federal law likely does not preempt Nevada gambling statutes, and a Sixth Circuit panel ruled in September that sports contracts do not qualify as swaps. In Utah, state officials sued Kalshi to recover profits and stop local operations after the Tenth Circuit declined to intervene.
Arguments surrounding Prediction Markets and who regulated them were highlighted during a Senate Commerce subcommittee hearing earlier this year. Cruz voiced concerns that sports contracts operate as functional equivalents to traditional sports wagers and circumvent local gambling prohibitions. Representatives from trade associations noted that 85% of trading volume on major platforms stems from sports products, warning that restricting legitimate domestic exchanges could push consumers toward unregulated offshore websites.
Unlike competing congressional proposals that seek complete bans on sports and casino-style contracts on CFTC exchanges, Cruz’s legislation focuses on state control of Prediction Markets by delegating decision-making power directly to state and tribal leaders. The bill leaves lawmakers a narrow timeline to consider the measure before the 119th Congress concludes in early January.
