Texas law is very clear: traditional sports betting is illegal. One cannot walk into a sportsbook and place a bet on the spread, wager on the moneyline, or construct a parlay. But as the NBA season tips off, Texans are wagering millions of dollars from their phones. These bettors, encouraged by extensive advertising featuring billboards lining major highways and campaigns using prominent celebrities, aren’t spending because the laws have changed. This is happening because technological advancements and legal interpretations by various courts have created massive loopholes in the law, allowing forward-thinking companies to operate in a highly lucrative gray area while state regulators and politicians largely watch from the sidelines.
Many Texas gamblers reference the Super Bowl as an entry point into sports betting, depositing a small amount of money to wager on one of the biggest sports events of the year before “winning big” and becoming hooked. These residents now are among the many Texans who must navigate an environment where gambling is simultaneously pervasive and prohibited.
Two primary workarounds have emerged, utilizing federal regulations (and their shortcomings) to evade the state-level ban in Texas: Prediction Markets and Daily Fantasy Sports.
Explaining the Loopholes
The latter method, Daily Fantasy Sports (DFS), is the more long-standing and well-established of the two workarounds. Popular platforms such as DraftKings and FanDuel have operated in Texas for years, largely without issue. The legal argument allowing these platforms to exist in states like Texas turns on the 2006 Unlawful Internet Gaming Enforcement Act (UIGEA). The UIGEA, which notably banned numerous forms of online gambling, included a specific carve-out for fantasy sports, classifying them as illegal “games of skill” rather than banned “games of chance.”
This statutory choice has allowed DFS operators to claim that their product is distinct from traditional betting because their players compete in user-to-user events by creating short-term fantasy teams and entering competitions against other fans, a trait that arguably differentiates DFS from other forms of online gambling that involve betting “against the house.” Though some operators have made this distinction more blurry by offering “against the house”-style prop bets, most have largely maintained the peer-to-peer model in states like Texas, where gambling is banned, in order to preserve their legal footing.
The more aggressive second workaround, Prediction Markets, has been on the rise. Companies like Polymarket and Kalshi have become a constant presence on Texas social media feeds, utilizing ads that often boldly proclaim that sports trading is “now legal” in the state. However, these platforms avoid describing their product as full-on “betting.” Instead, they operate by allowing users to purchase “event contracts,” which are, in essence, yes-or-no propositions on future outcomes, including everything from elections to sporting events. Will the New England Patriots beat the New York Jets? Will their starting quarterback throw for over 250 yards? Some experts have compared these agreements to shares of stock or option contracts.
This is a crucial distinction to make. Since these companies frame their wagers as financial instruments, they are able to argue that they are federally regulated financial exchanges, not state-regulated gambling operations. Thus, they claim that oversight should fall to the Commodity Futures Trading Commission (CFTC), which is the same regulatory body that looks at futures and currency exchanges. In essence, this preemption argument is saying that federal commodity law overrules the state gambling ban in Texas.
Legal and Political Standoffs
Despite incredibly aggressive advertising, the legal standing of these operations remains highly questionable. The Texas Attorney General’s standing opinion, issued in 2016, is that DFS games constitute illegal gambling. However, that opinion is nonbinding, and the state AG’s office has yet to take any notable enforcement action against DFS companies in the years that have followed.
Meanwhile, legal experts are skeptical of the claims made by operators like DraftKings and FanDuel. Some have noted that the alternatives to DFS are essentially the same as sports betting, as they simply incorporate portions of futures trading and traditional fantasy sports into a classic gambling framework.
The arguments relied on by prediction markets are particularly shaky. Kalshi, one of the leaders in the space, has argued in federal court that their event contracts are legitimate under the Dodd-Frank Act as financial “swaps” because sports outcomes have “potential financial, economic, or commercial consequence,” such as a player’s performance impacting their sponsorship marketability.
These legal strategies have led to results that are inconsistent at best. Back in November of 2024, Kalshi’s own lawyers argued in a filing on political betting that the “classic example” of gambling is “a contract on the outcome of a sporting event.” But less than three months later, Kalshi was offering bets on the Super Bowl. This critical filing has been dismissed by Kalshi CEO Tarek Mansour as being the work of outside counsel that was “not our view.”
Despite the fact that these gray area market operators are thriving, some Texans have even taken things a step further, turning to the black market: offshore betting apps and websites. Using VPNs to mask one’s location, users are able to access traditional sportsbooks that operate outside of U.S. jurisdiction. While appealing due to the lack of legality issues, this point can quickly turn into a double-edged sword: offshore operators can refuse to pay out winnings or simply shut down, leaving bettors without legal recourse.
A Vacuum of Enforcement
The continued survival and use of these apps reveal a striking contradiction in Texas policy. Back in 2023, the state legislature was able to successfully ban online lottery couriers, apps that operate in a similar loophole, with the court finding that they were illegal businesses. However, this same Texas legislature has allowed prediction markets and DFS to flourish, apparently in blissful ignorance of the AG’s own opinion.
Many of the state’s major sports teams have supported efforts to legalize and regulate the sports betting industry, but those initiatives have repeatedly failed. A 2023 resolution to legalize online sports gambling passed in the Texas House but then died in the Senate, where Lieutenant Governor Dan Patrick has stood firm in maintaining that no gambling measures will pass under his watch.
On the federal side, the picture is just as murky. In the Biden era, the CFTC challenged Kalshi’s efforts to offer betting markets during the election, but the appeal was dropped by the agency under the Trump administration. Adding to the lack of clarity around prediction markets (and arguably raising significant conflict of interest questions), Trump had nominated Brian Quintenz, a current board member at Kalshi, to chair the CFTC before pulling the nomination.
With state politicians seemingly in a deadlock and federal regulators either compromised or otherwise unconcerned, an enforcement vacuum has been created. The CFTC issued vague guidance in September 2025 in which they essentially passed enforcement down the line, advising users to merely “beware” of state litigation.
For now, it appears that the status quo will remain. While traditional sports betting remains illegal in Texas, gambling on sports is easier than ever. While regulators pass the buck and lawmakers engage in debate, technology and aggressive lawyering have ensured that in the case of hundreds of thousands of potential Texas bettors, the house (or perhaps the “peer-to-peer exchange”) always wins.
