US Midterms 2026: Prediction Markets Face New Threats from Texas and Georgia

The political fallout from the midterm elections on November 3 is sending shockwaves through the prediction market sector. Although Democrats secured significant victories, this does not necessarily signal the end for platforms like Kalshi or Polymarket. Instead, the battle over the legality of event contracts is shifting from the national stage in Washington D.C. to the state level. In Texas and Georgia, new political figures have emerged who could challenge the long-standing status quo of regulatory tolerance. Experts are monitoring this closely, as the fundamental question remains: are these markets financial derivatives or just cleverly disguised gambling?

In Texas, Democrat Nathan Johnson claimed victory in the race for Attorney General. In Georgia, Tanya Miller was elected as the state’s first female Attorney General. These appointments are critical for the industry because both officials now possess the authority to initiate legal action against operators who previously operated under the protection of the Commodity Futures Trading Commission (CFTC). The geographical location of these states is vital, as Texas falls under the Fifth Circuit and Georgia under the Eleventh Circuit of the US Courts of Appeals. If these courts produce conflicting rulings on federal preemption, a final decision by the US Supreme Court becomes highly likely.

Numbers and facts

The elections on November 3 marked a turning point for regulation. Until now, there was little prospect of state enforcement against Kalshi in Texas or Georgia. These populous states could now become legal minefields. However, Felix Shipkevich, a professor at Hofstra University, notes that an outright federal ban remains improbable. Since President Donald Trump would likely veto such legislation, Democrats would need an overwhelming majority in Congress to pass laws against the White House's wishes. Nevertheless, the CFTC remains under pressure as Congress controls the agency’s funding and the Senate confirmation process for its commissioners.

Polymarket, in particular, is under scrutiny due to its ties to the Trump inner circle. Donald Trump Jr. is an investor through 1789 Capital, and Peter Thiel’s Founders Fund is also a backer. These connections could prompt House Democrats to investigate the CFTC’s regulatory decisions more thoroughly. Conversely, Polymarket CEO Shayne Coplan argues that the accuracy of the platform’s election forecasts proves its integrity as an informational tool.

"Texans voted for an attorney general who will represent them and the interests of our state, and who will above all uphold the rule of law. That’s what I intend to do." - Nathan Johnson, Texas Attorney General-elect

Background

The core of the dispute lies in the definition of the products. Legal experts like Ken Sterling from USC Annenberg view prediction markets as a "workaround" for products that look and feel like online gambling to the end consumer. Sports event contracts are especially controversial as they compete directly with state-licensed sportsbooks. While operators claim to offer financial derivatives, critics argue that 24/7 access and rapid transaction cycles are classic hallmarks of gambling that require equivalent consumer protections.

Why it matters for German players

For German players, the situation remains clear but provides an interesting comparison. In Germany, gambling is strictly regulated by the Interstate Treaty on Gambling 2021 (GlüStV 2021). Prediction markets, as regulated by the CFTC in the US, have no direct equivalent in Germany that could bypass the LUGAS system or the 1,000 Euro monthly deposit limit. Any provider offering bets on sporting events or political outcomes requires a license from the Gemeinsame Glücksspielbehörde der Länder (GGL). German users must be aware that platforms without a GGL license are illegal in Germany. The US debate highlights the importance of a clear distinction between financial products and gambling to ensure consumer protection. The 1 Euro stake limit for slots and the strict separation of betting markets are mechanisms designed to prevent the kind of regulatory gray areas currently being discussed in Texas.

What it means for GGL-licensed casinos

GGL-licensed operators in Germany can draw confidence from the US debate. While the US faces a patchwork of jurisdictions between federal agencies and individual states, the German model with its white list provides clear guidance. For licensed casinos, this means that competition from supposed "financial products" is unlikely in Germany, as the GGL ensures that anything resembling a bet is regulated as such. However, the criticism of US platforms serves as a reminder that high transaction frequency and constant availability (24/7) remain key focuses for addiction prevention for German regulators as well.