As Texas legislators delve into the rising popularity of prediction market platforms, concerns regarding gambling addiction are coming to the forefront. Brianne Doura-Schawohl, a gambling policy expert and lobbyist, expressed worries about the potential rise in gambling addictions and their implications. A report from Common Sense Media revealed that over a third of teenage boys engaged in gambling activities in the past year.
During discussions with senators, Schawohl emphasized that the terminology surrounding prediction markets might not significantly impact how users interact with these platforms. “The brain doesn’t care whether you call it a DCM [Designated Contract Market] or a sportsbook,” she stated. “It’s about the experience; you risk something of value for the chance to gain something of value, but you could also lose it.”
The Texas Senate Committee on State Affairs is tasked with safeguarding elections and sports in Texas as the landscape of prediction markets evolves. A critical question for the committee is whether engaging in these markets should be classified as gambling.
The American Gaming Association advocates for Texas to enforce compliance with state gambling regulations for prediction markets. Tres York from the association argued that many products available on these platforms essentially qualify as sports gambling, irrespective of their structure. “If you’re stringing together three different outcomes in a sporting event, at the end of the day, this is simply gambling on sports,” York remarked.
Robert DeNault, legal counsel for Kalshi, explained that the platform enables users to trade event contracts, also referred to as swaps. Users can buy “yes” or “no” contracts based on the likelihood of future events. DeNault clarified that Kalshi does not function as a “house” like a casino but rather facilitates trading between users.
“What we offer is a financial product that allows Texans to engage in well-regulated trading activities in a free market while managing genuine financial risks,” DeNault noted.
York contended that companies like Kalshi are circumventing Texas's prohibition on sports betting by framing their activities as financial investments. He highlighted Kalshi's distinct trading operations and the various counterparties involved in transactions. “Kalshi has its own trading arm separate from the exchange, often on the other side of that bet. It may not be an individual like Brianne; it could be a multi-billion dollar Wall Street firm utilizing AI and advanced data to gain an advantage,” York explained.
DeNault countered the comparison to sportsbooks, asserting that providing market liquidity differs from operating a gambling platform. He also suggested that regulation could enhance safety rather than outright bans. “You can attempt to prohibit things like cryptocurrency or perpetual futures, but users will seek them out in less secure ways offshore. It’s crucial for us to collaborate on constructive solutions rather than merely resorting to legal battles,” DeNault concluded.