Concerns about gambling addiction arise in Texas as lawmakers investigate the use of prediction market platforms and debate whether they should be classified as gambling. Gambling policy expert and lobbyist Brianne Doura-Schawohl expressed worries about the potential increase in gambling addiction and its consequences, while a Common Sense Media report revealed that at least one-third of teenage boys engaged in gambling in the past year.
Schawohl informed senators that the terminology used to describe prediction market activity may not matter much to users participating in the activities.
“The brain doesn’t differentiate between calling it a DCM [Designated Contract Market] or a sportsbook, right? It’s about the experience; you’re putting something of value at risk, with the potential to gain something valuable, but also the risk of loss,” Schawohl explained.
The Texas Senate Committee on State Affairs is responsible for safeguarding Texas elections and sports as prediction market platforms expand. One of the main concerns before the committee is whether engagement in such markets constitutes gambling.
The American Gaming Association advocates for Texas to enforce prediction markets’ compliance with state gambling laws. Tres York, from the association, argued that certain products provided through these platforms amount to sports gambling, regardless of their structure.
Robert DeNault, with legal counsel at Kalshi, stated that the platform enables users to trade event contracts, also known as swaps. Users can buy “yes” or “no” contracts based on the likelihood of a future event occurring. DeNault clarified that Kalshi does not function as a casino “house” but instead facilitates contract trading between two users.
“What we offer is a financial product that allows Texans to engage in well-regulated trading activity in a free and open market while managing real financial risks,” DeNault added.
York highlighted that businesses like Kalshi are sidestepping Texas’ sports betting ban by framing their activities as financial investments. He also noted Kalshi’s separate trading operation and the involvement of counterparties in transactions.
“Kalshi has its trading arm separate from the exchange, often involving a multi-billion-dollar Wall Street firm using AI and advanced information to gain an advantage in those bets,” York mentioned.
DeNault refuted the comparison to sportsbooks, arguing that providing liquidity to a market is not the same as operating one. He also emphasized that regulation would offer greater security than an outright prohibition.
“While banning things like cryptocurrency or perpetual futures is possible, users would resort to offshore entities to engage in riskier practices. Therefore, it’s crucial for us to collaborate, focusing on constructive solutions rather than confrontational ones in court,” DeNault proposed.