Concerns over gambling addiction emerged as Texas lawmakers examined the growing use of prediction market platforms and whether their activities should be treated as gambling. Gambling policy expert and lobbyist Brianne Doura-Schawohl raised concerns about a potential increase in gambling addictions and the consequences, while a Common Sense Media report found that at least a third of teenage boys gambled in the last year.
Schawohl told senators that the terminology used to describe prediction market activity may make little difference to users engaging with the products.
“The brain doesn’t care whether you call it a DCM [Designated Contract Market] or a sportsbook, right? It’s about that experience, you’re putting something of value, you’re risking it, of the potential to get something of value, but you could also lose it,” Schawohl said.
The Texas Senate Committee on State Affairs has been charged with protecting Texas elections and sports as prediction market platforms expand. A main issue before the committee is whether participating in such markets constitutes gambling.
The American Gaming Association wants Texas to require prediction markets to comply with state gambling laws. Tres York, with the association, argued that some products offered through the platforms amount to sports gambling regardless of how they are structured.
“If you’re stringing together three different things to happen in a sporting event game, at the end of the day this is simply gambling on sports,” York said.
Robert DeNault, with legal counsel at Kalshi, said the platform allows users to trade event contracts, also known as swaps. Users can purchase “yes” or “no” contracts based on whether an event may occur in the future. He said Kalshi does not operate as the “house” in the way a casino would and instead facilitates contract trading between two users.
“What we offer is a financial product that lets Texans engage in well regulated trading activity in a free and open market as well as manage real financial risk,” Denault said.
York said businesses such as Kalshi are ignoring Texas’ ban on sports betting by presenting the activity as financial investment. He also pointed to Kalshi’s separate trading operation and the counterparties that can participate in transactions.
“Kalshi has their own trading arm that is separate from the exchange that often is on the other side of that bet. So, it may not be Brianne, it may be a multi-billion dollar Wall Street firm that is using AI and advanced information in order to get the better end of that bet” York said.
DeNault disputed the comparison with sportsbooks, arguing that providing liquidity to a market is not the same as operating one. He also said regulation would provide greater safety than an outright prohibition.
“You can try to ban, you know whether it’s cryptocurrency, whether it’s perpetual futures, you can try to ban all these things, but users are going offshore and using them in a much less safe way. And so, it’s important for us to try to work together, I think, to create constructive solutions, not just combative ones in court,” DeNault said.