Texas lawmakers consider action against sports prediction markets

Texas lawmakers question prediction markets

Prediction markets are gaining popularity across the country, allowing people to put money on the outcome of everything from sports games to elections. In Texas, lawmakers are questioning whether those markets are really investments or just sports betting by another name.

That led to one of the more heated moments during a Texas Senate hearing on Tuesday.

"Our job is to protect the consumer. This is not anti-business in any way at all. It's an evil business that hurts people, and that's what we're here for. Our job is to protect individual rights, to protect the people from predators and the gambling industry across the board is a predator," Texas Senator Bob Hall said.

"We agree that, as an industry historically, there is significant empirical evidence of the predatory nature of sports books, of casinos, and of offshore gambling websites, and where we may disagree is that prediction markets regulated at a federal level and operated on a peer-to-peer less predatory framework is a safer alternative for customers," Kalshi Legal Counsel and Head of Enforcement, Robert Denault, said.

Robert Denault represents Kalshi, one of the prediction market companies facing scrutiny in Texas.

"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.

He said Kalshi allows users to buy so-called event contracts, essentially taking a yes or no position on whether something will happen, and these contracts are traded between users, not bets against the house.

The other side:

Critics argue that is gambling.

"On Sunday, Texans were able to use prediction markets like Kalshi to put money down on who would win the Cowboys-Giants game. If they chose the right team, they get paid out. That's a sports bet. They were able to bet on whether the Cowboys would win by three points or more. That's a spread bet. They could bet on whether Dak Prescott would throw over 200 yards or for more than three touchdowns. Those are player prop bets. And it's exactly what legal sports betting operators offer," American Gaming Association Government Relations and Vice President Tres York said.

Sports betting is illegal in Texas

Dig deeper:

Denault argues prediction markets are regulated by the federal government and said federal law classifies them as financial contracts, not gambling. Critics said Texas should take action by taking these companies to court and passing legislation in the next session.

"I would suggest considering suing in state court to get a court judge to secure an order kicking them out until this issue is ultimately resolved and then potentially looking at clarification language to make sure that this type of workaround to offer sports gambling in Texas will not be allowed," York said.

Denault suggested otherwise.

"You could go the combative route and try to ban something that's here in the United States and already federally regulated, but what you'll end up with is a bunch of customers here in Texas just going offshore to an even more dangerous platform," Denault said. "There are spaces in the consumer protection space where I think Texas could think of proactive solutions instead of anti-business and anti-development solutions."

What's next:

Following the senate hearing, Kalshi sent an alert to users urging them to sign a petition to support them.