'It Is Gambling': Texas Senators Skeptical of Prediction Markets' Legality in Texas
Anybody who bet that prediction market platforms like Kalshi would receive a warm welcome from the Texas Senate State Affairs Committee would have been at a loss on Tuesday.
Robert DeNault, head of enforcement for Kalshi, was sharply questioned by lawmakers who seemed to have decided the prediction markets violated the state’s ban on gambling, or at least the spirit of the law.
Committee Chairman Bryan Hughes (R-Mineola) set the tone for the hearing by characterizing the markets as a “loophole” around the state gambling ban that was enacted in 1903. He specifically cited markets focused on Texas elections and sports.
Lt. Gov. Dan Patrick, who is the president of the Texas Senate, has made cracking down on prediction markets a priority going into the 90th Legislative Session.
DeNault was put in an awkward position when he was called to testify immediately after Tres York of the American Gaming Association. York opened his remarks by saying that “so-called sports events contracts on prediction markets … are gambling.” He added that “they clearly are ignoring Texas’s policy choices” and that said platforms “expose young Texans to sports gambling under the label ‘financial investing.’”
After excoriating the markets, including Kalshi by name, he closed by saying, “Prediction markets think they can mess with Texas. I hope you prove them wrong and show them everything is indeed bigger in Texas, including the consequences of violating your laws.”
DeNault defended Kalshi and said it is an exchange, not gambling; therefore, Kalshi and prediction markets like it fall under the federal jurisdiction of the Commodity Futures Trading Commission.
According to Fidelity Investments, “Prediction markets are marketplaces where participants buy and sell contracts tied to the outcome of future events. These contracts, often called event contracts, gain or lose value based on whether a specific outcome occurs. A contract’s price reflects how likely market participants believe that outcome is.”
“Different types of financial products,” DeNault said, "warrant different regulatory structures, even when those products bear similarities or touch on similar topics” as others.