The Texas Senate Committee on State Affairs discussed regulating prediction market apps at their interim hearing on Sept. 15 in a bid to inform future legislation.
These apps let users wager money on the possibility of future events, including anything from sports games to a politician saying a specific word in an interview.
Lawmakers questioned American Gaming Association representatives and the head of enforcement and legal counsel at Kalshi, a prediction market app, who each recommended different policies for the legality of these apps moving forward.
At the meeting, the Kalshi representative said that the platform is already subject to federal regulation under the Commodity Futures Trading Commission and state regulation would not make sense for their product.
Tres York, vice president of government relations at the American Gaming Association, said prediction markets are gambling and that their products violate Texas state law by operating like regulated gambling facilitators.
“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 got paid out,” York said. “That’s a sports bet … and it’s exactly what legal sports betting operators offer.”
According to the Texas State Law Library, Texas is one of the strictest states when it comes to gambling. However, Michael Sierra-Arévalo, a UT sociology professor and leader of a sports betting research project, says that depending on who you ask, these apps are not gambling.
Sierra-Arévalo said people may not consider using a prediction market app as gambling because people believe they have expertise in what they are betting on. However, he said many users of these apps may have less expertise than they think.
“There is a non-zero level of gambling that is perfectly healthy and recreational and fine,” Sierra-Arévalo said. “Just as we think about things like alcohol and tobacco use and marijuana use as having a non-zero level that is not going to completely upend your life, there is also a level of engagement with sports betting that can have very severe consequences for the long-term health and financial well-being of students.”
Eric Zhu, an economics and Plan II junior, uses prediction market apps like Polymarket and Kalshi to trade primarily on politics and mention markets, where bettors predict whether a speaker will say a word at an event, but also on sports and e-sports. He said he has routinely used these apps over two years, and he is considering it as a career.
While Zhu said he has had a “very positive experience” using these apps, he also believes some people lack the expertise to place accurate predictions. He began using the apps when he saw people inaccurately predicting aspects of the 2024 election and realized he could put his knowledge of politics to use.
“I was basically in the library watching Trump speeches (at) 10 p.m. (on a) Friday night,” Zhu said. “People are partying. I’m watching a Trump speech with a notebook out … The money’s good, but also it’s literally a game where you’re trying to compete about who’s smarter, who’s better at understanding this thing.”
Sierra-Arévalo said that while he believed any legal friction would discourage people from using prediction market apps, resources and education would help prevent gambling addiction.
“Universities, I believe, whether it be the University of Texas or others, are in a unique position to design and implement interventions among a high-risk population, which is their students,” Sierra-Arévalo said. “It is the responsibility of universities to take a leadership role in addressing what many experts fear will become a public health crisis in due time.”
