Texas Lt. Gov. Dan Patrick (R) is hoping to close “gambling loopholes” that allow prediction platforms such as Kalshi and Polymarket to operate inside state lines.
Patrick asked state Senators to eliminate gray areas that allow prediction markets in industries including sports, entertainment, politics, and finance, to operate without receiving state licensing.
Key Takeaways
- Lt. Gov. Dan Patrick has kept traditional casinos and sports betting out of Texas.
- Sports event contracts allow prediction users to earn money by predicting the outcomes of games and events.
- A recent anti-prediction letter signed by 41 attorneys general did not include the Texas AG’s signature.
While prediction market leaders fervently deny that their platforms constitute gambling, they have continually drawn the eye of gaming officials and anti-gambling lawmakers.
Patrick is one of the strongest gambling critics of all prominent politicians. As Texas’ Lt. Gov. and while taking charge of the Senate, he has personally promised to kill all pro-sports betting bills that come his way. He’s made good on that promise, rebuffing various proposals despite mounting pressure from the state House.
Next in his crosshairs are rapidly rising prediction platforms, whose popularity took off during the last NFL season.
“Closing Gambling Loopholes” was one of eight initiatives that Patrick laid out for the State Affairs Committee in a directive he issued at the end of March. Senators were asked to study the “sudden inundation of prediction market gambling and the exploitation of federal law” that he says allows platforms to dance around state regulation.
“Examine the relationship between federally regulated derivative markets and state-prohibited gambling,” Patrick wrote. “Make recommendations to ensure the integrity of Texas elections and Texas sports.”
No other sections in the directive included or referenced the gambling industry. Other tasks for the State Affairs Committee dealt with preserving election integrity and efficiency, pro-life practices, fair banking, protecting the judicial branch from outside influence, offering consumer protection in alcohol sales, and monitoring.
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Plotting a course of action
Patrick is used to being a roadblock for gambling momentum. However, he faces a unique challenge in his budding bout with prediction platforms.
For starters, prediction platforms’ classification as “not gambling” means that they are not required to receive licensing from gambling regulators. They are also federally regulated by the Commodity Futures Trading Commission (CFTC), whose authority preempts state officials’.
Sara Slane, head of corporate development for Kalshi, claimed that the CFTC offers enough oversight, which Kalshi is “never shy” about telling state regulators.
“We are regulated at the federal level, but of course, given now the popularity of prediction markets, we are doing a lot of educating on the state level,” Slane said. “That’s the dialogue that we’ll envision having, certainly, in the state of Texas.”
A letter containing signatures from 41 state attorneys general sent to the CFTC this week implored the CFTC to acknowledge states’ authority over sports event contracts offered by prediction markets.
“This is unequivocally gambling, which means it belongs under State authority,” Oklahoma Attorney General Gentner Drummond wrote. “States have long had the right and responsibility to protect their own citizens from the dangers of gambling, and that should continue to hold true whether bets take place on a prediction market or inside a traditional casino.”
Despite Texas’ longstanding anti-gambling stance, Texas Attorney General Ken Paxton was not one of the co-signers.
Fighting illegal use
State regulators have pursued a variety of legal methods to slow the spread of prediction outlets. The use of cease-and-desist orders emerged as a popular method, although those were met with varying degrees of success in different states.
A major concern at prediction platforms is the possibility of insider trading. Kalshi revealed last week that it had fined three congressional candidates, including one in Texas, for attempting to trade on the outcome of their own election races.
Kalshi recently stepped up its efforts to crack down on cases of illegal use, implementing new insider trading policies, and, earlier this week, adding tools to block minors from accessing its platform.
