During the last weeks of the midterm election cycle, state representatives have made gambling issues part of their policy plans. South Carolina gubernatorial candidates clashed on sports betting legalization in their October 26 debate. New York Governor Kathleen Hochul voiced her support for downstate casinos. Her Republican opponent didn’t take a hard stance one way or the other. But one issue is looming over state political agendas: political betting.
Political betting is illegal in the United States, but there are ways to do it domestically. PredictIt is an academic project that operates under a no-action letter from the CFTC. (A no-action letter says that an organization can trade in violation of CFTC terms if that organization follows certain conditions.)
However, PredictIt has had its no-action letter rescinded and must shut down in February 2023. Its wide range of political markets made it a popular political betting platform. Another company, Kalshi, is about to have its recent attempt to offer political betting derivatives blocked by the CFTC. Kalshi’s doomed congressional control markets show the regulatory tension between allowing hedging on an election’s outcome and creating a new gambling platform.
Why Kalshi Election Markets are Unlikely
Kalshi is a derivatives exchange that offers event contracts. Its event contracts are yes or no questions about, for example, whether inflation will hit a certain rate at a specific time or what the price of oil abroad may be. This allows people and organizations who are affected by these events to get paid if their investments come through.
For example, hurricane victims can hedge on a certain level of rainfall and make some of the money lost by hurricane recovery costs. Broadcasters can cash in on event contracts if viewership levels are low, recovering some of the lost revenue.
However, the money that can fund that hedging comes largely from speculators and gamblers. Regulators have to decide whether the benefits of certain contracts are worth the gambling activity. In Kalshi’s case, regulators approved the company’s event contracts, because the hedging and prediction benefits outweighed the costs of expanding speculative activity.
The CFTC has limits though. On October 28, Bloomberg reported that the CFTC staff recommended denying Kalshi’s proposed event contracts on congressional control. These contracts would’ve allowed those impacted by a party’s control of congress to profit from a correct prediction about which party took over. But it also would’ve created a legal political betting outlet in the United States.
The CFTC remains unwilling to create a political betting market just so some users can hedge and predict on it.
Political Betting’s Role in State Political Agendas
While Kalshi and PredictIt fight for their election markets, the country’s sports bettors lack the same passion for political betting. A bonus.com survey of current and likely sports bettors found that only 41% think election betting should be legal. 38% believed it should remain illegal, and 21% were unsure. 52% of the survey respondents thought that election betting would harm election integrity, and many open-ended respondents raised similar concerns.
CFTC regulators share the same worries about election integrity. Better Markets CEO, Dennis Kelleher, is critical of election markets because of the impact they could have on elections.
Former CFTC officials disagree with these concerns. Politico reports that the CFTC acting Chair under President Obama, Mark Wetjen, stated in a letter to the CFTC that the concerns they had about prediction markets and election integrity “have not materialized.” Elections are still decided by elections, and betting syndicates haven’t taken over American elections.
But concerns about election integrity are high. Donald Trump was the first American president to refuse to concede an election. His continued lies about election fraud have also contributed to a rise in political violence.
In a volatile environment where election lies are already being peddled about the 2022 midterms, political betting will remain off state political agendas and much of the public’s radar. Any conflict about whether to allow it will remain a niche argument among a handful of companies, organizations, and regulators.