Betting on ballots

Thanks to online gambling platforms, Americans can bet on anything, from the 2024 Olympic Games to whether the new Joker movie will win an Oscar. A website called Kalshi hopes to spice up its online offerings by letting users risk their money on U.S. election results.

Kalshi isn’t exactly a gambling website like the well-known online sportsbooks Draft Kings or FanDuel. It operates like a financial market that buys and sells contracts. The Commodity Futures Trading Commission (CFTC), a government branch that monitors the trading of futures, swaps, and options, hopes to put a stop to that type of betting on elections. Last month, the agency proposed a ban that could take effect before voters go to the polls in November, but that does not mean political betting will disappear.

Proponents of election gambling say it could provide a more accurate way to forecast outcomes. Critics worry that pairing politics and wagering could undermine the integrity of the democratic process.

Unlike sports betting, gambling on elections is not widespread in the United States because of strict laws and regulations. But a few companies have found a loophole by creating “event contracts” and trading them on a Wall Street–style exchange. These “prediction markets” allow buyers to purchase a promise to pay or get paid depending on the outcome of a future event such as an election, similar to the way traders can buy and sell commodity futures. Users can trade the contracts and hedge against risks.

“It’s a question of, is it illegal betting or not?” said Kahlil Philander, an economics professor at Washington State University and former researcher on Canada’s Responsible Gambling Council. “But is it betting? Absolutely.”

The website Kalshi calls itself a prediction market. Since 2021, anyone with a Kalshi account can buy a contract based on the future answer to a yes/no question such as whether the temperature in Chicago will rise above 90 degrees today or whether Taylor Swift’s latest album will be No. 1 for more than 12 weeks.

In 2023, Kalshi wanted to let users predict which party would control Congress so traders could hedge against the fallout of elections. The CFTC stopped Kalshi from launching a market like that, and the company sued last November. Kalshi isn’t the only group to spar with the regulator.

Regulated by the CFTC since 1993, Iowa Electronic Markets began as a research project at the University of Iowa. Its purpose was to use election betting to predict outcomes. The CFTC closely watched the project, keeping wagers capped at $500 and limited to students and faculty at the university.

PredictIt is a prediction market run by Victoria University in New Zealand with an office in Washington, D.C. It formed in 2014 and had about 80,000 users by 2020. Two years later, the CFTC claimed that PredictIt had strayed far beyond its original nonprofit, educational purpose. The agency temporarily revoked the company’s permission to operate election markets in the United States.

PredictIt is still battling the CFTC in court but has managed to stay open for business. As of Friday afternoon, former President Donald Trump’s odds of winning the election were slightly better than President Joe Biden’s on PredictIt, and the site listed the price of “yes” contracts for the candidates at 52 cents and 45 cents, respectively.

In an amicus brief filed in Kalshi’s case against the CFTC, Stanford Law professor Joseph Grundfest suggested that political event contracts reveal what people really think. If someone bets on a sports team, it’s because they think that team will win, not necessarily because they like the team. If someone were to bet on Biden winning the 2024 election, it’s because they think the bet will turn a profit, regardless of their political leanings. And analyzing that crowd-sourced data helps businesses, investors, and researchers plan for the future.

In part, that’s why election gambling got started. Before modern scientific polling was established, newspapers like The New York Times published betting odds during election seasons. Election betting thrived during the 19th century, according to professors Paul Rhode and Koleman Strumpf, some of the leading researchers on the topic. Between 1884 and 1940, the market favorite won 11 out of 15 presidential elections.

At the time, most people had a dim view of gambling, but observing election bets seemed like the best way for campaigns and new organizations to accumulate data. When Gallup introduced a new polling system in the 1930s, the once-necessary evil of political gambling wasn’t so necessary anymore. The popularity of betting on horse races may have led to growing disinterest in election wagering: Why bet on a race that will take months to unfold if you can cash in your winnings within the hour?

In 2012, the CFTC prohibited markets that rely on gaming and are contrary to the public interest. It wanted to prevent people from gambling on things like when the next school shooting would occur or who was responsible for the death of Iran’s president. The CFTC proposed a direct ban on election markets in May. The suggested rule defines event contracts involving political contests as illegal gaming. There will be a period of public comment before the proposal can take effect, and it’s likely that the regulation won’t be enforced for several months after that. Regardless, the CFTC ruling won’t prevent betting on U.S. elections via offshore companies like Panama-based BetOnline.

So far, Democrats have been the loudest opponents of betting on elections. When Kalshi tried to set up a market to predict which party would control Congress, the left-leaning Center for American Progress asked the CFTC to deny Kalshi’s request. A group of Democratic senators, including the late Dianne Feinstein of California, wrote a similar letter, claiming that the possible gain of using markets like Kalshi to aggregate data just isn’t worth the risk of damaging the election process.

Betting on elections could lead to voter manipulation, the senators claimed. And there is some evidence of such gamesmanship in the past. In 2012, an anonymous user placed a multimillion-dollar bet through Intrade, a now-defunct betting platform, on presidential candidate Mitt Romney. Researchers concluded that the so-called “Romney Whale” might have been trying to overinflate Romney’s chances of winning to “boost Republican voter morale.” If Kalshi were to host an election market, the stakes would be much higher: Individuals and businesses could make trades valued at up to $100 million.

Whether or not it’s legal to bet on elections, the question remains: is it a good idea? Other than the fact that he finds election markets in “bad taste,” Philander thinks that they threaten more than election integrity. The real issue is that the government would be the de facto regulator. “If we’re not going to allow players to bet on their own teams,” he said, “should we allow governments to take wagers on their own leaders?”