The Political Betting Landscape: A Fork in the Road Ahead of the 2024 U.S. Presidential Election
With less than 50 days remaining until the 2024 U.S. presidential election, the world of political betting is at a critical juncture. While it remains illegal in the United States to wager on who will become the 47th president, platforms like Polymarket and Kalshi have emerged as significant players in the political betting market. Polymarket has seen nearly $1 billion in wagers, while Kalshi recently attempted to introduce a regulated event contract that would allow users to bet on the balance of power in Congress. However, this initiative was short-lived, as Kalshi had to pull the contracts due to a “pending court process.”
The Legal Battle: Kalshi vs. CFTC
At the heart of this controversy is the case of KalshiEx LLC vs. the U.S. Commodity Futures Trading Commission (CFTC). The central question is whether Kalshi can list contracts on political events leading up to the November election. A U.S. District Court judge initially sided with Kalshi in a ruling on September 6, but the CFTC quickly filed an emergency motion to stay that ruling, leading to a tense hearing before a three-judge panel from the D.C. Circuit Court.
During the two-hour and 40-minute hearing, attorneys from both sides faced rigorous questioning. The appellate court has yet to set a timeline for its decision, but the outcome will likely shape the future of political event wagering in the U.S.
The Role of the CFTC: An ‘Election Cop’?
The CFTC, an independent agency responsible for regulating U.S. derivatives markets, has taken a firm stance against political betting. Last September, the commission issued an order prohibiting “Congressional Control Contracts” from being traded on Kalshi. These contracts would allow users to bet on which political party would gain control of each chamber of Congress following the election.
CFTC Chairman Rostin Behnam has argued that while the commission should have the authority to combat fraud and manipulation in commodity markets, overseeing political contests would be impractical. He described the CFTC’s potential role in this context as serving as an “election cop,” a position he believes is not feasible given the complexities of political events.
The Public Interest Argument
The CFTC’s concerns are rooted in the potential public interest implications of allowing political betting. In a 28-page brief submitted to the court, the CFTC emphasized that permitting election betting on a regulated exchange could lead to significant public harm. The commission raised alarms about the possibility of monetary incentives to vote, the spread of misinformation, and the potential for market manipulation to influence election outcomes.
CFTC General Counsel Robert Schwartz argued that allowing Kalshi to resume offering congressional control contracts could distort public perception of candidates and their campaigns. He warned that such distortions could affect campaign fundraising, volunteer mobilization, and voter turnout.
The Case for Kalshi: Regulated Markets vs. Unregulated Ones
Kalshi’s legal team, represented by attorney Yaakov Roth, countered the CFTC’s arguments by highlighting the existence of other platforms that offer political event contracts, such as Polymarket, which operates outside U.S. regulations. Roth argued that an injunction against Kalshi would only push political betting into unregulated markets, where oversight is nonexistent.
Roth pointed out that Polymarket has already facilitated over $930 million in wagers on the 2024 presidential election, with an additional $200 million on contracts related to the popular vote. He also mentioned PredictIt, a New Zealand-based platform that allows limited political betting but imposes strict caps on individual investments.
The Distinction Between Gaming and Gambling
The judges also probed Roth on the nuances of Kalshi’s offerings, particularly the distinction between “gaming” and “gambling.” While Roth acknowledged that Kalshi earns a commission on transactions, he did not disclose the exact percentage, which raised questions about the platform’s operational model compared to other regulated markets.
The judges expressed concerns about the potential for short-term manipulation in Kalshi’s market, especially when users engage in speculative trading. Roth conceded that while the risk exists, it is mitigated in a liquid market like Kalshi.
The Stakes of Political Betting
As the legal battle unfolds, the stakes are high not just for Kalshi but for the broader landscape of political betting in the United States. With the 2024 election looming, the implications of this case could redefine how Americans engage with political events through betting platforms. The outcome will likely influence whether political wagering remains confined to regulated markets or spills over into unregulated territories, where the risks of misinformation and manipulation could escalate.
As the CFTC and Kalshi continue their legal tug-of-war, the future of political betting hangs in the balance, with potential ramifications for the integrity of elections and the public’s trust in democratic processes.