Legal Election Betting Market Draws Caution from Experts as Wagers Surge

As the U.S. presidential election approaches, a recent court decision has made betting on election outcomes legally accessible, generating a rush of activity among bettors and companies alike. While the excitement mirrors that of sports betting, experts caution the public against interpreting betting odds as accurate indicators of electoral outcomes. Prominent platforms such as Kalshi, Interactive Brokers, and Robinhood have opened markets for individuals to wager on candidates like Donald Trump and Kamala Harris, with some firms even setting multi-million-dollar betting limits. However, industry professionals warn that unlike polls, betting odds cannot predict vote margins, creating a complex dynamic for bettors and observers alike.

Election betting, long a point of contention, gained legal standing in the U.S. recently after a federal court sided with Kalshi, allowing the company to operate election betting markets while the Commodity Futures Trading Commission (CFTC) pursues an appeal. This ruling marked a departure from the longstanding stance of the CFTC, which has historically denied requests to introduce election-related betting markets. Despite ongoing legal disputes, Kalshi has reported soaring activity, with over $139 million wagered on the presidential election.

The CFTC’s stance reflects concerns over the potential impact on election integrity and the agency’s own regulatory boundaries. As Chairman Rostin Behnam expressed, the ruling “pulls us…into the responsibilities of being an election cop.” The decision has led to substantial activity in U.S. markets, with millions in wagers on platforms like Kalshi, although experts continue to advise that betting odds should not be conflated with polling data.

International Betting Platforms and Regulatory Challenges

While election betting is new for many American firms, it has been commonplace internationally, especially on platforms like Polymarket, which focuses on crypto-based wagering. Polymarket has garnered over $2 billion in wagers, mostly from overseas traders, and continues to operate with certain restrictions. Although the CFTC fined Polymarket $1.4 million in 2022 for operating as an uned betting site in the U.S., it remains accessible to international s, allowing foreign participants to engage in election betting that U.S.-based bettors may try to access through private networks.

PredictIt, a New Zealand-based platform with academic roots, also offers U.S. election betting with a cap of $850, allowing Americans to participate within legal boundaries. According to PredictIt’s founder, John Aristotle Phillips, having a financial stake can lead s to more objectively assess election probabilities. However, Phillips advises caution, as betting markets and polls serve distinctly different functions; while polls capture voter preferences directly, betting markets merely reflect bettors’ predictions.

Debate Over the Role of Election Betting and Regulatory Oversight

Despite its newfound legality, U.S. election betting continues to spark debate. Experts, including Thomas Gruca of the Iowa Electronic Markets (IEM), remain cautious, noting that betting markets could be swayed by a small number of wealthy participants, thus distorting the apparent likelihood of certain outcomes. Gruca emphasizes that the IEM, a modestly funded and tightly regulated platform, does not compete with the likes of Polymarket or Kalshi. Operating on limited funds and under government oversight, the IEM caps its wagers and avoids commercial promotion, offering a stark contrast to larger platforms that attract high-stakes bettors and lack comparable regulation.

Critics of U.S. election betting argue that it poses risks to democratic processes. Following the September ruling, watchdog group Better Markets warned that election betting could “corrupt the integrity of our elections” and make such markets vulnerable to manipulation. With the significant sums wagered in these markets, researchers have even observed signs of wash trading on platforms like Polymarket, suggesting potential manipulation intended to influence public perception.

While the court’s ruling remains contested, the CFTC has proposed a rule to restrict election-based contracts, citing the risk of undermining democratic values. Behnam expressed that allowing such trades “commoditizes and degrades the integrity” of American democracy, as the practice shifts away from traditional methods of democratic engagement. This regulatory debate underscores the potential implications of election betting on U.S. elections and the ongoing tension between market freedom and governmental oversight.

The rapid rise of U.S.-based election betting presents a new frontier in regulated wagering markets but has raised considerable questions. With platforms attracting millions in bets and the potential for market manipulation, experts advise a clear distinction between betting odds and voter sentiment data. As the CFTC grapples with its regulatory scope and the courts deliberate on appeal, the future of U.S. election betting may rest on a political outcome all its own.

Sources:

“Election betting newly legal but risks getting confused with polls,” NBC News, November 1, 2024.