State of Play is a column that focuses on the trending stories in the casino and gambling space with sharp and clever insight from senior staff writer Steve Friess. Over his 25-year career, Friess has contributed to publications such as Newsweek, Time, New York Times and more.
At first, it seemed like good news for those of us who want to be able to bet on elections.
The upstart predictions-market firm Kalshi, fed up with being jerked around by the U.S. Commodity Futures Trading Commission (CFTC) in its effort to launch markets for putting big money on which party will control the House or Senate, filed a federal lawsuit this week asserting the CFTC doesn’t have the power to stop it.
In some ways, it is an inevitable legal showdown. Americans legally can put money on predicting everything from monthly interest rate hikes to the timing of the next moon landing to whether the Hollywood actors’ strike will end this year. Why is wagering on who takes power in Washington, D.C., so sacrosanct?
At the moment, the answer appears to be: Because the CFTC says so. And the reasoning isn’t particularly sound or logical.
But Kalshi, a startup founded by a pair of 27-year-old Massachusetts Institute of Technology graduates who no doubt adhere to the Silicon Valley ethos of moving fast and breaking things, might be moving too fast and is liable to break the wrong things.
The company is demanding the judiciary decide whether it can be barred from allowing this form of for-profit political gambling.
The trouble is, the judiciary could say no. In fact, the odds are fairly high that it will.
If (and when?) it does, that’s it for legal political gambling in the United States for a long, long time.
There’s well-organized opposition to election gambling
Kalshi would certainly survive such a blow.
Its raison d’etre is a wide range of futures contracts — the name, in Arabic, means “everything” — that could draw millions of dollars from hedge funds and other investors. It is backed by millions in venture capital from some bold-faced Wall Street names including Sequoia Capital, discount brokerage founder Charles Schwab and private-equity magnate Henry Kravis.
So to them, this lawsuit is a business decision. Wagering on election futures is not a cause so much as a potential vertical. A regulator said no to one edgy element of its proposed business, so it is suing.
But the entire episode has given folks like Pratik Chougule, founder of the Coalition for Political Forecasting, the jitters. Chougule, host of the Star-Spangled Gambler podcast, said he believes putting this question before the courts now is a sure loser. He said the country isn’t ready and that there’s well-organized opposition to election gambling. Ralph Nader’s consumer protection group Public Citizen, the left-leaning think tank Center for American Progress, and some members of Congress fear its implications for election integrity and have rallied their followers against this.
That opposition must be softened by education and persuasion before anyone expects the courts to go there, Chougule said on an episode of his show this week. But the Kalshi lawsuit may short-circuit such efforts. He said:
“Every single intervention Kalshi has made, without exception, has moved the ball backwards, not forward. They’ve offered a handful of political markets on their site, very, very few, none of which have meaningful liquidity, none of which are unique or cannot be offered. But with that exception, the only thing that their intervention has done is provoke antibodies in the space, draw a whole bunch of people into engaging on this issue who had never even thought twice about this issue, provoked the CFTC to take intervention where they were perfectly content to leave it alone in kind of a stalemate.”
Political betting can help ensure election integrity
The situation reminds me a bit of the gay rights movement, where advocates moved so quickly in the 1990s to push so hard for and bring lawsuits over marriage equality that Congress passed the Defense of Marriage Act to prevent federal recognition. Eventually, the tide of public opinion turned sharply against LGBTQ discrimination and the U.S. Supreme Court, even with a slim conservative majority, made marriage equality the law across the country. But it happened because by 2015, LGBTQ people had made their cases to enough of their fellow citizens and shown them how absurd the opposition’s fears were.
Obviously, political gambling is not quite such a fundamental civil rights question. Nobody’s lives are seriously upended by the inability to place a bet on Joe Biden. It’s not as though friends and family will feel indignant for you over this sort of prohibition.
So in some ways, a court ruling that upholds the CFTC’s ability to regulate and ban political wagering would be even harder to undo. Who’s going to picket? Who, beyond the people who want to do this, will care enough to do anything about it?
It’s a shame because, far from creating problems for free and fair elections, political betting can help ensure election integrity. Some dramatic, unexpected shift in where the money is moving could be an early-warning signal for something funky going on — as it is in sports betting.
Plus, CFTC Chairman Rostin Behnam’s reason for opposing this isn’t even serious. Echoing a line he’s used before, last month he said:
“If there is a suspicion or an allegation of fraud or manipulation around an election, it then makes the CFTC essentially an election cop. And I’m not comfortable with that.”
That’s a ridiculous argument in light of the fact that since the early 1990s, the University of Iowa has been allowed to operate a small election market for research with wagers limited to $500 a person and New Zealand’s Victoria University is allowed to run another small market called PredictIt, which won a lawsuit against the CFTC this year after the agency tried to shut it down.
We’ve had some contested and painfully close races over the years both have operated. Never has the CFTC been forced to adjudicate the outcomes — not when Florida hung by a chad in 2000 and not when an incumbent president inspired an attempted coup to retain power. That’s because bettors agree to accept the contingencies and the definitions of what constitutes the outcome as written by bookmakers.
If Kalshi gets whooped in court, it could set a legal precedent that the CFTC could use to shut PredictIt down. The only reason PredictIt is still operating is because the CFTC had given it tacit permission in 2014 and last year tried to yank that away without sufficient explanation.
If the answer to the Kalshi action is that the CFTC has the power, it might no longer have to explain its decisions.
Political bettors could head to unregulated markets
Perhaps most importantly, all of this just leaves Americans vulnerable legally and financially when they do decide to bet on politics. Instead of legal, regulated markets, they end up on overseas sites where the interest in wagering on U.S. election outcomes is staggering. London-based Betfair.com handled more than $2 billion in bets on the 2020 presidential election, Wake Forest University economist Koleman Strumpf estimates.
Not that Kalshi cares. At least not as much as Chougule, who said:
“At the end of the day, Kalshi is a for-profit company. They don’t seek to be a political betting platform. They seek to be a company that offers event contracts on everything. [Political wagering] is one of many bets that they are making, one of many different avenues that they’re pursuing. They’re just trying to figure out what works. If it’s politics and elections, that works out great. If it’s something else, that’s great, also, from their perspective.”
Just not so great for the rest of us.
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