DLNews JTFM:

Handicapping control of Congress is always risky, with multiple forces at work and much at stake in terms of policy and power. Now, tens of millions of dollars could also be riding on the outcome of House and Senate races, thanks to a New York trading company’s request to allow derivatives betting on election outcomes. It’s a move drawing fire from pro-democracy groups and a coalition of progressive senators, who say it would introduce monetary incentives into politics. But those who support the effort say it is no different than wagering on sports events, which unpredictable factors can influence. A big gaffe by a candidate or a surprising result from a close race isn’t likely to change the outcome of an election, but gamblers can price those possibilities in.

The idea is to open up a regulated market for so-called political futures, contracts that promise to pay out depending on specific financial outcomes. The founders of the new exchange, Kalshi, argue that such hedging is legal and doesn’t involve gambling but offers investors protection against financial losses. Investors who forecast correctly are paid out based on a predetermined price, with the exchange taking a small fee.

While the federal government has never cracked down on such betting, making money in political futures has been challenging, mainly because of the difficulty of predicting electoral results. In addition, the CFTC has long treated political outcomes as tradable events, but only in minimal circumstances. A 1993 “no action” letter promised not to prosecute the Iowa Electronic Market, America’s only regulated political futures market, as long as bets were limited and the operation was run for research purposes.

In recent years, the CFTC has effectively shut down a New Zealand operation called Predictit and a U.S. exchange called Intrade, which had offered a similar service to the public. The agency argued that the offerings constituted “commodity futures” and, therefore, fell under federal law prohibiting the sale of bets on the “outcome of a contest of others.”

However, the CFTC might not monopolize this kind of wagering. A handful of states have legalized sports betting, and the Supreme Court just threw out PASPA, the federal ban on the practice. If those trends continue, it might be possible that the feds will lose their right to control betting on politics, as well. 

Until then, it may be best to avoid the temptation altogether. But there are other options for those who want to take the plunge. Many states are experimenting with legalized gambling, including online gaming and lotteries. And there is no reason why the United States can’t follow suit. The haze of regulations that enshrouds the issue makes it difficult to know if the federal prohibition on election gambling will ultimately prevail. Still, an enterprising state could see a big payout by launching an experiment now and fighting the feds later.

KalshiEX LLC : https://www.cftc.gov/sites/default/files/filings/ptc/22/08/ptc082422kexdcm001.pdf

Common Cause: https://www.commoncause.org/wp-content/uploads/2023/07/2023.07.24-Common-Cause-comment-to-CFTC.pdf

Senator Feinstein: https://www.merkley.senate.gov/merkley-colleagues-no-gambling-on-elections/

CFTC: https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7311