Keep bets away from the ballot box

The U.S. election is here, and it is now legal to bet on it. Last month, the courts cleared the way for Americans to buy event contracts, which is just a fancy way to say “place a bet on the outcome of the congressional elections.” Given the polarized political climate and the issues surrounding election integrity that we already face, allowing Americans to legally bet on the outcome of races is fraught with problems.
On Oct. 2, the U.S. Court of Appeals denied an emergency motion from the Commodities Future Trading Commission for a stay to prevent event contracts on the elections. The commission appealed the original decision from last month, allowing a startup fintech company, Kalshi, to sell such contracts and asked the courts to pause the market until the appeal is heard.
Kalshi is offering “Congressional Control Contracts” which allow American citizens to place an unlimited amount of money on the outcome of the election. These contracts specify which party will control the House of Representatives or the Senate. Now Kalshi is also offering event contracts on the presidential outcome, too.
The CFTC originally disallowed Kalshi, which is regulated by the commission, from offering election-related event contracts as the commission argued such contracts were akin to election gambling or gaming, which is illegal in many states. Kalshi went to the courts to argue this was arbitrary and capricious and contrary to law. The District Court agreed, and granted summary judgment for Kalshi on Sept. 6, reasoning that elections are not games and that gaming does therefore not apply to election contracts.
Once the courts legalized betting on the election, another brokerage, Interactive Brokers, immediately announced it would offer similar products. On Oct. 28, Robinhood followed suit. This is meaningful because Interactive Brokers and Robinhood are both significantly larger and better known than Kalshi. Interactive Brokers has over 3 million brokerage accounts, while Robinhood has almost 11 million, thus reaching a much greater number of customers. Other brokerages will certainly follow their lead.
There are numerous sources to place bets on U.S. elections, such as Bovada, an offshore gambling platform, or Polymarket, a crypto-based world event betting platform that has taken in almost $3 billion from the U.S. presidential election alone. But Kalshi, Interactive Brokers and the other mainstream financial institutions that likely will follow are bringing these bets to the masses.
The danger in all of this is the ability to use these betting markets to distort an election. Event contracts regarding an election do not serve the typical purpose of derivative products and the futures market. Those markets were developed mainly as hedging techniques to offset the risks of such commodity products. The CFTC has argued, in vain, that it does not have the resources or experience to play the role of “election cop.” But one must only remember the movie “Trading Places” to understand how frozen orange juice futures play a useful role in our economy. What useful financial role do such political event contracts play?
The easy answer is likely none. The easier answer is that this becomes yet another way to attack the credibility of our election process.
As if there is already not enough at stake in American elections, now we may have some try to manipulate the elections for potential financial gains. Instead of providing “real-time” polling data with the indicative amounts showing who is favored to win the election, this type of information may cause voters to stay at home and not exercise their right to vote the same way that people might not watch the end of a game when one team is winning with a lopsided score.
Given that Kalshi alone will allow bets as large as $100 million, such betting might become not only huge windfalls but also self-fulfilling prophecies. With the current Congressional Control Contracts, for example, if the “lines” show significantly more money bet on one political party over another, such information can affect not only possible voter turnout but also influence the election results.
While sports betting has become a burgeoning business since becoming legal in 38 states and the District of Columbia, it appears legal political betting is not far behind.
Melinda Roth is a visiting associate professor at George Washington University Law School.