Before trading was paused, more than 20,000 bets had been sold on the question ‘Which party will win the House?’
The District of Columbia U.S. Court of Appeals has stayed a federal judge’s Sept. 6 ruling allowing a New York-based startup to legally allow wagering on 2024 elections outcomes on a domestic federally regulated gambling platform in the United States.
But it’s a good bet the stay will be lifted by November’s elections, perhaps as soon as Sept. 16.
The appeals court issued its freeze hours after U.S. District Judge Jia Cobb in Washington on Sept. 12 rejected a motion by the Comodity Futures Trading Commission (CFTC) to block Kalshi from launching the first unrestricted elections prediction market based in the United States.
Cobb had determined that the CFTC exceeded its statutory authority a week earlier when it issued a September 2023 order stopping Kalshi from posting its political event market because it is a prohibited gambling activity.
Kalshi challenged that order in a lawsuit that ended with Cobb’s ruling.
The judge, in her Sept. 6 ruling, said it is not up to Wall Street regulators to define “prohibited gambling activity,” and in her Sept. 12 denial of CFTC’s subsequent motion for a stay, she said Kalshi should be able to proceed should the commission opt to appeal.
Kalshi lets traders bet money on the outcome of various events, ranging from the future rates of inflation to whether ASAP Rocky will produce a chart-topping album this year.
In June 2023, it rolled out a proposed new product: cash-settled, binary contracts for congressional elections that would be in the form “Will (chamber of Congress) be controlled by (party) for (term)?”
The new market would allow various players, including hedge funds, to bet as much as $100 million on which political party would win control on Capitol Hill.
After Cobb rejected CFTC’s motion to stay, Kalshi put its elections market online.
Before trading was paused “pending court process” late on Sept. 12, more than 20,000 bets, or “contracts,” had been sold on the question “Which party will win the House?“
For the question “Which party will win the Senate?” more than 45,000 had purchased contracts.
In securing a stay from the appeals court for the District of Columbia Circuit, the CFTC noted that Kalshi’s elections market was up and needed urgently to be shut down.
“As trading commences on Kalshi’s election event contracts, even if only briefly, there is an acute risk of short-term manipulation of election markets and threats to election integrity,” the CFTC said in a filing seeking the stay.
Before the reversal, Kalshi co-founder Tarek Mansour said Cobb’s ruling was historic.
“The Kalshi community just made history, and I know we are only getting started,” he said in a statement. “Now is finally the time to allow these markets to show the world just how powerful they are at providing signal amidst the noise and giving us more truth about what the future holds.”
There are plenty of online opportunities to wager on elections on sites such as Polymarket, a New York-based platform that cannot accept wagers from within the United States, and offshore sites such as New Zealand-based PredictIt, which imposes strict spending limits.
Proponents argue that the political wagering these sites facilitate isn’t as much gambling as it is predictive science that could be valuable in gauging voter sentiment.
University of Pennsylvania Wharton School of Business professor David Rothschild is among those who say such markets may be a better indicator of election results than raw polling data.
Paul Krishnamurty, a British professional gambler who writes The Political Gambler blog, told The Epoch Times in 2023 that regardless of what regulators do, wagering on politics “certainly is a reasonably well-developed industry.”
“I think most people don’t realize how big and longstanding it is,” he said.
It’s been popular in the United Kingdom since the 1960s, he said, and political wagering was rampant in the early days of the American republic.
Those bets are more accurate than opinion polls in terms of Election Day results, Krishnamurty said, adding that perhaps predictive science could be a better way to govern.
“We basically believe that in order for humanity to make good decisions now and allocate resources effectively and so forth, that maybe the most elementary thing we have to figure out is how to predict the future. How do we know what’s on the horizon?” he said.
“In terms of elections, not only are the betting markets more accurate, but results are trackable in real-time.
“To me, the most interesting thing about it is not necessarily the accuracy. It’s just the speed at which you get feedback. There’s no way you can conduct polling fast enough to keep up with the latest breaking news. I mean, even it’s hard for reporters to really keep up with it.
“But, when you look at a betting market, you have thousands of people betting money. Just watching the price fluctuations in the market, I think, is the best [indicator] available to keep track of.”
Krishnamurty said it makes sense to believe people who put their money where their vote is.
“There is a well-established literature now that expert opinion tends not to be very good at forecasting. Polling is very unreliable,” he said. “It’s not the same talking heads on cable news, or whatever, who have a whole career of bad predictions.”