The New Frontier: Legal Betting on U.S. Elections
The momentous U.S. elections are upon us, bringing with them heightened political tensions and rampant speculation. Now, in a controversial twist, Americans can legally bet on the outcomes of congressional races. Following a recent court ruling, event contracts—essentially bets on outcomes—are now available for purchase. This development, however, raises numerous questions about integrity, ethics, and the potential for manipulation in an already polarized political landscape.
Court Ruling and the Emergence of Event Contracts
On October 2, 2023, the U.S. Court of Appeals upheld a ruling that allows fintech startup Kalshi to sell event contracts related to congressional elections. The Commodities Future Trading Commission (CFTC) had previously sought to block these contracts, labeling them as akin to gambling—a classification that remains illegal in many states. However, the courts decided in favor of Kalshi, asserting that electoral outcomes do not fall under the purview of gambling as understood in traditional terms. The ruling has since paved the way for a new marketplace for betting on American politics.
Kalshi’s offering of “Congressional Control Contracts” enables citizens to place unlimited amounts on which party will dominate the House of Representatives or Senate. Even more remarkably, they have begun offering contracts on presidential outcomes as well, expanding the betting landscape significantly.
The Growing Appeal of Political Betting Platforms
With Kalshi’s introduction of political event contracts, the market is set to expand rapidly. Major brokerages like Interactive Brokers and Robinhood are now entering the fray. To put this into perspective, Interactive Brokers boasts over 3 million accounts, while Robinhood has nearly 11 million. These platforms will amplify the availability of political betting, making it accessible to a much broader audience than niche platforms like Bovada or Polymarket, which have historically operated outside conventional oversight.
The influx of mainstream financial institutions into the political betting space indicates a significant shift. It not only legitimizes political event contracts but also normalizes the act of staking money on electoral outcomes—a previously unimagined venture for many Americans.
Risks of Election Manipulation
While the financial allure of betting on elections might be tempting for some, the risks it presents to the electoral process are alarming. Derivatives and futures markets serve specific economic functions, primarily risk management for commodities. By contrast, political betting lacks such utility, raising questions about its broader implications. The CFTC has, in essence, admitted its inability to monitor or regulate this new system, stating that it does not have the resources to serve as an “election cop.”
This void could lead to dangerous manipulation of the electoral landscape. Betting trends might skew perceptions of electoral viability, potentially leading to lower voter turnout. Just as a lopsided score in a sports match can discourage viewers, a significant disparity in betting could dissuade voters from participating. If one political party is heavily favored in betting markets, it could create a self-fulfilling prophecy, indirectly influencing actual electoral outcomes.
A Fractured Credibility Landscape
The implications of legalizing betting on elections may extend beyond mere voter turnout. Such betting markets could further erode the already fragile confidence Americans have in their electoral process. In an age where claims of election fraud abound, the introduction of political betting raises red flags about possible exploitation and misinformation campaigns.
As the U.S. grapples with questions of integrity and trust within its democratic processes, introducing a betting market may only fuel division. The cynicism surrounding elections could deepen, leaving lingering doubts about the legitimacy of outcomes.
Conclusion
The stakes in American elections have reached new heights, now magnified by the ability to bet on outcomes legally. While the transparency provided by event contracts could offer insights into the political landscape, it may come with severe pitfalls. As experts and lawmakers analyze this unprecedented shift, the challenge lies in balancing opportunities for engagement with the necessity of preserving the democratic process.
In the throes of an already contentious political climate, the fusion of finance and politics through betting is a development that warrants careful scrutiny and, perhaps, immediate recalibration to ensure the integrity of future elections. Melinda Roth, a visiting associate professor at George Washington University Law School, echoes these concerns, urging a precautionary approach as we navigate this uncharted territory in American democracy.
