Kalshi’s Political Betting Rejected by U.S. Regulator

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The U.S. Commodity Futures Trading Commission (CFTC) has rejected a proposal from predictions marketplace Kalshi LLC to introduce “cash settle political event contracts” – aka political betting.  

These contracts would have allowed U.S bettors to wager on the outcome of which political party would control the U.S. Congress, as well as other political wagers. This type of U.S. online betting is a controversial one, and has been for years.

Earlier in 2023, a group of Democrat Senators penned an open letter to the CFTC, asking them to reject the proposal.

Kalshi had argued that an exemption granted to nonprofit political research firm PredictIt for political wagering, should also be granted to them.

However, the CFTC did not agree.

“After reviewing the complete record, the CFTC determined the contracts involve gaming and activity that is unlawful under state law and are contrary to the public interest,” the regulator said, announcing its decision late last week.

Not An Election Cop

Kalshi’s proposal, submitted in June 2023, aimed to enable users to place bets on yes or no questions regarding the control of the House and Senate by Republicans or Democrats in specific terms.

It suggested that it had up to $100 million in potential wagers lined up. However, speculation was that the CFTC was not keen, and this has now been confirmed.

CFTC Chair Rostin Behnam highlighted the challenges of such contracts.

“It makes sense for the CFTC to have authority to combat fraud, manipulation, and false reporting in underlying commodity markets,” he said.

“But it is impractical for the CFTC to combat them in the underlying market here—a political contest.”

The regulator had previously said that if it was look over the markets and ensure fairness, it would be acting as a form of “election cop”. Which, it says, is entirely beyond its mandate.

Industry Reactions

Tarek Mansour, CEO of Kalshi, was understandably disappointed. He was in “fundamental disagreement” with the ruling, he said.  

“It’s a known fact that radical innovation often requires time to be understood and accepted.”

He drew parallels with financial innovations like exchange-traded funds, grain futures, and insurance, which initially faced skepticism but later became integral parts of the financial system. Despite the setback, Mansour remains hopeful about the future acceptance of Kalshi’s vision.

However, the CFTC’s decision has its supporters.

Dennis Kelleher, CEO of consumer advocacy organization Better Markets, was committedly behind the decision.

He pointed out the potential risks to election integrity and violations of the Commodities Exchange Act posed by Kalshi’s proposal.

“These markets are not intended or designed to be casinos for wild speculation-only bets,” Kelleher said. “That’s why the law places limits on how much people can speculate, or gamble, in these markets.”

The Senators who wrote against the proposal last month also highlighted the potential to further public distrust in an already-fractured U.S. political climate.

“If citizens believe that the democratic process is being influenced by those with financial stakes, it may further exacerbate the disenfranchisement and distrust of voters already facing our nation,” the letter said.

At the same, time countries like the UK and others have offered election betting for years without any major problems.

For now, US bettors wanting to wager on elections or other political bets will be limited to the top offshore sportsbooks, many of which offer such markets.  

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