U.S. regulators attempt to ban Predict and Polymarkets.
U.S. looks to ban election betting as traders flock to prediction sites
The CFTC’s crackdown on political futures contracts faces stiff resistance as some markets want to allow wagers of millions of dollars.
By Tony Romm
August 17, 2024 at 6:00 a.m. EDT
Even before President Joe Biden had announced his exit from the 2024 election, thousands of voters flocked to the website PredictIt last month, hoping to place bets on the other candidates who might win in his stead.
It amounted to an active week of trading on the political prediction marketplace, which fashions itself as a more accurate alternative to public polls. And federal regulators are looking to outlaw it.
The U.S. government has embarked on a broad crackdown against election betting, relying on a mix of newly proposed rules and ongoing court cases to try to stamp out a nascent industry that critics call a potential threat to democracy.
To Democrats, these wagers on the outcome of a particular campaign invite more money into an electoral system that’s already rife with it.But the staunchest backers of political prediction marketplaces insist that the fears of election interference are overstated — and that the insights gleaned from their data serve a greater purpose.
“To me, it is enormous corruption,” said Sen. Jeff Merkley (D-Ore.), who expressed fear that well-heeled political or corporate interests could someday come to think, “Hey, I will spend millions of dollars smearing some candidate to make sure the candidate I bet on wins.”
The regulatory push is the work of the Commodity Futures Trading Commission (CFTC), whose chairman, Rostin Behnam, has pursued rules that would ban election-related betting on commercial exchanges under its watch. Citing a lack of staff and resources, the agency has argued it is not equipped to serve as an election watchdog and monitor political markets for fraud or manipulation.
The CFTC ratcheted up its crackdown two years ago, moving to halt election betting on PredictIt, a nonprofit that has continued to operate even as it squares off with the government in court. Federal regulators last year also rejected an application from KalshiEx, a regulated exchange that permits users to place bets on a wide variety of future events, such as inclement weather and SpaceX rocket launches. Kalshi had hoped to allow wagers — up to $100 million, in limited cases — on party control of Congress. Denied by the government, it filed its own lawsuit against the CFTC.
“There is already money in politics,” said Tarek Mansour, the chief executive and founder of Kalshi, stressing his organization is different because it is more transparent than campaign contributions.
He later added: “Anyone who actually looks below the surface … comes out thinking these are net positives for society.”
At the CFTC, federal regulators see it much differently. The roughly 50-year-old agency chiefly polices financial derivatives, a world of complicated investment products whose value is derived from something else. Derivatives involve everything from the future price of grain to swaps between businesses pursuing advantages in currency exchange rates — and, lately, the probability of certain events occurring.
Event contracts, as they are known, can include bets on the winner of the Super Bowl or Grammys or on the likelihood of temperature increases, the cost of hurricane damage and other extreme weather. For traders, the products offer a way to hedge against risk: A business that could be dramatically affected by new U.S. tariffs on foreign goods could bet on their imposition, for example, as a way to offset future revenue losses.
As part of its mandate to oversee these markets, the CFTC can intervene to deny exchanges from listing products it deems dangerous, under a law that prohibits bets and payouts for predictions involving terrorism, assassination, war or gaming, or those that otherwise harm the public interest. Inundated recently with applications to offer event contracts, the agency unveiled rulesin May that would explicitly outlaw many forms of them — including bets on election outcomes.
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They want to ban them to make sure lying media can deceive the masses before elections