What traders are saying about new election-betting rules: 'I can put money on the candidate I don't want to win'

By Weston Blasi

Just hours after it began, legal betting on the outcome of U.S. congressional elections was put on hold by a federal appeals court

New York tech startup Kalshi began taking wagers Thursday on the outcome of some November elections - but just hours later, it was blocked from taking bets by a federal appeals court.

A judge on Sept. 12 had ruled that betting on elections could be allowed for the first time in the U.S.

Kalshi briefly opened its betting market, while investing platform Interactive Brokers said before the appeals-court ruling that it would launch election betting next week, according to the Wall Street Journal. Kalshi's wagers, technically referred to as "contracts," were essentially yes-or-no bets on which party would win control of the U.S. Senate or House of Representatives this November.

But with the appeals court having stepped in to block the bets, the back-and-forth in court is poised to continue, leaving customers speculating about what will happen next.

While there has been major interest in many forms of betting in the U.S. - about $390 billion has been legally wagered at U.S. sportsbooks since 2018 - how much interest is there from retail investors and traders in political betting?

"Awesome, now I can put money on the candidate I don't want to win," one Reddit user said about the promise of election betting. "That way if they do win I'm happy about them taking control of the WH and if they lose at least I have a cash consolation prize."

"I really don't like the sound of that. It cheapens the IBKR [Interactive Brokers] brand significantly in my view," another Reddit user said. "They don't need to do it. Election betting is perfectly fine staying in its lane of online betting and gambling services, and IBKR can do just fine by sticking to, you know, actual financial instruments."

"This is absolutely deplorable. Sometimes, IMO we are not a serious country," one X user said about the election-betting news.

See: Betting markets flip to expecting a Harris win over Trump after debate

Some advocacy groups have questioned whether it's a good idea to designate elections as events that people can wager on.

"Allowing Kalshi's political event contracts is a dangerous move that opens the floodgates to unprecedented gambling on U.S. elections, eroding public trust in both markets and democracy," Cantrell Dumas, director of derivatives policy at Better Markets, said in a statement provided to MarketWatch.

"The court's narrow interpretation of 'gaming' - limiting it to games for stakes rather than encompassing the broader risks of gambling - ignores the spirit of the Commodity Exchange Act and the very real threats of market manipulation and election interference," Dumas added. "This ruling prioritizes corporate profit over public interest."

If it seems like people are betting on everything these days, that's because they basically are. In addition to the introduction of sports betting in 2018, people have been betting on unknown future events like whether there will be a Federal Reserve interest-rate cut, the price of bitcoin, what gas prices will be next month and, now, election outcomes.

See: 'So inappropriate.' Dave & Buster's plans to allow gambling, and an Illinois lawmaker is trying to stop it.

The Commodity Futures Trading Commission, an independent federal body that last year prohibited companies from accepting these types of bets, was responsible for getting them temporarily blocked on Friday.

When the election trading was live, Kalshi was only offering wagers on congressional control and not the race for the White House - unlike PredictIt, which offers a wide-ranging number of events including who will win control of the presidency.

Outside of the U.S., Polymarket, which offers similar futures trading to Kalshi, offers contractual betting on elections and other events. While not available in the U.S., it has seen several hundred millions of dollars worth of bets on the November elections so far.

PredictIt CEO John Aristotle Phillips said he was "thrilled" with the original court ruling that allowed traders to buy contracts on elections, citing fairness and transparency.

"By engaging traders and giving people an outlet to have some skin in the game in a fair and transparent market, we are advancing democratic ideas and facilitating the democratic process," Phillips told MarketWatch.

Unlike PredictIt and Polymarket, Interactive Brokers and Kalshi are regulated by the CFTC.

Does this court ruling pave the way to bet on elections in the same way people bet on sports? Not exactly.

Many of these sites allow the trading of futures contracts, which don't look quite like betting odds for sporting events. Sports-style odds would have a "-120," for example, next to Kamala Harris or Donald Trump's name, instead of these yes-or-no contracts.

Election betting is legal in some areas outside the U.S., including the United Kingdom. European gambling site Betfair, which is owned by Fanduel parent Flutter Entertainment (FLUT), claimed it took in more than $500 million in bets on the 2020 presidential election, up from $281.9 million in 2016 when adjusting for inflation.

MarketWatch contacted several major U.S.-based sportsbooks this week, asking if they had plans to offer election betting in the near future. Many were not convinced that this ruling - even if courts eventually rule in favor of Kalshi - is applicable to their companies' infrastructure. Many of them expressed interest in offering political betting at some point in the future, however, if regulated properly.

"BetMGM would consider offering markets for politics in the U.S. if approved by regulators in states," a BetMGM spokesperson said.

Read on: This state made $2 billion in tax revenue from sports betting last year

-Weston Blasi

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09-13-24 1809ET

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