I can’t watch a basketball game on TV without seeing ads urging me to place a bet on one app or another.
I can’t walk down the street in New York City without seeing ads about the latest lottery jackpot.
And when I sit at my desk in the office, I spend hours studying another type of betting — trading in financial markets, where you can place wagers on companies, bonds, commodities and derivatives of all descriptions.
Yet the most consequential betting of all — wagers on elections in the United States — may soon be shut down by regulators.
The Commodity Futures Trading Commission has ordered a ban on such betting on the financial exchanges known as prediction markets, where it’s possible to make wagers on who will win the 2024 presidential election and on a host of other matters. And the commission’s proposed new rule would give it the power to block trading on a broad range of other subjects.
Even so, the prediction markets, which allow people to place bets on the outcome of a wide range of events, including American elections, are fighting back in the courts. And despite the regulatory crackdown, many markets are open and running.
I’ve used prediction markets for years — never for trading but as a source of information gleaned from prices that represent the collective wisdom of thousands of people. All market pricing needs to be analyzed with a heavy dose of skepticism, of course, yet these markets are a useful adjunct to polls, economic and political models and traditional reporting, especially in a fraught election year like this one.
“Prediction markets on elections and other economically meaningful events have much greater social utility than essentially every other form of gambling that is currently legal,” Eric Zitzewitz, a Dartmouth economist who has studied these markets extensively. “We learn nothing from a crap game, and very close to nothing that’s economically interesting from sports betting. But having a market price the odds of economically meaningful political outcomes is extremely valuable to those who are affected by them.”
The Proposed Rule
The Commodity Futures Trading Commission proposed a new rule on May 10 that would permanently ban betting on elections using commercial prediction markets in the United States, and would narrow the scope of other subjects available on these trading platforms.
Rostin Behnam, the chairman of the C.F.T.C., said in an interview on Wednesday that he was sympathetic to the idea that the markets have social utility, especially in an election year.
But, he said, it’s urgent to rein in the markets now because “there has been an exponential growth in the contracts that are, or want to be, listed” on commercial exchanges. If they are left unchecked, he said, the commission could find itself in the position of needing to investigate allegations of election fraud that could alter the prices of election prediction contracts. Big money is in play in U.S. elections, he said, and “election integrity and the democratic process” need to be protected.
The proposed rule would also prohibit placing wagers on prediction markets on less weighty subjects than national elections. Prohibited areas include the Oscars and other awards, sports and sports-connected events and unspecified subjects broadly classified as “gaming” — a word that I usually translate as gambling but that the commission has been using more broadly.
The new rule uses “gaming” to ban a vast, undefined array of categories, and the prospect of that broad expansion of authority has drawn fire from members of the commission itself. In a dissenting opinion, one commissioner, Summer Mersinger, said the proposal amounted to “brazen overreach” and needed to be thoroughly revamped.
State and Federal Jurisdictions
Betting is wildly popular in the United States. And in many forms, it’s entirely legal.
Online sports betting falls under state, not federal, jurisdiction, and in 2018 the Supreme Court ruled that prohibitions on sports betting at the state level were unconstitutional.
States don’t merely regulate the lotteries that are now offering frequent, huge jackpots — they run them.
Commercial prediction markets in the United States are another matter. Like other financial markets, they are regulated at the federal level and subject to U.S. law. Trading on the outcome of events deemed to be against the public interest — like terrorism, assassinations and war — is already prohibited by the Dodd-Frank Act of 2010. The commission would go much further than that with its proposed rule, which is open for comments for at least 60 days and subject to revision before a final vote.
While the commission deliberates, national prediction markets are still in business.
Open Markets
Americans can place wagers on who will win the presidential election on PredictIt, an academic project of the Victoria University of Wellington in New Zealand. The market is run in the United States by Aristotle, a for-profit American political consulting, compliance, data and software company. The C.F.T.C. has been trying to shut down the site, while PredictIt contends in court that its market is entirely legal. It continues to operate thanks to a court injunction.
Based on the betting on PredictIt, President Biden and former President Donald J. Trump are in a dead heat, though Mr. Trump leads in most polls. A smaller scale market run as an educational project by the University of Iowa under an academic exemption from the commission shows Mr. Biden as the likely victor. The Iowa market is unaffected by the commission’s crackdown on commercial markets.
Offshore prediction markets provide a different perspective. Polymarket, which accepts only cryptocurrency, shows Mr. Trump ahead, as do betting sites in Britain and Canada that, like Polymarket, bar U.S. residents.
Precisely because U.S. residents aren’t supposed to be voting in those offshore markets, I haven’t used their data nearly as much as the information supplied by markets like PredictIt, which are open to U.S. voters.
These onshore, regulated U.S. markets have had an excellent forecasting record, numerous academic studies have shown. But the legal cloud hanging over PredictIt has limited the site’s reach this year. “We haven’t put up the full panoply of markets on congressional races and Senate races that we want to put up,” said John Aristotle Phillips, the chief executive of Aristotle. Once PredictIt’s legal issues are resolved, he said, “we hope to be doing much more.”
Another prominent prediction market is Kalshi, a full-fledged commercial U.S. financial exchange — known formally as a designated contract market. It’s also fighting in court for the right to operate political markets.
Kalshi has held back on running any election markets because the commission denied its application for one on congressional elections in September, Tarek Mansour, Kalshi’s chief executive, said in an interview. “We are respectful, we are trying to do everything the right way, but we are fighting these unreasonable restrictions in court, and we will win,” he said.
Kalshi already offers betting on a dizzying range of events and issues. You can place wagers on the prospects for inflation, unemployment, interest rates and mortgage rates. And you can bet on the chances that university presidents will lose their jobs, that cryptocurrencies will hit price records, that specific companies will lay off employees or that President Biden’s approval rating will rise or sink. Every week, it seems, you will find new subjects open for wagering.
But Kalshi’s markets on Oscar nominations, Grammy Awards and Nobel Prizes would presumably have to shut down if the rule, as currently written, goes into effect. How many others would be permitted is unclear.
The Future
The C.F.T.C. is trying to establish a final rule by the end of the year — and to stop the election betting on PredictIt, to prevent it from starting on Kalshi and to curb the trading on Kalshi’s site. At the same time, however, offshore trading is growing.
Betting on elections in the United States has a long history. I believe it will never stop. If it isn’t done on regulated platforms in the United States, it will happen elsewhere, but the data on offshore and black-market betting is unlikely to be as useful to academics and journalists.
I asked Mr. Behnam, the commission chairman, whether he was concerned about that prospect.
“My goal is to raise the bar for regulation in the United States, not lower it,” he said. “If people want to go offshore where there’s lighter regulation, that’s up to them, but that’s a narrative that’s been around for decades.” It’s more important, he said, to do the right thing, and to protect investors, voters and democracy.
I can’t argue with that sentiment. Yet I still hope that U.S. election prediction markets — with strong, sensitive regulation — will be prospering, and delivering useful information, for years to come.