The landscape of betting in the United States spans from sports and lotteries to financial trading, where individuals wager on stocks, bonds, and commodities. However, the most consequential type of betting—on U.S. elections—may soon face stringent regulatory restrictions.
The Commodity Futures Trading Commission (CFTC) has proposed a ban on election betting within commercial prediction markets. These markets, which allow individuals to place wagers on various outcomes, including the 2024 presidential election, are now in the regulatory crosshairs. The CFTC’s new rule would expand its authority to prohibit trading on a broad array of subjects beyond elections.
Despite this regulatory push, prediction markets are actively contesting the restrictions in court. These markets have long served as valuable sources of aggregated public sentiment, offering insights that complement traditional polling and economic models. While skepticism is always warranted when analyzing market prices, prediction markets provide a unique perspective, especially during election years.
The CFTC’s proposed rule aims to permanently ban election betting on commercial prediction markets and limit the range of other permissible subjects. Chairman Rostin Behnam expressed concern over the rapid growth of these markets and emphasized the need to protect election integrity and the democratic process. The new rule would also extend to less significant events such as awards and sports, categorizing them broadly under “gaming.”
This broad expansion of regulatory authority has faced opposition within the CFTC itself. Commissioner Summer Mersinger described the proposal as “brazen overreach” that requires substantial revision.
Betting is a popular and legal activity in many forms within the United States. State governments oversee lotteries and regulate online sports betting. However, commercial prediction markets, like other financial markets, fall under federal jurisdiction. The Dodd-Frank Act already prohibits trading on events deemed against public interest, such as terrorism and war. The new rule aims to extend these prohibitions.
While the CFTC deliberates, prediction markets like PredictIt continue to operate. PredictIt, managed by Victoria University of Wellington and Aristotle, a U.S. political consulting firm, has faced legal challenges from the CFTC but remains operational under a court injunction. Betting trends on PredictIt currently show a close race between President Biden and former President Donald Trump, although Trump leads in most traditional polls. The University of Iowa’s educational prediction market also forecasts a Biden victory and is exempt from the CFTC’s commercial market crackdown.
Offshore markets like Polymarket, which accept cryptocurrency, and international betting sites in Britain and Canada, show different trends, often favoring Trump. However, these platforms are not accessible to U.S. residents, limiting their utility for domestic analysis.
Kalshi, another prominent prediction market, operates as a regulated U.S. financial exchange. Despite being denied permission to run election markets, Kalshi continues to offer a wide range of betting options on economic and social events. CEO Tarek Mansour has vowed to fight the regulatory restrictions in court.
The CFTC aims to finalize its new rule by year-end, potentially shutting down election betting on PredictIt and preventing it on Kalshi. This regulatory push, however, may drive betting activity offshore, where it is harder to monitor and less useful for academic and journalistic purposes.
Chairman Behnam underscored the importance of stringent U.S. regulations to protect investors, voters, and democracy, even at the risk of pushing betting to less regulated offshore markets. While the sentiment behind the regulation is understandable, the hope remains that U.S. election prediction markets can continue to operate under a robust and sensitive regulatory framework, providing valuable insights for years to come.