In a significant development, the U.S. Court of Appeals for the District of Columbia Circuit has lifted a previous block, allowing Americans to bet on the outcome of congressional elections. This decision, centred around the prediction market KalshiEx, follows challenges from the Commodity Futures Trading Commission (CFTC), which had argued that election betting could pose a threat to the integrity of U.S. elections.
The court, however, ruled that the CFTC failed to substantiate its claims that betting on election outcomes would harm the democratic process. The ruling now allows KalshiEx to resume offering derivative contracts based on political party control in Congress after the 2024 elections.
Background of the Case
The case stems from KalshiEx’s attempt to list what it calls “Congressional Control Contracts.” These contracts allow users to place bets on which political party will control the U.S. House of Representatives or the Senate.
The CFTC had previously blocked KalshiEx from offering these contracts, citing concerns that such betting could lead to political misinformation or incentivise manipulation by individuals seeking to influence public perception. The regulatory body asserted that these concerns fell within its authority under the Commodity Exchange Act, which allows it to prohibit contracts deemed not in the public interest.
KalshiEx, however, challenged this prohibition, and the matter landed in court. A lower court initially ruled in favour of KalshiEx in September 2023, stating that the contracts did not violate the text of the Commodity Exchange Act.
The CFTC immediately sought to block this ruling by appealing to the D.C. Circuit Court, which temporarily stayed the lower court’s decision while it considered the appeal. Now, with this latest ruling, the court has denied the CFTC’s request for a stay, allowing KalshiEx to continue its operations—at least for the time being.
The Court’s Decision
The D.C. Circuit Court’s decision focused on the lack of substantial evidence provided by the CFTC to support its claims that election betting could negatively impact election integrity. Writing for the three-judge panel, Judge Patricia Millett explained that while the concerns raised by the CFTC were understandable, the agency had not proven that the risks were likely to materialise.
According to Millett, the CFTC’s arguments remained speculative and did not justify the continued prohibition of KalshiEx’s Congressional Control Contracts.
Millett further noted that the CFTC could still present additional evidence in the future if election betting on KalshiEx were to lead to real threats to the integrity of U.S. elections. She mentioned that if, for instance, foreign traders managed to bypass KalshiEx’s restrictions and participate in the betting market, the CFTC could renew its bid to stop the contracts. However, as of now, the court has allowed KalshiEx to resume its services, emphasising that the agency’s concerns have not yet risen beyond the speculative level.
Election Betting: A Controversial Issue
The idea of betting on elections has long been a contentious issue in the United States. While election betting is not explicitly illegal at the federal level, it is banned in several states, including Texas and Nevada. The concern from regulators has primarily centred around the potential for betting markets to influence voter behaviour or spread misinformation.
The CFTC’s main argument in this case was that allowing betting on congressional elections could create incentives for individuals or groups to manipulate public opinion. For example, traders might spread false information about a candidate’s chances of winning in order to affect the odds and, by extension, influence the outcome of the election itself. Such practices, according to the CFTC, could undermine the democratic process by distorting voters’ perceptions of political races.
However, proponents of election betting argue that prediction markets like KalshiEx can serve as useful tools for gathering information about election outcomes. They point to the fact that prediction markets have been used in other countries to gauge the likelihood of political events, and these markets have often proven to be accurate predictors of election results.
Moreover, they argue that betting on elections is no different from betting on other future events, such as sports or the stock market, both of which are legal in the U.S. under regulated conditions.
What’s Next for Election Betting?
With the D.C. Circuit Court’s ruling, KalshiEx has been granted temporary permission to resume offering election betting contracts. A spokesperson for the company has indicated that betting on election outcomes could begin “very soon,” although no specific timeline has been given.
This could allow users to place wagers on the outcome of the 2024 congressional elections, potentially adding a new element of excitement and speculation to an already highly charged political environment.
It is important to note that the legal battle over election betting may not be over. The CFTC still has the option to continue its fight against KalshiEx by gathering more evidence to support its claims. Should the agency find concrete examples of election betting leading to manipulation or foreign interference, it could return to the courts to renew its efforts to block these contracts. Until then, however, KalshiEx is free to operate its betting market.
