One of the few legal avenues for de facto election betting in the United States has reopened following a favorable court ruling for prediction market operator Kalshi.
The U.S. Court of Appeals for the District of Columbia Circuit issued an order on Wednesday unpausing a lower-court decision that allowed Kalshi to offer election-related event contracts for around eight hours last month.
The lower decision had been subject to an “administrative stay," and election betting at Kalshi had been paused pending the outcome of the court process.
However, once the latest decision was released on Wednesday, it didn't take Kalshi long to get back in the game.
The company had two election-related markets back up as of Wednesday afternoon, one for which party will win the House of Representatives this year and the other for which party will control the Senate.
"US presidential election markets are legal," tweeted Kalshi co-founder Tarek Mansour. "Officially. Finally. Kalshi prevails."
No harm, no foul
The Commodity Futures Trading Commission (CFTC) was seeking a full stay pending an appeal to the D.C. Circuit judges. The federal regulator, which oversees Kalshi and other designated contract markets, prohibited the company from listing election-related contracts in 2023, saying they involved gaming and unlawful activity and were contrary to the public interest. A district court judge disagreed in September of this year, which teed up the launch of Kalshi's congressional control contracts and then the administrative stay by the appeals court.
It was up to the appeals court to decide if a longer pause was necessary. In arguing for the stay, the CFTC warned of an “explosion” in election gambling that could ensue and hurt the public interest.
Interesting ruling. The D.C. Circuit appeals court decision today paves the way for Kalshi to re-offer de facto election betting, but leaves the door open for another pause if the CFTC can find some "cognizable harms" created by the event contracts, such as voter confusion. pic.twitter.com/YzSYMDlOT4
— Geoff Zochodne (@GeoffZochodne) October 2, 2024
Kalshi, meanwhile, argued that a stay could actually harm the public interest, as it would restrict U.S. election betting to unregulated exchanges.
The appeals court ultimately ruled against the stay on Wednesday, but it left the door open for another attempt by the CFTC if it can find proof of harm it can bring before the judges, such as contracts confusing voters about the strength of certain candidates.
“Because the Commission has failed at this time to demonstrate that it or the public will be irreparably injured absent a stay, we deny its motion without prejudice to renewal should more concrete evidence of irreparable harm develop during the pendency of this appeal,” Judge Patricia Millett wrote.
US presidential election markets are legal. Officially. Finally.
— Tarek Mansour (@mansourtarek_) October 2, 2024
Kalshi prevails. pic.twitter.com/jvObcQDczz
Kalshi may not be the only entity that offers de facto U.S. election odds.
At the moment, “experimental” prediction markets PredictIt and Iowa Electronic Markets offer election-related contracts as well, albeit in a relatively restrictive way.
However, trading platform Interactive Brokers was preparing to launch a presidential election betting market before the Kalshi decision was stayed. Now that the decision is no longer frozen, it could free IB and others to take action.
The launch of election markets on Kalshi and Interactive Brokers could help supercharge legal wagering on politics in the U.S.
That activity would have to come through entities like Kalshi, rather than regulated sportsbooks such as DraftKings or FanDuel, as is common in Canada and the United Kingdom.
This isn't over
Even though election betting may be back online at Kalshi, there is no guarantee that it stays there. The CFTC is appealing the lower-court decision and could even get another stay if the regulator is able to find enough reasons to justify another one.
Judge Millett wrote that the CFTC had "failed to make the essential showing of irreparable harm" needed for the stay, but that "such a showing is not out of reach."
The judge then rattled off a few examples, such as that political campaigns encouraging supporters to buy election contracts could be evidence of attempted manipulation.
"Foreign investors bypassing Kalshi’s restrictions on foreign traders, just as Kalshi claims U.S. investors are doing on Polymarket, could substantiate the Commission’s concerns about harmful interference," Millett wrote. "Or evidence emerging that election-contract markets confuse American voters about the strength or viability of certain candidates might also satisfy the Commission’s burden. Other evidence of harms could also emerge."
