The Commodity Futures Trading Commission (CFTC) is rejecting KalshiEX LLC’s proposal to offer legal sports betting futures contracts based on party control of the US Congress.
In 2020, KalshiEX LLC received approval from the CFTC to operate as a Designated Contract Market – the first regulated market dedicated to trading event contracts. On June 12, Kalshi submitted a request to the CFTC to trade Congressional Control Contracts.
The payout on the contracts would be determined by the party affiliation of the leader of the identified chamber of the United States Congress on the expiration date. In the case of the House of Representatives, the leader is the Speaker of the House. In the case of the Senate, the leader is the President Pro Tempore. In its decision issued Sept. 22, the CFTC denied Kalshi’s proposal.
In an accompanying statement the CFTC said, “After reviewing the complete record, the CFTC determined the contracts involve gaming and activity that is unlawful under state law and are contrary to the public interest, and therefore, under section 5c(c)(5)(C) of the Commodity Exchange Act (CEA) and CFTC Regulation 40.11, the contracts are prohibited and cannot be listed or made available for clearing or trading on or through Kalshi.” The CFTC’s
On the social media site X, Kalshi CEO Tarek Mansour posted, “We are evaluating options and are considering what the best course of action is. We believe we are right and are considering what it will take to make the government see what we see.”
For now, Kalshi is not offering Congressional Control Contracts on its site. But there are plenty of other event-driven contracts for investors – including whether the US government will shut down on Oct. 2 or the winner of the Emmys Drama Series.
Pros and Cons of election bets
Kalshi isn’t the only operator looking to capitalize on political outcomes. The CFTC had allowed PredictIT to operate its political market contracts for eight years. Then suddenly, in Aug. 2022, the CFTC rescinded its permission and threatened to shut down the site. This month, the US Court of Appeals for the Fifth Circuit issued an injunction against that shutdown, giving PredictIT some breathing room.
Political wagering is common in the UK, Australia, and Canada. In fact, Betfair’s UK sports betting sites saw over 700 million dollars wagered on the 2020 US presidential election. In the US, however, political wagering has yet to find solid legal acceptance.
Foes of US electoral wagers worry about the incentives for spreading misinformation or election tampering. Proponents, however, argue that political markets are more predictive than polls and focus groups. They contend US political markets will provide valuable information.
There is also the likelihood that US bettors will seek out unregulated markets in the absence of legal alternatives. John Philips, CEO of Aristotle, a leading political research firm said, “If what regulators want is to force this activity offshore – where it’s not transparent, it’s not regulated, it’s subject to manipulation, and there’s no consumer protection – maybe they’ll get what they want.”
This latest decision by the CFTC is by no means settled business. Both PredictIT and Kalshi will be battling it out in the courts for the foreseeable future. But as the lucrative 2024 US election cycle draws near, this unsettled business may garner more proponents for regulation than prohibition.
