The political betting scandal that hit the United Kingdom ahead of the general election on Thursday could feel familiar to anyone who has paid attention to the recent trials and tribulations of professional sports in connection with legal wagering.
Major League Baseball, the National Basketball Association, and the English Premier League have all seen players investigated or disciplined over the past year for betting on their sport — a no-no even in the new world of legal, regulated, and widespread wagering.
British politics has been consumed of late with a similar situation. The U.K. Gambling Commission and law enforcement have reportedly launched an investigation into bets allegedly made on the timing of the election by police officers and officials from the governing Conservative Party (although the Tories may not be governing for much longer, according to the polls).
"Politics is about optics and this reflects badly on him, his career, Sunak, and the Conservatives."@Bobby_Seagull thinks the PM's aide Craig Williams should have thought about how a £100 election "flutter" would be perceived.
— Jeremy Vine & Storm Huntley on 5 (@JeremyVineOn5) June 13, 2024
Ann Widdecombe | @theJeremyVine | #JeremyVine pic.twitter.com/WKov3I1iZl
Someone, especially in the United States, may look at the U.K. scandal and wonder why wagering on elections is allowed at all given the potential for funny business. After all, election betting opportunities are limited by law in the U.S., and non-existent at regulated sportsbooks that may offer political markets outside the country. Why change that now, after seeing what has transpired across the pond?
But here’s a thought: What if a political betting controversy is a good reason to legalize and regulate election wagering?
“I'm sure they're going to try to use that argument as a reason why we shouldn't approve it,” said David Mason, general counsel for Aristotle International Inc., which helps operate the prediction market PredictIt. “But our case is going to be … that actually that incident makes the case for why we need well-regulated markets as opposed to a ban. Because those idiots could have gone on Polymarket [another predictions market] and placed the same bet and they would have never been caught.”
It’s an argument similar to the one often presented to state lawmakers when they debate whether to legalize sports betting. Everyone’s doing it already, they hear, but it’s happening offshore and with illegal operators. You’ve got no control or oversight, and you’re getting zero tax revenue. Why not make it legal, and then you’ve got a say?
That argument has proven convincing enough, as a majority of U.S. states now have some form of legalized sports betting. But wagering on elections remains a mostly verboten thing in the U.S., with PredictIt and the Iowa Electronic Markets being exceptions to that rule.
PredictIt has been trying to make the case for the value of de facto election betting in the U.S. for some time now, as it offers several markets wherein users can buy and sell shares in certain outcomes, such as the winner of the 2024 U.S. presidential election. For example, someone who bought a contract predicting Donald Trump will win this year's election at its price of 59 cents on Wednesday would be paid a full dollar for that share if that comes to pass.
The site is technically a research project of Victoria University of Wellington, in New Zealand, and operates under the terms of a “No Action” letter from the Commodity Futures Trading Commission (CFTC). PredictIt takes a share of profits from trading in its markets, but it also provides the data it gleans from all that buying and selling to academic institutions for free.
A busy time
While the no-action letter is still being fought over in the courts, the most recent and relevant decisions were in PredictIt’s favor, and it is doing brisk business in the meantime. On June 27, the day President Joe Biden and Trump squared off in a televised debate, PredictIt reported nearly 542,000 shares were bought and sold in its presidential election market.
Interestingly, though, PredictIt does not ban so-called “insiders” from wagering using its markets; it could theoretically make the data less accurate and useful. The Donald could buy and sell shares of himself if he wanted if he likes the look of the latest U.S. presidential election odds. What the site does instead to mitigate risks of markets being undermined by bad actors is place a cap on the shares anyone can buy, limiting investment in any one contract to a maximum of $850.
A majority of CFTC commissioners want that sort of election-related wagering to go no further. In May, by a 3-2 vote, the regulator proposed new rules for event contracts listed by CFTC-registered exchanges that would essentially ban trading on elections and sports.
“Contracts involving political events ultimately commoditize and degrade the integrity of the uniquely American experience of participating in the democratic electoral process,” chairman Rostin Behnam said in a statement. “Allowing these contracts would push the CFTC, a financial market regulator, into a position far beyond its Congressional mandate and expertise. To be blunt, such contracts would put the CFTC in the role of an election cop.”
The proposed amendments would not apply to PredictIt in its current form, as it is not regulated by the CFTC but merely operating an “experimental” market with the regulator’s blessing, Mason noted.
But Aristotle has applied for a license to operate a designated contract market, like the one run by Kalshi, which would be subject to CFTC regulation and would therefore be forced to abide by the proposed rule if it is finalized. Those CFTC-regulated markets could also prohibit insiders from participating, among other rules, such as those regarding market surveillance, which could identify odd trading patterns.
In other words, a U.S.-regulated exchange could have all the systems in place to catch meddling in election betting markets. It just may not be allowed to offer election markets at all. Meanwhile, U.S.-based bettors could continue to wager on U.S. elections anyway using offshore sportsbooks, such as Bovada.
“In the British context, we'd have seen that on our insider-trading report,” Mason said. “If they were to approve this regulation, and we ultimately win the court case [regarding the no-action letter], then that’s just going to take us back to the status quo two years ago, where you could have these market contracts on an experimental market and not on a regulated market.”
The system worked. Is that good enough?
In the U.K., the Guardian sparked the recent scandal after reporting last month that Prime Minister Rishi Sunak's parliamentary private secretary, Craig Williams, bet £100 on an election in July a few days before the PM announced just that.
“It is understood,” the newspaper said, “that a red flag was automatically raised by Ladbrokes as the bet in Williams’ name was potentially placed by a ‘politically exposed person,’ and the bookmaker is particularly cautious over ‘novelty’ markets.”
Stop me if you’ve heard this one before, but does that mean the system worked? After all, it’s alleged someone who perhaps shouldn’t have been wagering was identified by a regulated operator, and the information was passed on to the proper authorities.
The reporting sounds similar to what professional leagues have said in the wake of their various integrity scandals.
In April, for example, the NBA announced it banned Jontay Porter for life after an investigation found the former Toronto Raptor passed confidential information along to bettors, limited his participation in games for gambling purposes, and wagered on the league's games.
According to a press release, “suspicious bets involving Porter’s performance in the Raptors’ March 20 game were brought to the NBA’s attention by licensed sports betting operators and an organization that monitors legal betting markets.”
Put differently, then, the system worked. And it worked again when the NHL faced a betting-related incident of its own last year, which resulted in a 41-game suspension for Shane Pinto that did not involve wagering on the professional hockey league’s games.
“What's happened with legalized gambling is that the monitoring of betting, which was going on illegally, is much more rigorous,” NHL commissioner Gary Bettman said on CNBC last Friday.
Why not apply that same rigor to election betting, then? Aristotle, which Mason said is already a provider of know-your-customer technology to the gambling industry, is in the process of trying to demonstrate to the CFTC its proficiency in catching insider trading activity, which could theoretically apply to election bettors.
“You have to show that you can figure out who your customers are and prevent money laundering and stuff like that,” Mason said. “And then on the monitoring side, they actually have a demo where you have to be able to show them, ‘Here's what the data looks like going into our monitoring system, and here's a pattern that, for instance, would indicate possible insider trading, or other violations,’ and show them how your system would reveal that pattern, and then how you follow up on it. It's a very, very rigorous process.”
Again, then, why not allow election betting if there is so much going into catching and preventing wrongdoing?
Bookmakers are shortening the odds for Liz Truss's survival, with even a head of lettuce potentially having a longer shelf-life. Here's your Saturday briefing https://t.co/Ranf0X7n7p
— Bloomberg (@business) October 15, 2022
It doesn’t look like the U.K. — which has a wagering culture so mature and inclusive of politics that people could bet on whether former PM Liz Truss would last longer than a head of lettuce; the lettuce won — is going to ban betting on elections anytime soon. The U.K.-based bet365 had a large selection of markets up for the election as of Wednesday, such as which party will win the most seats and for the percentage of voter turnout.
Mason, the former chairman of the U.S. Federal Election Commission, suggested there is a “residual moral objection” to gambling in the U.S. that dates back to the country's Puritan forefathers. There is also some concern stemming from the 2020 election and the questions about its legitimacy lobbed by the Trump camp.
The recent integrity scandals regarding sports betting are also bound to scare lawmakers and regulators about any proposed expansion of legalized wagering to cover politics. NBA commissioner Adam Silver even used the recent Porter incident to start a conversation about limiting or restricting certain betting markets.
Yet U.K. lawmakers could face new restrictions on their ability to bet. PredictIt could also place the same sort of trading limits it currently uses for its experimental site for a regulated exchange, minimizing any risk of manipulation that could be attempted.
And, in the U.K., the suspicious activity was likely caught quickly because of the activity about the election date right before it was announced, in addition to the information regulated bookmakers have on and require from their bettors. Aristotle provides similar identity verification services to gaming clients, Mason noted.
“The incident in Britain illustrates precisely why these markets should be approved and regulated,” he said. “They knew exactly who placed the bets. And so all they had to do was say, ‘Well, wait a minute, these bets were suspiciously lucky. They picked the right date, just the day before the announcement. Let's see who made them. Oh, goodness, this parliamentary candidate made it.’ Well, I mean, that almost proves your case right there.”
