Wagering on elections in the United States using event contracts may now seem like an established thing – after all, millions were bet this past November – but there is still an effort ongoing in the courts to put a stop to that action.
The latest chapter in that legal saga was an hour-and-a-half of oral arguments made on Friday before judges of the U.S. Court of Appeals for the D.C. Circuit involving a lawsuit between the Commodity Futures Trading Commission (CFTC) and prediction market Kalshi.
Kalshi prevailed in a lower court last year after a D.C. District Court judge found contracts tied to the outcome of congressional elections did not involve unlawful activity or “gaming,” and therefore did not trigger a “special rule” allowing for CFTC review.
Viva Las Elections
Rob Schwartz, general counsel for the CFTC, said on Friday that “to build and maintain a thriving derivatives industry that is distinct from the gambling business has been the work of 175 years.”
The special rule regarding the review and approval of event contracts is a part of that effort, Schwartz said. The regulator is asking the appeals court to help it continue the work by vacating the lower-court judgment.
“The reason we're here today is because a federally regulated exchange has turned itself into an online casino for betting on elections,” Schwartz said. “The question for the court, though, is not whether that's right or wrong, but whether the CFTC can even evaluate that activity.”
The CFTC believes the text of the rule gives it that right. Kalshi, however, believes the lower court got it right.
Moreover, Yaakov Roth, a partner at law firm Jones Day who appeared on behalf of Kalshi on Friday, said that the “policy arguments” in favor of prediction markets include “legitimate hedging and economic needs” and the “informational value” they provide to the public.
“The commission's interpretations of the statute are untenable and lack any meaningful limiting principle,” Roth said. “I certainly understand the policy arguments, both for and against election prediction markets. But the question here is: Did Congress empower the commission to prohibit them?”
What now?
Friday’s arguments will be followed by a decision by the appeals court at some point. Depending on the ruling, the status quo for wagering on U.S. election odds – currently permitted at Kalshi and other federally regulated exchanges – could remain in place or be disrupted.
For now, though, Kalshi and others are in the clear. The popularity of wagering on elections and other events also continues to grow, so much so that it is arguably a form of competition for state-regulated online sports betting sites such as DraftKings, which is considering a prediction-market business of its own.
The CFTC is appealing a lower-court ruling on a lawsuit filed by Kalshi that opened the door to wagering on U.S. election odds – something state-regulated sportsbooks cannot do – through federally regulated event contracts.
Kalshi’s lawsuit was filed in response to the CFTC’s decision in 2023 to prohibit the company from offering event contracts involving congressional elections. The CFTC did so because the commission determined the contracts would involve unlawful activity and “gaming,” and would be contrary to the public interest.
However, last year, D.C. District Court Judge Jia Cobb ruled the CFTC overstepped its powers with the order and that Kalshi’s contracts do not involve unlawful activity or gaming.
“Although the Court acknowledges the CFTC’s concern that allowing the public to trade on the outcome of elections threatens the public interest, this Court has no occasion to consider that argument,” Judge Cobb wrote. “This case is not about whether the Court likes Kalshi’s product or thinks trading it is a good idea. The Court’s only task is to determine what Congress did, not what it could do or should do. And Congress did not authorize the CFTC to conduct the public interest review it conducted here.”
There is a 77% chance more people view Trump's second inauguration than his first pic.twitter.com/5wUvCi6Ee0
— Kalshi (@Kalshi) January 17, 2025
After a bit more legal wrangling, Kalshi was free to offer de facto wagering on last November’s election. The prediction market has rolled out an ever-increasing assortment of contracts since then, plenty of which involve politics or elections.
Others offered election-related contracts or are looking to get in on the prediction market action on an ongoing basis, such as Crypto.com, which launched sports event contracts before Christmas.
The CFTC has also pushed back on those contracts, but with a change in leadership looming and a member of the Trump family now advising Kalshi, it's possible the regulator could take a different approach to prediction markets.
Even so, the battle over election wagering in the U.S. is set to continue this year through the courts, Congress, and in the public discourse.
