A U.S. federal appeals court has granted permission to Kalshi, an online prediction market, to resume offering contracts that allow Americans to bet on election outcomes. The U.S. Court of Appeals for the D.C. Circuit upheld a lower court’s decision, rejecting concerns raised by the Commodity Futures Trading Commission (CFTC) that such contracts could harm the public interest and compromise election integrity.
Kalshi, a New York-based platform, sought to offer these political event contracts to allow users to bet on which party will control the U.S. Congress after upcoming elections. The decision to permit Kalshi to resume this offering could pave the way for similar derivatives to be introduced in the future.
The Legal Battle with the CFTC
Kalshi initially sought approval from the CFTC in June 2023 to offer contracts allowing individuals to bet on the political composition of Congress. However, the regulatory agency prohibited the listing of these contracts, citing concerns that such activity could lead to unlawful gambling and interfere with the integrity of U.S. elections. Kalshi challenged the ruling, leading to a lawsuit that has now resulted in a favorable outcome for the platform.
The U.S. District Court in Washington, D.C., ruled in September that Kalshi’s contracts did not constitute unlawful gaming but were instead related to elections. Following this, the CFTC appealed the decision, arguing that the contracts could harm the electoral process. The federal appeals court, however, found that the CFTC had failed to provide concrete evidence that these contracts would likely distort elections. “The problem is that the CFTC has given this court no concrete basis to conclude that event contracts would likely be a vehicle for such harms,” the court’s ruling stated, according to Reuters.
Kalshi celebrated the ruling, with co-founder Tarek Mansour taking to social media to proclaim, “US presidential election markets are legal. Officially. Finally. Kalshi prevails.”
Concerns Over Election Integrity and Public Interest
Despite the court’s ruling in favor of Kalshi, concerns about the potential impact of political betting on election integrity remain. The CFTC, which has opposed the idea of political event contracts, argued that allowing these contracts would effectively turn the agency into an “election cop,” responsible for monitoring elections in ways far outside its financial regulatory mandate. CFTC Chairman Rostin Behnam has expressed fears that such contracts could erode public trust in the democratic process.
Stephen Hall, legal director at Better Markets, a nonprofit focused on financial market reforms, criticized the court’s decision, stating, “There is no way to undo the potential damage to the public interest of allowing bets in the final weeks of an election year.” Hall pointed to the growing use of social media, AI, and misinformation to manipulate voters and suggested that easy access to betting contracts could exacerbate these threats.
Kalshi’s Defense and Future of Election Betting
In defense of its platform, Kalshi has argued that offering political event contracts serves the public interest by providing accurate forecasting tools and enabling people to hedge against different political outcomes. Kalshi points to the success of other prediction markets like Polymarket, a crypto-based offshore platform where users have already wagered significant amounts on the U.S. presidential race.
During the appeals court hearing, Kalshi’s legal team emphasized that elections have tangible economic impacts, and the contracts offered on the platform allow users to hedge against potential shifts in political power that could affect business values. “The election itself causes certain companies to increase in value or decrease in value, that is the risk, and so to hedge that risk, you would want to buy an event contract,” argued Yaakov Roth, Kalshi’s attorney.
Although Kalshi has been allowed to resume its offering of election betting contracts, the legal dispute is far from over. The CFTC has been exploring broader regulatory actions against events-based betting, proposing a rule that would explicitly ban contracts on outcomes such as elections, awards shows, and sporting events. In May, Chairman Behnam highlighted a “significant uptick in the number of event contracts listed for trading by CFTC-registered exchanges,” warning that these contracts could extend the agency’s responsibilities beyond its intended congressional mandate.
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