We Can’t Afford to Gamble on the 2024 Election

By Stephen Hall, Better Markets Legal Director and Securities Specialist

On January 6, 2021, we saw just how fragile our democracy is with the attack on the Capitol.  Given that seismic event, along with persistent misinformation about the 2020 election, the potential for foreign interference, and the development of powerful new technologies that can mislead voters with candidate impersonations, many Americans understandably have deep concerns about what’s to come in the November elections.  The election season is now in full swing so these issues are coming to a head.

In this fraught context, the last thing our democracy needs is a new financial instrument that enables widespread gambling on the outcome of our federal elections.  Yet that is what one promoter known as KalshiEX, LLC (‘Kalshi”) is attempting to offer.  It asked the Commodity Futures Trading Commission (“CFTC”) to approve an “event contract” that would allow traders to bet on who wins control of the House and Senate, permitting some speculators to wager up to $100,000,000.   

These contracts pose a host of dangers.  First among them is that gambling on elections would create powerful new incentives for bad actors to interfere with our elections and sway voters outside the democratic process. The use of AI, “deepfakes,” and social media to manipulate voters and influence election outcomes has already become all too real.  The potential to pocket windfall profits from an election gambling contract would undoubtedly intensify the danger of interference. 

And that’s just one of many threats. The market in Kalshi’s contract would be especially susceptible to hard-to-detect manipulation, unfairly harming other investors in the contract.  Moreover, countless retail investors would be enticed into these risky bets with the increasingly prevalent use of gamification gimmicks, causing widespread investor losses.  And if approved, they would cripple the CFTC’s ability to prevent a rash of similar gambling contracts—from wagers on local contests to Presidential races, multiplying the harm many times over.  At the same time, these contracts would not offer reliable tools for hedging against commodity price fluctuations or identifying market prices for the essential goods that Americans rely on in everyday life. And they would saddle the CFTC with the duty to oversee a new market that it is ill-equipped to regulate: the CFTC is the smallest, least funded, and most overwhelmed U.S. financial regulatory agency, and its expertise and mission focus on policing the multitrillion-dollar derivatives and commodities markets, not the electoral process.  

That’s why Better Markets has vigorously fought Kalshi’s proposal over the last two years. We sent detailed comment letters to the CFTC petitioning them to reject Kalshi’s bid. We also brought together a diverse coalition of partner organizations and lawmakers to speak out against gambling on elections. This included organizations like Americans for Financial Reform, Public Citizen, the Revolving Door Project, and more. We also encouraged lawmakers to get in the fight, and a number of prominent Congressmen and Senators sent their own letters in opposition to the proposed contract.  Sen. Jeff Merkley (D-OR) went a step further and published an op-ed in MSNBC. 

These efforts paid off in September 2023. The CFTC made the right decision and rejected Kalshi’s proposal, citing many of the same concerns we identified. But the story isn’t over yet.  On November 1, 2023, Kalshi filed a challenge to the CFTC’s denial in the U.S. District Court for the District of Columbia. On March 4, 2024, we submitted our own amicus brief offering legal and policy arguments in support of the CFTC’s rejection of Kalshi’s application.

In our brief, we wholeheartedly supported the CFTC’s decision on both legal and policy grounds.  We explained that Congress specifically foresaw the dangers posed by event contracts, and it authorized the CFTC to prohibit those contracts that pose the greatest threats.  Among them are contracts that involve gaming or activity that is unlawful under state law, and Kalshi’s election gambling contract clearly falls into both categories.  We also highlighted the harms catalogued above: undermining the integrity of our elections, victimizing countless investors, and opening Pandora’s box for future gambling contracts that are contrary to the public interest. 

The story of Kalshi’s attempt to allow gambling on elections exemplifies the best and the worst of the regulatory and policy process in financial market oversight. Profit maximizing companies will constantly push new financial products to make a quick buck, at the expense of investors and even jeopardizing our democracy.  But organizations focused on the public interest can rally concerned citizens and allies to steer policymakers in the right direction.  The CFTC answered the call and now it’s up to the court to affirm the agency’s wise decision.