Betting Startup Sues Feds After Election Markets Plan is Rejected

Maybe all bets aren’t off in American politics.

Financial exchange startup Kalshi has sued the Commodity Futures Trading Commission, arguing that the regulator overstepped its authority when it rejected Kalshi’s proposal to launch an elections-based betting scheme in the US, The Wall Street Journal reported.

Capitol Gains

The only thing possibly more competitive and polarizing than sports is politics. And Kalshi wanted to take that same real-time sports-betting energy and create a market for derivatives tied to congressional elections. On the company website, Kalshi says “Elections are for the people, and election markets should be as well.” The proposed market would allow businesses with a demonstrated need to hedge political risk to trade as much as $100 million in bets.

But the CFTC said no. During the 2020 presidential election, West Virginia allowed political betting for just one hour on FanDuel before reversing the decision. In that short time, the company handled only one bet. Bizarre instances aside, political betting is illegal in several US states, which the CFTC cited when it rejected Kalshi’s proposal.

Kalshi, which is led by two MIT grads, isn’t backing down without a fight, though:

• In the complaint filed with the US Court of Appeals for the DC Circuit Wednesday, Kalshi called the CFTC’s rejection “arbitrary, capricious and otherwise contrary to the law.”
• At a previous event, CFTC Chairman Rostin Behnam said he wasn’t comfortable having his agency police such a market. “If there is a suspicion or an allegation of fraud or manipulation around an election, it then makes the CFTC essentially an election cop,” he said.

Place Your Bets: Some colleges and universities run similar markets that are mainly used for research and cap wagers at just a few hundred dollars. For the big money, Americans have to look overseas. London-based Betfair handled more than $2 billion worth of bets on the 2020 presidential election between incumbent Donald Trump and career politician Joe Biden, the WSJ reported. Election markets aren’t new, but if Kalshi’s eventually gets approved, it would likely be the largest.