On 5 November, US voters will elect a new president and decide a litany of other political issues. What makes this election different from past ones is that investors – and bettors – have pounced on the rise of political prediction markets such as Kalshi.
Prediction markets, or derivatives exchanges that offer “yes/no” event futures contracts on current events like politics and pop culture, have been around for several years in relative grey-area obscurity. But a recent US federal court ruling appears to have opened the floodgates, at least for now.
On 2 October, the US Court of Appeals for the District of Columbia ruled in favour of Kalshi, a New York-based exchange whose senate- and house-related contracts had been delisted by the Commodity Futures Trading Commission (CFTC) in June 2023. The CFTC argued unsuccessfully that the contracts involved gaming due to their speculative nature.
Kalshi, meanwhile, leaned into arguments that have similarities to those used for legalised sports betting. The company argued that regulated, legal marketplaces are safer than black- or grey-market alternatives. It highlighted the accuracy of real-time data tracking in a world of election misinformation. It also argued that financial incentives would translate to higher levels of civic engagement.
Kalshi eclipses $250 million in contracts
It will take time to truly assess the accuracy of those arguments. Yet one thing is clear right now: Americans have wasted no time placing their trades – or bets – on this year’s races. On 15 October, there were about $15 million (£11.5 million/€13.8 million) worth of political contracts on Kalshi. As of Sunday (3 November), that number had grown to over $250 million.
The presidential election is the largest market on the site, with $184 million in contracts as of 10pm ET Sunday (3 November). That number increases with each refresh of the site. Other markets with several million at stake include electoral college margins, popular vote predictions and individual state results.
Ironically, the contracts for which party will control the senate and house, which were the original futures targeted by the CFTC, are among the lowest-dollar markets. Both had generated less than $1 million as of Sunday night.
Millions on Kalshi, but billions elsewhere
For as eye-popping as Kalshi’s numbers are, they pale in comparison to the totals found elsewhere. The king of prediction markets is Polymarket, which was mentioned by name in court by both Kalshi and the CFTC.
Polymarket is a grey-area, crypto-based platform that has garnered more than $3 billion in political contracts for this cycle. It is also based in New York but is technically not available to US users due its own CFTC scrutiny. Unlike Kalshi, Polymarket is not registered with the commission, which would make it harder to become regulated, according to Fortune.
The other elephant in the prediction markets room is PredictIt. That platform is operated by the Victoria University of Wellington in Wellington, New Zealand. The university has contended that the platform is “a research and educational tool for the international research community”, but the CFTC moved in March 2023 to withdraw the “No Action Letter” under which the site was operating.
In a note to traders at the top of the site, it acknowledges the legal limbo currently surrounding the markets.
“PredictIt traders may continue to hold and trade existing contracts pending further consideration by the Fifth Circuit Court of Appeals and the CFTC,” the note reads. “There remains the possibility that a judicial or administrative decision may require early termination of those contracts. We have no certainty as to the timing of any such decision.”
PredictIt does not list the dollar amount of contracts like Kalshi and Polymarket, but it currently lists 10.9 million “active shares” on the presidential election. Unlike the other two, PredictIt has a limit of $850 per contract. Using that number as a baseline would indicate that there are billions in active shares.
From investing to trading to betting?
Now that Kalshi lays claim to the title of the only legal, regulated prediction market in the US, its messaging seems to have changed from what it argued in court.
In its defence against the CFTC, the company successfully argued that its contracts were an economic tool to hedge political risk. Its attorneys spent hours contesting the commission’s notion that the contracts involved gaming, and the words “betting” and “gambling” were supplanted with “investing” and “trading”.
Yet the bio for its X account now reads: “The first legal way to bet on the election in America.” In a video posted to its Instagram account on 14 October, CEO Tarek Mansour was interviewed about the platform while walking through Times Square.
“I’m the founder of Kalshi,” he said. “It’s actually an app and a website where you can bet on anything. We’re the first platform that legalised betting on the US election.” He then stops to admire a Kalshi billboard overlooking one of America’s busiest streets in New York, the largest legal online sports betting market by handle and tax revenue.
There have also been advertisements on the country’s busiest gaming street, the Las Vegas Strip.
At the 34-minute mark of a 26 October interview between famed comedian Tim Dillon and vice presidential candidate JD Vance, Dillon breaks off into a Kalshi ad. The ad script, like Mansour’s video, references the word “bet” throughout. But perhaps the most interesting part comes at the end, when Dillon relays the terms of an apparent promotional bonus like those commonly seen in online gaming.
“Sign up using kalshi.com/Tim and get a $20 bonus when you deposit $100 using the mobile app,” he said.
Speaking of the mobile app, it currently sits in first place on the “finance” chart of Apple’s App Store. It ranks ahead of Cash App, PayPal, Zelle, Venmo and other well-known financial platforms. It is sixth on the entire marketplace, ahead of Instagram, WhatsApp, YouTube, Facebook and others. Polymarket is at 32.
Unlike the of state-by-state framework of betting regulations, prediction markets are legal nationwide. This includes notable non-gaming states like California and Texas. The markets do not generate state tax revenue and despite the recognition of trading as a potentially addictive activity, there are no trading guardrails other than insufficient funds.
Robinhood enters the fray
When defending its decision to delist Kalshi’s contracts, the CFTC warned that more prediction markets would come if allowed. That warning came to bear on 28 October, when stock trading platform Robinhood announced it would offer election event contracts to US citizens.
As sports betting investor Chris Grove wrote on LinkedIn, Robinhood’s emergence could change the conversation. Its size and influence could start to make gambling stakeholders nervous, especially as the fights against sweepstakes and DFS 2.0 continue to take up most of the available head space.
“Robinhood towers over US online betting companies by many key metrics,” Grove wrote. “As of 2Q24, Robinhood had 24.2 million customers with funded accounts and 11.8 million active monthly users. Two million of those users pay a subscription fee to access premium features under Robinhood Gold…. For reference, FanDuel reported 3.46 million monthly users during 2Q24.”
Projection accuracy could be key factor for Kalshi, others
Ultimately, the accuracy of prediction markets’ projections could be a feather in their cap. Kalshi has asserted that its odds could be “a powerful tool to fight misinformation”. That said, there are big discrepancies between prediction odds and traditional polls.
On Kalshi, Republican candidate Donald Trump has been the favourite for several weeks. One exception came on 2 November, when Democratic candidate Kamala Harris took a brief lead before Trump went back in front. As of writing he is a 52%-48% favourite over Harris, but this lead was as high as 64%-36% on 29 October. On Polymarket, Trump is listed as a 54%-46% favourite over Harris.
Conversely, traditional polls have been much closer. FiveThirtyEight, an oft-cited statistical site, currently has Harris as a 48%-47% favourite over Trump. Harris has led the poll since late July. Harris is also a 49%-48% favourite in the New York Times poll and has led that poll since early August. Should Trump win and prove the prediction markets right, that could give them substantial legitimacy.
Limited industry response thus far
Multiple former gambling regulators declined to comment for this story, citing a lack of knowledge on the issue. The American Gaming Association has also previously declined to comment on prediction markets to iGB.
Overall, there has been limited response from the regulated gambling industry. This is in part due to how quickly things have ramped up following the appeals court’s decision, as well as the other issues currently dominating industry discussions.
But as Las Vegas-based consultant Brendan Bussmann argues, the change in messaging will likely start raising some eyebrows. The fact that Kalshi and others “are all over the place flaunting betting, but didn’t get approved as if they’re a bet,” he said, is problematic for a highly regulated industry like gaming. The discrepancy in this development between state and federal law also makes things murky.
“I don’t know of a state that doesn’t ban wagering on elections,” he said. “And that is completely contradictory to what is transpiring at the federal level. So at some point, somebody has to sit here and say which is right.”
In the weeks since the Kalshi ruling, the CFTC has said it will continue its fight against political contracts. It is said to have been developing new regulations specifically targeted toward those markets. Yet its failure to do so already was a key factor in judges’ decision to allow the contracts. Future legal battles are expected, but not before votes are cast in the most influential political event in the US and arguably the world.
