Appellate court greenlights election wagering platform Kalshi in the United States
Kalshi, an online platform enabling users to wager on future event outcomes, resurfaced its congressional control agreements shortly following the verdict, enabling Americans to speculate on which party would control the House and Senate in 2025. The New York-based firm's intentions to introduce further election markets remains unclear.
In a unanimous decision on Wednesday, a tribunal asserted that the Commodity Futures Trading Commission (CFTC) failed to justify why it or the public would sustain irreparable harm as the appeal unfolds.
As expressed by Judge Patricia Millett for the DC Circuit Court of Appeals, despite escalating concerns about the futures contracts' potential impact on election integrity, whether legislative text justifies the CFTC's authority to prohibit these types of contracts is debatable. Furthermore, the court did not determine that election integrity risks are imminent if Kalshi is allowed to operate during the appeal process.
The court's decision enables the agency to reconsider requesting a delay should fresh evidence of irreparable harm surfaces.
Initially introduced on September 12, Kalshi's contracts drew public attention after US District Judge Jia Cobb in Washington denied the commission's petition to bar the platform from offering them. The CFTC immediately appealed the court's decision, subsequently initiating a temporary halt on Kalshi's offerings while the court considered the agency's request for a temporary pause.
Both Kalshi and CFTC representatives declined to comment on the situation instantly.
Tarek Mansour, a co-founder of Kalshi, commemorated the ruling on Wednesday.
"Legal US presidential election markets. Officially. Finally. Kalshi emerges victorious," he stated on X.
Stephen Hall, legal director and securities expert at Better Markets, an advocacy group promoting financial reform, described the court's order as a "sad and ominous day for election integrity in the United States."
"The application of AI, 'deepfakes' and social media to manipulate voter behavior and affect election results has already taken shape. Accessibility to election wagering contracts like Kalshi's will exacerbate the danger by promising quick profits," he explained in a statement.
Mansour has consistently underscored the benefits of the contracts, as they offer accurate data for election forecasting and allow users to hedge their bets on various outcomes. Additionally, Kalshi has pointed to the popularity of Polymarket, an unregulated, offshore prediction market that flourished following the CNN debate in June. Its users have already placed over $1 billion in wagers on the presidential race.
The court's decision was made just over two weeks after a hearing focused on whether to lift the temporary pause on Kalshi's congressional contracts. Throughout the hearing, judges questioned the CFTC on how market participation might sway the upcoming elections in November.
"I don't wish to exaggerate, but we live in a country where numerous millions of Americans believe the previous presidential election was rigged," CFTC General Counsel Rob Schwartz remarked.
Schwartz emphasized that political wagering contracts differ from "traditional futures contracts," which rely on "objective" indicators like a published index or government report. The sources feeding information into election markets can be "transparent yet ambiguous," such as polls with unpublished methodologies or misleading news reports, potentially making them more vulnerable to manipulation.
Yaakov Roth, Kalshi's legal representative, defended the platform's merits, underscoring the significance of elections in influencing various companies' stock prices.
"Elections themselves produce heightened economic risks for 'real people' who seek to hedge against these risk through event contracts suitable to accommodate and reflect these risks," Roth stated.
As the legal dispute with Kalshi continues, the CFTC is also pursuing broader crackdowns on event-based betting. In early 2021, the commission proposed an amendment explicitly prohibiting contracts on election outcomes, awards shows, sports, and other events.
CFTC chairman Rostin Behnam, explaining the uptick in event contracts offered by CFTC-registered exchanges, indicated that such actions would exceed the agency's legislative mandate and expertise.
In light of the court's decision, Kalshi now has the opportunity to expand its business in offering election market contracts, potentially attracting more users and revenue. However, the CFTC's intentions to further regulate event-based betting, including election markets, could pose challenges for Kalshi's future business operations.
