Don't Allow Election Gambling

On Friday, the Commodity Futures Trading Commission (CFTC) banned companies from extending contracts (i.e. bets) on elections. “Contracts involving political events ultimately commoditize and degrade the integrity of the uniquely American experience of participating in the democratic electoral process,” said CFTC chair Roston Baynham. 

There are a couple of different startups – PredictIt and Kalshi most notably – that are offering gamblers betting contracts that allow them to effectively wager on the outcome of an election. In Europe, you can bet on the US presidential election. The CFTC said, “We disagree. We think there are real democratic risks to allowing this to continue. We're going to ban it.” And they did. 

The CFTC is right. Imagine if you could bet on a state senate election. The bet would probably have to be in primary because most general elections are not competitive thanks to gerrymandering. That means turnout will be around 10%, so we're typically talking 2,500 to 20,000 votes total depending on what jurisdiction you're in. 

If you were to place a bet of $5 million for one person to win a state senate election, with a $1 million independent expenditure campaign, you could materially increase your candidate’s odds to the point where the arbitrage becomes very much in your favor. You’re saying, “ Okay, I'm going to spend a million and I’ll risk losing the million bucks on top of the five million bet if my candidate loses.” 

But by spending the extra million – by blanketing the relatively few people who will actually vote with tv ads, radio, podcast, direct mail, digital ads, door knocking, phone banking, texting, emailing, and twenty other tactics – the odds of winning the five million are significantly higher. That brings us to a point where gamblers are effectively, massively influencing the outcome of elections. That’s a problem. 

You could argue, “Well, how is that different from current Super PACs and big business groups and unions and social groups and everyone else who are spending millions or tens of millions or even collectively, billions of dollars, to try to influence the impact of the election?” 

It's the same, but at least in theory, those groups are doing it because they believe in a mission, in a cause, in an issue, and they're trying to move that issue forward by electing people who agree with them. So there's some legitimacy to it. Whereas if it's purely Arnold Rothstein and the 1919 Chicago White Sox and you're like, “Hey, I'm just looking to see how to affect the trade with the slightest better odds for me. I don't care if it's a D or an R or an independent or whatever else,” you get to a point where the integrity of an election really is significantly undermined. 

Maybe the market would never evolve to a point where there would be sufficient liquidity to place a $5 million bet in a state senate race because not enough people care. But Congressional elections rest right at the pivot point where there might be just enough liquidity for an independent expenditure to work and strong enough incentives to be there for someone willing to try it. 

There are 30 or so House seats in swing districts this fall that could be determined in the general election. For those few races, a tremendous amount of money will be spent – maybe so much so that gamblers couldn't actually impact the outcome of it. But all 435 seats have primaries. And a lot of those see incredibly low turnout. That’s where the real vulnerability lies.

I was at the Mets game on Saturday. There were four guys in their 20s sitting in front of me. I noticed that one of them looked up at the out-of-town scoreboard at a Pirates-Cubs game.  One team was up 6 to 1. He was really upset. I don't think it's because he was a Pirates or a Cubs fan – it's because he had money on the game. It's stupid to bet on baseball, and it's especially stupid to bet on a Pirates-Cubs game in early May, but people do it. Would that guy potentially also bet on a house primary? He might, despite not understanding how any of the process works. He's not going to be the one to influence the outcome. He's not capable of that. But if he bets, he creates liquidity in the market. And with enough people like him, then someone else who does have the ability to change the outcome will get involved. And that’s where the integrity of the election becomes potentially compromised 

The one place where I think the risk probably doesn't matter is the presidential election, simply because it's so big. It's billions and billions of dollars spent, so third parties would have a hard time influencing the outcome. But depending how far down the electoral stack you go, the risk becomes significant. 

There arguably is one possible advantage to having these betting markets. In the same way that sports leagues have found that sports betting has stimulated interest and viewership, it could stimulate interest in elections and get more people voting. That sounds good. But making voting easier shouldn’t change the underlying reason for participating. My hope in our work around mobile voting is that people will choose to vote more if it's really easy, but they're still voting for the right basic civic reason. If you're solely voting based on the fact that you have money on this candidate or that candidate, that’s different. 

This is an issue that merits more discussion because in the same decision, the CFTC banned event contracts like betting on the Oscars, and that makes much less sense to me (the stakes are low, the electorate is fixed and very institutional, and the studios already run very aggressive campaigns). But based on my experience in running campaigns and also working and investing in the betting markets, letting people bet on most elections is a bad idea.