Biden-Harris CFTC Bets It Can Ban Election Wagering

I f you’re following the ever-changing news about the 2024 election, you’re probably hearing a lot about odds: Betting odds on who will be the president, who will control Congress, and — prior to President Biden’s decision to drop out — whether one presidential candidate would finish the race.

Polling previously dominated political forecasting, but now, news outlets regularly cite betting markets such as PredictIt and Polymarket in measuring voter sentiment and the effect of events on political races.

Scholars of markets and politics across ideological lines argue that these wagering venues — often referred to as “prediction markets” — play essential roles in providing information to businesses and policy-makers about the likelihood of election results and effects on public policy. This is particularly true this election season. Election-forecasting expert Nate Silver — who recently became an adviser to Polymarket — writes that during this election season, “prediction markets are probably the more useful tool” because “political events have been unfolding faster than polls or models have time to catch up with them.”

Despite wagering venues’ prominent place in the election process, a federal financial regulator is now pushing to ban them from taking Americans’ bets. A sweeping regulation proposed by the Commodity Futures Trading Commission (CFTC) would explicitly ban wagering on the outcome of elections and other “event contracts.” The vote in May for the proposed rule was 3–2 along party lines, with all Democratic appointees — including Christy Goldsmith Romero, whom Biden recently nominated to head the scandal-ridden Federal Deposit Insurance Corporation — voting in favor. 

After the period of public comments ends on August 8, (those interested can file comments here), the CFTC will likely race to finalize the rule before it can be scuttled by a new administration. CFTC chair Rostin Benham claims a moral imperative to ban election-wagering contracts, and he paints a picture of them as corrosive to American democracy. “Contracts involving political events ultimately commoditize and degrade the integrity of the uniquely American experience of participating in the democratic electoral process,” Benham said after voting for the rule.

Yet advocates say betting markets democratize information about elections, noting that financial elites have long had the ability to put money on political races — and hedge the business risks of election outcomes — through complex financial instruments like derivatives. Election-wagering venues allow the public to utilize these strategies as well. Jason Furman, Harvard economist and chair of the Council of Economic Advisers in the Obama administration, writes in comments to the CFTC that “election-focused prediction markets combine the economic significance of a powerful risk reduction tool for small businesses with the social significance of a powerful forecasting tool for researchers and policymakers.”

Wagering on political races is legal with widespread public participation in many countries. In the United Kingdom, bookmaking firms have for decades taken bets on British elections. Sweden, Ireland, Canada, New Zealand, Germany, and Italy all let their people wager on election outcomes under a regulated system.

In the United States, election wagering has an extensive and curious history. Betting markets for elections have existed in various forms since the nation’s first political races, and there was a thriving market for election betting in the early-20th century. In that era, industry titan Andrew Carnegie was one of many who forecast elections by looking at the political-betting market. Commenting on the pending presidential election of 1904 between incumbent Republican Theodore Roosevelt and his Democratic challenger Alton B. Parker, Carnegie remarked, “From what I see of the betting [emphasis added]. . . , I do not think that Mr. Roosevelt will need my vote. I am sure of his election.” 

Yet in the decades since World War II, the legality of election betting has become murky. Congress never passed a law specifically banning election bets, but the Justice Department’s expansive interpretation of laws against sports betting casts uncertainty on the lawfulness of wagering on any and all types of events. And the CFTC, which regulates the nation’s futures markets, had been dragging its feet since the 1990s on approving venues and exchanges offering “event contracts” on the outcome of elections.

Yet the CFTC under the Obama administration began a trend toward liberalizing rules governing election-prediction markets. In 2014, the CFTC granted the request of wagering site PredictIt for a no-action letter assuring that the venue would not be in violation of laws by offering contracts on the outcome of elections. Under the Trump administration, the CFTC continued this liberalization, with commissioner Brian Quintenz advocating broad approval of prediction markets related to elections and other topics.

The CFTC, however, abruptly reversed course on election wagering in the Biden-Harris administration shortly after the Senate confirmed Biden’s nomination of Benham as chair of the regulatory agency in late 2021. Just a few months after Benham’s confirmation, the CFTC withdrew the no-action letter it gave years earlier to PredictIt, signaling likely enforcement to punish the firm for offering election-prediction contracts, but a ruling of the Fifth Circuit Court of Appeals enjoined such action from the regulator. 

Now, Benham’s CFTC is moving forward with its rule to ban Americans from wagering on their elections in the name of supposedly upholding democracy. Yet in issuing this rule, it is Benham’s CFTC that has revealed itself to be the true threat to the democratic process, as it is exceeding the authority it has been given by the nation’s elected representatives. In the proposed rule, the CFTC cites no directive from Congress allowing it to categorically ban election wagering — because there is none.

Instead, the CFTC twists a provision of the 2010 Dodd-Frank Act that permits the regulator to ban contracts related to “gaming.” In the text of the proposed rule, the CFTC makes the three-step argument that elections are “contests,” all contests are “games,” and therefore contracts on election outcomes involve “gaming” and may be banned under the statute. CFTC commissioner Caroline Pham blasts this tortured reasoning as “stunning overreach” in her dissenting statement on the rule. She adds that rule would also harm federalism in that it “bigfoots into gaming regulation” that has traditionally been the “prerogatives of states.”

In formulating this regulation, the Biden administration’s CFTC may have been wagering that this broad interpretation of its authority from Congress would be allowed under Chevron deference, the Supreme Court precedent that largely deferred to regulatory agencies’ interpretation of the powers granted to them by law. But the Supreme Court’s recent decision in Loper Bright v. Raimondo overturning this doctrine — and its admonition to lower courts to be skeptical of agencies’ novel claims of authority — shows that the CFTC’s gambit on this rule may prove to be a losing bet. 

If courts curb the CFTC on this rule and election-wagering venues continue to flourish, the prize for our polity will be better information for policy leaders on the sentiments of the American electorate.

Ari Patinkin is a research associate at the Competitive Enterprise Institute. John Berlau is senior fellow & director of finance policy at CEI, and author of George Washington, Entrepreneur: How Our Founding Father’s Private Business Pursuits Changed America and the World.