Though some states like Arizona ban election betting under local statutes, federal regulations now allow platforms like Kalshi to offer wagers on high-profile contests, including the Kamala Harris-Donald Trump presidential election. (Photo by Chris Delmas/Getty Images)
PHOENIX – As voters went to the polls on election day and early ballots continued to come in, most Americans were able to legally wager on the outcome of the presidential election for the first time.
However, not in Arizona.
In October, a federal appeals court ruled that elections – including the presidential contest – do not fall under federal gambling prohibitions, according to Jack Such, the manager of press relations and market research at Kalshi, a federally regulated financial exchange that offers election wagering.
Kalshi allows bettors to place a wager on Democrat Kamala Harris or Republican Donald Trump, or four other candidates, including Robert Kennedy Jr., who has pulled out of the race to throw his support to Trump but remains on the ballot in some states.
As of Tuesday, bettors on Kalshi were giving Trump a 57% chance of winning the presidential election, up from 55% on Monday. Reportedly, gamblers can wager as much as $100 million on the race at Kalshi.
Despite the ruling on the federal level, wagering on elections remains illegal in Arizona, according to Dayne O’Brien, the public information officer for the Arizona Department of Gaming. Arizona Revised Statute 16-1015 prohibits such wagers. It reads:
“A person who, before or during an election provided by law, knowingly makes, offers or accepts a bet or wager, or takes a share or interest in, or in any manner becomes a party to the bet or wager, or provides or agrees to provide money used by another in making the bet or wager, upon any contingency whatever arising out of such election, is guilty of a class 2 misdemeanor.”
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Kalshi offers event contracts, according to Such, which are financial tools that provide payouts attached to the outcome of a real-life event. Although the market has only been legal for a few weeks, Kalshi has competitors offering wagers on the race, including the popular investment platform, Robinhood.
However, Such said that Kalshi has advantages over the competition.
“There are some other prediction market platforms, but many have problems or restrictions that Kalshi doesn’t, such as being illegal for American citizens to access, having low liquidity, or having a low limit on the amount that can be traded,” Such said. “No other prediction market platform can claim to be regulated, legal, safe, and deeply liquid.”
So far, major U.S. sportsbooks such as FanDuel and DraftKings are not offering political wagering. Election prediction markets, such as those offered by Kalshi, are not to be confused with election polls.
While polls purport to measure who people plan on voting for, prediction markets are based on who people believe will win the election regardless of their voting preference. While this is the primary difference between the two, other factors differentiate polls and prediction markets.
“Markets are more precise, meaning that larger percentage point gaps are less meaningful than they are in a poll,” Such said. “For example, a 10-point gap in a poll is a nearly insurmountable deficit for the trailing candidate, but a 10-point gap in a market (55% to 45%) is basically a coin flip. Prediction markets also are significantly faster at aggregating information than polls are.
“Polls need to be crafted, sent out, answered, returned, and analyzed – but markets react instantly to new information.”
The information that prediction markets react to is also a major difference between polls and prediction markets. Rajiv Sethi, a professor of economics at Columbia University’s Barnard College who has spoken about the betting markets, said voters’ opinions on a wide variety of topics can sway the market.
“Markets can respond to any kind of information, such as performance in debates or interviews, or health considerations,” Sethi said. “They can also come to be dominated by a small set of traders whose views then have a disproportionate impact on price. They are also occasionally subject to manipulation … anything a trader considers relevant can shift the price. For example, the statement about Puerto Rico at Madison Square Garden a couple of days ago.”
As for the accuracy of these prediction markets, that remains to be seen. This is the first election cycle that Kalshi has been on the market, and the accuracy of prediction markets versus statistical polls is yet to be determined.
“The jury is still out on the accuracy of prediction markets relative to statistical models based on opinion polls,” Sethi said. “For the 2020 and 2022 cycles, models (based on polls) were a bit more accurate, but we need much more data to come to a firm conclusion.”
Such said there are some logistical and legal challenges with operating legal prediction markets. Kalshi is regulated by the Commodity Futures Trading Commission (CFTC), which is an independent agency of the U.S. government that has regulated U.S. derivative markets since 1974. Although there aren’t many competitors with comparable market share or regulation to Kalshi, Sethi believes that more regulated markets in the United States might be on the way.
“Some markets such as crypto-based Polymarket and UK-based Betfair are beyond the reach of U.S. regulators,” Sethi said. “I suspect that we will see more regulated markets such as Kalshi in the US, which can compete with these offshore exchanges.”
In just four weeks, Kalshi has seen $250 million in total trading volume on their election markets with $130 million of that being on the presidential election alone, according to Such. As of Tuesday morning, the presidential handle had risen to more than $254 million.
The presidential market resolves on Jan. 20, according to Kalshi, when a candidate – or someone from the candidate’s political party – is inaugurated.
Although it is illegal to wager in Arizona on the state’s pivotal race for the U.S. Senate seat held by Independent Kyrsten Sinema between Democratic U.S. Representative Ruben Gallego and Republican Kari Lake, Kalshi does offer wagering on that race where political bets are legal. As of Tuesday, more than $3.2 million had been wagered on the Gallego-Lake race.
Gallego had a 70% chance of defeating Lake Tuesday morning, down from 72% on Monday, based on Kalshi wagering.
