PredictIt Betting on US Elections Nixed by American Regulators

(Bloomberg) — PredictIt, a market that built its name by letting Americans bet on who will be elected to Congress or the next president, has lost its legal authority to operate in the United States.

The decision by the Commodity Futures Trading Commission on August 4 to revoke the regulatory letter on which the platform relied has sent shockwaves through the political gambling industry. Since 2014, PredictIt has used research permission from a New Zealand university to let Americans bet on US elections, which is generally prohibited.

The focus on politics has propelled PredictIt to the forefront of an emerging asset class that easily allows people to bet on the outcomes of real-world events using derivatives. PredictIt betting-based odds have been widely quoted by mainstream media, and although the site’s origins are rooted in academia and betting capped at $850, it has become a firm favorite among American gamblers.

The CFTC said PredictIt’s trading of the contracts listed in the 2014 legal interpretation must end by February 15, 2023. The regulator’s decision did not involve enforcement action.

On Friday afternoon in Washington, traders could still use PredictIt to bet on everything from former President Donald Trump or Florida Governor Ron DeSantis’ victory in the 2024 presidential election to the candidacy of Alexandria Ocasio- Cortez of New York to run for president before 2024.

The website included a disclaimer that read, “ is an experimental project operated for academic purposes by permission of the CFTC.”

The CFTC did not specify its exact reason for revoking its letter to Victoria University of Wellington in New Zealand, other than to state that the university had “failed to operate its market in accordance with the terms” of the decision. 2014.

The letter gave the university the ability to list the products for research and academic purposes. Due to PredictIt’s relationship with the university, the platform never registered with the CFTC as a derivatives exchange – an onerous process that involves regulatory scrutiny.

In a statement, PredictIt said it disagreed with the agency’s decision and “supports that all active markets not only abide by the terms of the No Action Letter, but are also compliant with the interpretations of the commission that have been transmitted to us over the past eight years”. He added that he intended to continue normal operations until the February 15 deadline.

The platform has not yet decided how contracts with end dates after February 15 will be settled, Margaret Hyland, vice-chancellor at Victoria University of Wellington, said in a separate statement.

The decision to revoke the CFTC’s letter that effectively told the university that it would not be prosecuted for offering the contracts came after CFTC staff determined that it allowed PredictIt to walk away. too much from the original mission of being a small-scale marketplace designed to facilitate college study. research, according to four people familiar with the matter.

PredictIt is operated by Aristotle Inc. and attracts a group of professional gamers.

Uncertainty over whether the exchange was actually operated as a for-profit entity, given its ties to Aristotle, which provides technology, data and other services to political campaigns, also raised concerns at the within the agency, said the people who asked not to be named discussing internal deliberations.

The CFTC declined to comment.

In a statement, Aristotle said American voters, politicians, journalists and academics rely on PredictIt for the valuable data it provides.

“Over the past eight years, we have always strived to be a good player in an industry plagued by bad ones and have worked with the CFTC from the beginning and would like to continue working with them,” the door-keeper said. word of Aristotle, Brandi Travis, in an email. “The CFTC has known for years how involved Aristotle was daily with PredictIt, as we revealed many years ago,” Travis said.

Victoria University of Wellington said in a statement that the PredictIt platform “remains a project of the university, operated by Aristotle. There has been no sale by the university to Aristotle. PredictIt did not respond. to a request for comment on the arrangements between her, the university and Aristotle.

Regulatory microscope

Recently, the regulator has focused more on event-driven contracts, an area that has grown in popularity amid the recent retail boom.

In January, Polymarket, a crypto-based events marketplace, agreed to pay $1.4 million to settle CFTC allegations that it operated an unregistered trading platform. The company did not admit or deny wrongdoing in the settlement.

Meanwhile, Kalshi, a venture capital-backed Silicon Valley startup, has become the first exchange to be registered by the CFTC to run a fully commercial event market in 2020.

Kalshi does not currently offer election results trading, but has recently filed documents with the agency to begin listing event contracts related to the 2022 midterm elections, two of the people said. . Kalshi did not respond to a request for comment.

In general, forecast markets have been viewed with a mixture of fascination and skepticism from some US media and election watchers. While funders say they are more accurate than polls, there have been occasional concerns about market manipulation to increase perceptions of a candidate’s performance.

Rajiv Sethi, an economics professor at Columbia University’s Barnard College, said he found the data from PredictIt useful in his research. The CFTC’s decision means election monitors could lose a major source of data ahead of the 2024 US presidential election, he added.

“For those interested in market-based predictions of political outcomes, including journalists and researchers, there really is no close substitute,” Sethi said.

©2022 Bloomberg LP

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