If you have been exposed to any sort of media recently, you know there is a presidential election coming up.
It’s the biggest, highest-stakes election this country hosts, as Florida Man awaits his Democratic challenger. We are in the thick of primary election season and f you are reading this site, you probably have an interest in the gambling space. Maybe you’re even wondering how to bet on the election.
Well, the short answer is you will not be placing any wagers at a legal US sportsbook — not now, and probably not in the near future.
Despite the inability to wager legally at a US sportsbook, an abundance of predictions and betting odds are out there. Elections might even surpass sports betting in the number of experts who will sell their picks.
Some historical perspective on election betting
Paul Rhode and Koleman Strumpf put together an excellent academic look at betting on presidential elections in 2004.
The article chronicles the long history of betting on U.S. presidential elections between 1868 and 1940. In one election cycle during that time, more than $165 million in circa-2002 dollars was wagered.
The betting was illegal, but would take place fairly openly according to the authors. It included wagering in the lobby of the New York Stock Exchange, where brokers booked election bets like they were buying and selling securities.
Little has changed: the betting is still almost entirely illegal and not especially hard to find.
More than just something to do
Betting on elections (and other things) can serve as a very useful predictive mechanism for experts and researchers.
The government’s Defense Advanced Research Projects Agency has even hypothesized that the predictive value of certain types of betting markets may provide insights into uncertain future events.
The idea, simplified, is that collective opinions are more accurate than individual beliefs.
In 2012, a high-profile incident involving the prediction market Intrade left a sour taste in the mouths of some regarding election wagering. The incident has been dubbed the “Romney Whale.”
What is believed to have happened: in the lead-up to the election results in 2012, Barack Obama and Mitt Romney were watching returns come in and most prognostications were showing support for Obama rising towards victory. Intrade’s market showed a sustained support for Romney, a contrast from virtually everywhere else.
Upon digging deeper, however, some believe it was a single individual, spending large sums of money to prop up Romney as the election came to a close.
The motivations of the Romney Whale remain unknown; perhaps they wanted people to continue voting. But even though Intrade’s market corrected itself, there was a stain left by the incident.
What was remembered was not that the market corrected, but that there was a suspected manipulation even if the reasoning is not clear.
The exceptions in election betting
Despite the general reluctance to allow betting on elections in the United States, there are two big exceptions. If you a resident of the United States who would like to wager on the presidential election and you meet the requirements, you can wager on the election via the Iowa Electronic Markets or via the website PredictIt.
Both the Iowa Markets and PredictIt operate under so-called No Action letters issued by the Commodity Futures Trading Commission (CFTC.) These letters effectively allow these two entities to operate these markets as educational endeavors without fear of the CFTC taking action against them.
These markets, which have a history of being highly accurate predictive mechanisms, are confined by the terms of the letters issued by the CFTC. They are the only two authorized public election prediction markets currently operating in the US.
The rejection from the CFTC
In 2012, the CFTC rejected an application from the North American Derivatives Exchange, or NADEX. NADEX wanted to offer the trading of political event contracts (effectively betting on political events) without being tied to educational objectives.
The Commodities Exchange Act allows the CFTC to reject the offering of certain commodities if one of six conditions is satisfied:
- Activity that is unlawful under any Federal or State law,
- Other similar activity determined by the Commission, by rule of regulation, to be contrary to the public interest.
So what happened?
The CFTC went on to note that many states explicitly ban wagering on elections. That satisfies the first prong of the conditions laid out in the statute. The commission went farther, looking at whether the contracts were contrary to the public interest.
The CFTC rejected the usefulness of political event contracts (as they referred to them) as a hedging tool for traders. It went even farther in suggesting that they are prohibited under the condition regarding gaming as well.
What does this mean?
Does the CFTC’s rejection of NADEX’s application mean that presidential election wagering is always as a regulated commodity under the Commodities Exchange Act? Not necessarily.
But it is unlikely that any legal operator wants to risk running afoul of financial regulators, and jeopardize their core business in order to offer wagering on the presidential election.
The principal obstacle for wagering on elections in the United States rests at the state level, like with most things in gambling. While some argue that legalized wagering on elections may spur voter turnout, others see it as against the public interest.
Few willing to risk it
Nevada’s Gaming Control Board rejected a proposal in 2013. Even states adding sports wagering have steered clear of taking any steps towards legalizing wagering on elections.
For all the indications that election wagering might encourage voter turnout, it could conceivably have the opposite effect as well. If a candidate had long odds according to bookmakers, it may encourage voters to stay home.
Regardless of whether legalized election wagering would have a positive or negative effect on voter turnout, do not expect it to happen anytime soon in the US.