Twenty-three states in the U.S. have laws that ban betting on elections. Rules in two of these states prohibit voters from participating in elections they have placed bets on. However, whether those bans apply to trades placed on prediction markets is still unclear. This is part of a larger fight between states and the federal government over whether these platforms constitute gambling.
Wisconsin caused a stir among prediction market platforms last month when its election commission released a directive reminding voters that betting on elections — including via trades on event contract exchanges — is illegal in the state, based on a law that has been in effect for over 175 years. What shocked people was the penalty that Wisconsin imposes on those who break its law: violators lose the right to vote in the election they bet on.
Prediction market platform Kalshi criticized the law, stating that it is "blatantly unconstitutional and illegal." States that ban betting on elections also include New York, where voters cannot cast a ballot in an election they have bet on.
However, whether the language in state laws applies to trades placed on prediction markets depends on the state, but many are unsure.
Hotly contested
In Colorado, betting on an election is classified as a class 2 misdemeanor punishable by up to 120 days in jail or a $750 fine. However, few states are as direct as Colorado.
States are already fighting with the federal government over regulating prediction markets. The Commodity Futures Trading Commission views all event contracts as swaps, a derivative that it regulates, and thus believes companies fall under its jurisdiction, preempting any state law.
However, elections may introduce a new line of defense for the states, according to legal experts. The U.S. Constitution explicitly gives the power of managing elections to the states, so they could argue in front of a court that this power extends to regulating any form of placing money on said elections.
