With less than two months until the midterm elections, election officials and county officials are banning their employees from participating in prediction market contracts.
Officials said this is the most stringent measure to ensure that employees with access to ballots do not engage in insider trading on election contracts.
“Obviously we can’t control the prediction markets themselves or how people react to them,” said Thomas Galvin, a supervisor in Maricopa County, Arizona. He helps count voters and oversees Election Day voting.
“Introducing a policy for employees not to trade or gamble on non-public information will go a long way in showing the public that we are working hard to maintain transparent elections, as well as showing that we are fully aware of new technology,” he said.
Election odds and polls
Prediction market median odds and election polls tell two stories, but not everyone can tell them apart.
Election odds in prediction markets are a live reaction to breaking news. There, participants can predict and see in real-time how the market stands in terms of a candidate’s chances of winning. Coleman Strumpf, an economics professor at Wake Forest University, said this live accessibility provides a competitive advantage over traditional predictive polling.
“By the time you look at the polls, it’s old history,” Strumpf said.
A Kalsi spokesperson told CNBC that while Instant Odds is an important feature for prediction markets, it “supplements” polls, rather than serving as a replacement for them.
Pre-election polls, on the other hand, gauge voter intentions and draw a selected sample of respondents representative of the broader population, said Thessaly Meribaki, a government professor at Washington State University. Unlike prediction markets, where anyone can predict who will win in major races, statistical methods are used to select samples for polls, she added. Even the questions asked in polls are different from electoral contracts.
“The question is completely different. It’s not, ‘Who do you think will win, candidate X or candidate Y?'” Pre-election polls ask, ‘If the election were held today, who would you vote for?'” Melibaki said.
Despite these differences, election officials are increasingly concerned that voters may not be able to tell the difference between the two.
“As I’ve traveled around this district and as I’ve traveled around the county, I’ve seen that some people confuse the numbers reflected in prediction markets with polls,” Galvin said. “Just because someone has a 98% chance of winning in a prediction market doesn’t mean they’re ahead 98-2 in the polls.”
Avoiding backlash
Maricopa County, Arizona, received attention in 2020 after President Donald Trump repeatedly falsely claimed he had won the state over former President Joe Biden.
Election workers process ballots for the 2024 U.S. presidential election on Election Day at the Maricopa County Tally and Elections Center in Phoenix, Arizona, U.S., November 5, 2024.
Caitlin O’Hara | Reuters
The controversy led Galvin to help draft a resolution adopted in July of this year. The measure would prohibit approximately 13,000 county employees from trading nonpublic information, including topics related to weather events, elections, and court hearings.
The resolution was filed shortly after Arizona Governor Katie Hobbs signed an executive order banning insider trading in prediction markets by state employees.
Galvin said the ban reassures the public that the county will defend election integrity and protect employees if individuals use prediction market odds to claim election fraud.
Earlier this year, people began to question Los Angeles’ voting process when vote counts did not match prediction market odds, said Dean Logan, Los Angeles County Registrar-Recorder and County Clerk, speaking at a July webinar hosted by the Partnership for Large Election Jurisdictions.
“There was definitely a situation here where early election results differed from market expectations, which led to doubts and questions about normal ballot processing and campaign procedures in California,” Logan said in a webinar.
In that race, City Council member Nitya Raman advanced to a runoff in November, facing incumbent Mayor Karen Bass. Prediction market traders had predicted Bass would face former reality TV star Spencer Pratt in the November contest. Pratt had an early lead over Raman, but as mail-in votes were counted after Election Day, Raman gradually pulled away from Pratt.
“I won’t go into detail about how that led to intimidation and aggression from observers and people with a stake in the outcome of the election, but that’s definitely something we saw, and it was at a level we haven’t seen in any previous election,” Logan added.
where the platform stands
Mr. Carsi and Mr. Polimarket did not directly respond to CNBC’s questions about whether they planned to speak with election officials about concerns about prediction markets.
Instead, a Polymarket spokesperson reiterated that the state does not have legal jurisdiction to regulate prediction markets.
Karshi and Polimarket.
Gabby Jones Bloomberg | Martin Lelièvre | Getty Images
A Kalsi spokesperson emphasized the role prediction markets play in breaking news and political events. Both platforms take steps to prevent insider trading on their platforms.
Concerns about prediction markets and elections are growing as states and the Commodity Futures Trading Commission vie for regulatory oversight of event contracts.
Election officials talk about regulations
Some election officials have joined the fight over regulating prediction markets, arguing that the platforms are instead operating as gambling operators.
In suburban Philadelphia, the elections office in Delaware County, Pennsylvania, banned about 2,200 employees from trading in election-related prediction market contracts. The office’s oath already prohibits betting on elections. Later, prediction markets were also added.
“It makes sense to add prediction markets to this (death) because prediction markets are gambling, despite the dubious claims that they are not,” said James Allen, director of elections for Delaware County.
Similarly, Maryland’s election officials sent a letter to state prosecutors in July asking them to investigate whether election contracts in prediction markets violate state laws that prohibit betting on election results.
It’s not yet clear how the platforms will ultimately be regulated, but some election officials have made it clear that “they don’t want anything to do with them.”
“We don’t want these prediction markets to negatively impact elections here in Delaware County,” Allen said. “They are arguably the latest and most existential threat to confidence in elections.”
-CNBC’s Charlotte Morabito contributed reporting.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
