prediction market

Los Angeles County election officials are examining steps ahead of the November midterms to respond to the rising popularity of election trading via prediction markets, including a possible ban on wagering for county election workers.

The discussions follow a fracas during the June ballot count, when a handful of influencers suggested fraud could be occurring in L.A.’s mayoral primary because the results began diverging from the market’s prediction.

That incident, the most prominent interaction of prediction markets and a U.S. election to date, revealed a new dynamic in the battle for public trust in elections. Now, election administrators around the country are considering the possible implications of the markets’ forecasts, including whether they have the power to affect voter confidence in election results.

“We’re … trying to find our way in this,” L.A. County Registrar-Recorder Dean Logan said in an interview. “It’s opened up a lot of questions that we’re grappling with.”

Three months before the midterms, with much of the American public concerned about democracy and trust in elections dropping, officials are paying attention to anything that could create further uncertainty around how elections are run.

The midterm contests are high stakes for both parties, which are battling for control of Congress amid a difficult economy, the war in Iran and low approval ratings for President Trump. And many Americans are wagering on what might happen — users have traded nearly $200 million on the midterm elections so far, a July analysis by NBC News found.

Prediction market platforms and their proponents say trading contracts on the markets is not the same as betting, likening it instead to trading on the stock market. Critics say it amounts to gambling, regardless of how the markets are set up.

The timeline for election administrators to think through the issue before November is tight, and it poses challenges for offices that already are stretched thin preparing for other possible election-day scenarios. What happened during the L.A. mayoral primary, however, has prompted discussions around the country, said Carolina Lopez, executive director of the Partnership for Large Election Jurisdictions, or PLEJ, a nonpartisan organization that represents election administrators.

“The potential effect on confidence [in elections] is significant,” Lopez said.

A spokesperson for Kalshi, one of the leading trading platforms, said the platform bans insider trading and welcomes any policy measures doing the same. The company takes “seriously our responsibility to be a responsible actor in this space,” spokesperson Jacki McGavick said.

Los Angeles could become one of the first major election jurisdictions to implement guidance or policy related to prediction markets. Delaware County, Pa., in suburban Philadelphia, already has taken such a step — adding prediction markets to an oath poll workers already were required to sign affirming that they have not wagered on the election.

Last month, Maryland’s top election official asked the state prosecutor to open an investigation into the legality of prediction markets. In late July, Wisconsin’s election administrator warned voters that it is illegal under state law to both vote in and bet on an election. That drew swift attacks from executives at Kalshi, one of whom claimed the state would “disenfranchise voters who use Kalshi.”

In L.A. County, Logan said his office is in the research stage for an insider-trading policy for staff. His office also is creating public messaging to deploy in various scenarios and factoring the potential dynamics around prediction markets into security planning.

Any potential for unrest or protests related to people’s monitoring of market forecasts is likely to come in the days following the election, while ballots still are being counted, Logan said.

Elections staff also is preparing FAQ documents about prediction markets and discussing how to talk about the issue with reporters, gaming out different scenarios, he said.

Orange County Registrar of Voters Bob Page said he advised his office’s staff before the primary, and plans to do so again before November, that participating in election markets could create a conflict of interest prohibited by county code. Staff betting could been seen by the public “as improper,” Page said he told his staff, “ which would undermine trust in the integrity of the election.”

Thirty-nine percent of likely midterm voters in a recent survey commissioned by PLEJ said their confidence in an election outcome would be reduced if the official result differed from prediction market odds. Three-quarters of those surveyed said they believed prediction markets create confusion around elections.

A majority was unable to correctly identify what prediction market odds represent, according to the survey results, with more than a third believing they showed the current number of votes for each candidate or an official projection from election officials.

The rise of the exchanges, which allow users to stake money on the chance that a given event will happen in the future, has provided a way to create predictions that some experts say are more accurate than political polling.

Leaders of the platforms have suggested they can help combat election misinformation by providing predictive insights and help decision-makers understand public sentiment. Kalshi launched what it termed a “midterms hub” late last month, which it said would contain not only market forecasts but also news, polling and fundraising data.

“Election markets have been my dream since the start of Kalshi,” Luana Lopes Lara, a co-founder of the platform, said on social media upon the hub launch. “The holy grail of prediction markets, they shed light on some of the most consequential, decentralized and human processes in the world, where good data is crucial and hard to find.”

She added: “It’s changed the way I interacted with the electoral process and made me smarter — I hope it does the same to you.”

McGavick, the spokesperson, said about 75% of Kalshi visitors view the odds without buying anything in order to understand what “the crowd forecasts.”

“Kalshi has become a leading indicator of where elections are headed,” she said.

As users trade contracts — each one representing a bet for or against a given event, such as a certain candidate winning an election — the market generates odds. On Tuesday, for instance, L.A. Mayor Karen Bass had a 61% chance of winning in November on Kalshi, while City Council member Nithya Raman had a 39% chance.

Either Bass or Raman could win, but if the public’s understanding of the markets is murky, experts say, voters may confuse their speculation for certainty.

In June, the market odds appeared to drive some public belief about what the results would be, Logan told reporters at a briefing last month — in this case, that Republican Spencer Pratt would be one of the top-two vote-getters, which ultimately did not happen.

“That put us in a position as election officials of having to respond to a whole new layer of misinformation,” Logan said. “Not only were we being asked how were the polls wrong … but [people were saying], ‘We saw numbers’ or ‘We saw odds.’”

Experts worry it could become more common for market odds to be cited by people who are dissatisfied with an election result as a new way to attempt to discredit a ballot count, adding a new quiver in the bow of election deniers and potentially confusing the public.

The existence of prediction markets “provides one more source of information” that could be used by bad actors to stir up confusion or distrust in election results, said Mindy Romero, executive director of the California-based nonpartisan Center for Inclusive Democracy.

“People might think … prediction markets are a good thing or a bad thing,” Romero said, “but you can’t deny that it is one more thing that could potentially be manipulated.”

Separately, prediction markets have drawn the attention of lawmakers in Congress for various reasons, including fears of insider trading. Members of both parties have proposed guardrail legislation this year. Several states are locked in legal battles with the federal government over whether they can regulate the markets under state anti-gambling laws.

Last week, as destructive wildfires raged in Washington, Oregon, California and elsewhere, California Sens. Adam Schiff and Alex Padilla joined with other Democratic senators from western states to urge the Commodity Futures Trading Commission to restrict the markets from offering betting on wildfires. They cited concerns that people could be tempted to influence fires or commit arson in order to “make sure their bets are successful.”

Schiff introduced a bill to prohibit such trading in March. Kalshi has a ban on markets tied directly to death and war. Kalshi and the other leading platform, Polymarket, also regularly report suspected insider trading to the federal government for investigation. Last month, federal investigators alleged that Trump’s teleprompter operator had used inside knowledge to win more than $100,000 after Kalshi spotted his activity.

In Los Angeles, Logan said his office may issue guidance by November, but the task will extend beyond the next election day.

“What we want to do is defend against anything that would devalue the elections process,” Logan said. “We don’t want voters to be discouraged from participating.”

WASHINGTON — As Spencer Pratt fell behind in the Los Angeles mayoral primary, an unexpected group began claiming election fraud: people tracking the Republican’s success on prediction markets, the increasingly popular online exchanges on which people can make bets on almost anything.

“Crazy how much voter fraud can be done with mail in ballots,” one user following bets on the mayoral race wrote last week on Kalshi, one of the top trading platforms.

“Same old California fraud,” said another who had bet that Pratt would win.

Election fraud claims extended to social media, where a handful of influencers who post content for prediction market platforms questioned the ballot count. “It’s a dead heat on Kalshi,” one user wrote on social media. “Is CA cheating to get Spencer Pratt out?”

Kalshi told the influencers to delete the posts, which violated company guidelines. Polymarket, the other leading platform, directed them to remove the paid partnership label from those posts.

The amplification of election misinformation by users who had money staked on the mayoral race adds a new twist to evolving scrutiny of prediction markets, and scholars say the ability to bet on elections broadly raises questions about whether the exchanges could alter how Americans engage in democracy.

“Elections are not a game,” said Davina Hurt, director of government ethics at the Markkula Center for Applied Ethics at Santa Clara University. “[If market] probabilities begin influencing donor decisions, media attention, the energy around [campaign] volunteers — at that point, markets aren’t just observing the election. They’re a part of it.”

Fans of the exchanges say they are powerful tools that can help decision makers, and company leaders have touted them as highly accurate predictors that can act as an antidote to misinformation and provide election insights.

“By shifting focus from ‘what people say’ to ‘where they put their money,’ and filtering out social media noise and pundit bias, we are providing a level of clarity and predictive power that cannot be matched,” said Kalshi spokesperson Dani Lever .

But these markets’ rapid rise has also raised a host of questions among members of Congress, state lawmakers and others — about betting on elections, wars and other political events, about potential insider trading, and about whether the platforms should be left to self-regulate. Some states are also in legal battles with the federal government over whether the activity amounts to gambling, which they seek to regulate.

“It’s like we’re in the 1930s with financial markets — we have some things that we want to regulate and restrict [as a country], and we’re sort of in the early stages of trying to lay out what the rules are,” said Koleman Strumpf, an economist at Wake Forest University.

Concerns about insider trading

The discourse around the Los Angeles mayoral race was the latest to raise questions at the intersection of prediction markets and politics. Earlier this year, an Army soldier was indicted after allegedly using his knowledge of the planned U.S. operation to capture former Venezuelan leader Nicolas Maduro to make bets on it, winning more than $400,000. He has pleaded not guilty.

Around the same time, several anonymous users reportedly earned $2.4 million combined by making remarkably prescient bets on the Iran war, prompting concern in Congress about insider trading. And during the primary elections, Kalshi fined a few politicians for betting on themselves, while the Justice Department began investigating a former congressman on similar charges.

Kalshi co-founder Luana Lopes Lara speaks at a conference in Santa Monica, Calif., in April.

(Anna Webber / Inc.)

The episodes set off a debate in Washington. The Republican-led House Oversight Committee opened an investigation into potential insider trading, and a bipartisan group in Congress has introduced a flurry of bills seeking to put up guardrails. It remains unclear whether any will pass this session.

The chatter in Congress appeared to lead the Commodities Futures Trading Commission, which regulates prediction markets, to propose a new framework last week to govern issues raised by lawmakers, such as potential betting on wars. Commission Chair Mike Selig said the proposal would allow for scrutiny of suspicious activity “while letting legitimate markets move forward pursuant to the public interest.”

The markets commission under former President Biden was viewed as somewhat skeptical of prediction markets; the agency under President Trump — whose eldest son holds advisory positions at both Polymarket and Kalshi — has been seen as more favorable to the industry. The federal government has sued several states over their attempts to regulate the markets under state laws banning sports gambling and other measures.

Sen. Adam Schiff (D-Calif.), who has introduced legislation on the topic, said the agency’s framework would benefit the industry at the expense of the public interest.

The agency lacks “the leadership, will and investigative staff needed to confront the dangers of election misinformation, insider trading, and more,” Schiff said, “and seems content to allow the industry to police itself.”

Making bets

As California’s primary neared, people staked their dollars on the state’s races in droves. On Kalshi, trading volume on one contract about who will win the L.A. mayoral race in November had reached more than $117 million as of Tuesday.

Prediction market users trade on the outcome of future events, making money if they’re correct and losing money if they’re wrong. Someone can purchase a contract on the prediction that L.A. Mayor Karen Bass will win in November, a yes contract, or on the prediction that she will lose, a no contract.

On Tuesday, Bass contracts on Kalshi were selling at 63 cents each for yes and 38 cents for no, meaning the market was forecasting a 63% chance of her winning. Users receive $1 per contract if their prediction is correct, creating a profit on their initial investment.

Prediction markets generally create more accurate forecasts than political polls, according to Strumpf, whose research has examined 30 years of prediction markets in various forms.

Many of the issues critics raise are theoretical and have not been seen in practice, Strumpf said. By his analysis, there is no evidence that the markets have ever influenced an election outcome. He said serious traders tend to do extensive research in order to make money, meaning their bets are educated.

Rep. Mike Levin (D-San Juan Capistrano), who has introduced legislation to prohibit event contracts involving terrorism, war, assassination and deaths, said the platforms may be useful in some cases but shouldn’t be left to police themselves. He said he’s concerned that the markets create “all the wrong incentives” for people, including political candidates and officials, to abuse inside knowledge.

“I don’t trust them to self-regulate at all,” Levin said of the companies. “The federal role should be guardrails that are reasonable and pragmatic.”

‘The sanctity of our elections’

Skeptics’ concerns regarding elections largely center around the markets’ introduction of a new way for money to potentially influence politics.

They say the desire to elevate a candidate’s market odds could create an incentive for market manipulation, and they worry that the votes of Americans using the market could be influenced by their desire to profit.

“This has real impacts for the sanctity of our elections,” said Assemblymember Maggy Krell (D-Sacramento), who raised concerns about how prediction markets could impact the democratic process in a March letter to the state’s Fair Political Practices Commission. (California lawmakers are looking at the issue, a spokesperson for Assembly Speaker Robert Rivas (D-Hollister) said, though none of the bills introduced this year have yet moved forward.)

The platforms create a potential new channel “for dark money to flow into our elections,” Krell said. “Specifically, someone who’s opposing or supporting a candidate could potentially use sites like Kalshi to elevate that candidate and impact the entire pool.”

The industry has endeavored to “get out in front” of concerns by creating their own policies aimed at preventing insider trading, market manipulation and other issues, said attorney Ronak D. Desai, partner and head of the congressional practice at the Washington law firm Paul Hastings.

Kalshi has a ban on those practices and has banned markets tied directly to death and war, Lever said. It also screens all new users and, in the first quarter of this year, blocked more than 100 potential insider trades and referred more than 20 cases to law enforcement.

In the case of the military member who bet on the United States’ operation in Venezuela, for instance, Polymarket caught the activity and referred the case to the Justice Department, a spokesperson said. The company has referred nearly 100 cases of suspicious activity to law enforcement, he said.

Election markets are not offered on Polymarket’s U.S. exchange — though users in the U.S. and other countries that ban the company’s international exchange are widely reported to access it using online tools.

“Polymarket prohibits trading based on stolen information, illegal tips, or information obtained in breach of a duty of trust, confidentiality, or other legal obligation,” the Polymarket spokesperson said in a statement.

Aaron Klein, senior fellow in the Center on Regulation and Markets at the Brookings Institution, predicted that pressure for further regulation would continue to mount.

“The top goal of a society is to have free and fair elections,” Klein said. “At a time in our nation’s history where people are doubting the integrity of elections and foreign governments are stoking those flames, we ought to be pretty careful.”

NEW YORK — A prediction market reported former U.S. Rep. George Santos to federal prosecutors after he boasted he’d be going to President Trump’s State of the Union address, then bet against his own attendance, according to a person familiar with the investigation.

Kalshi, the online prediction marketplace, referred Santos to the Department of Justice after detecting suspicious trades made by him ahead of Trump’s Feb. 24 speech, the person said. The person spoke to the Associated Press on the condition of anonymity because they weren’t authorized to discuss the matter publicly.

Kalshi also reported the trades to the Commodity Futures Trading Commission, a federal regulatory body that has vowed to crack down on insider trading in prediction marketplaces.

The Justice Department and the CFTC didn’t immediately respond Tuesday to inquiries from the AP.

Santos also did not respond to text messages or phone calls.

The referral was first reported by NPR. Santos told NPR that he wasn’t aware of the investigation. He declined to say whether he had a Kalshi account.

“I’m not saying yes, I’m not saying no,” Santos told NPR.

The convicted ex-congressman had repeatedly discussed his intention to attend the State of the Union, which came just four months after he was granted clemency by Trump in a fraud case that led to his expulsion from the U.S. House.

On the eve of Trump’s speech, Kalshi put the odds of Santos attending at close to 75%.

Then, minutes into the speech, Santos posted on X that he had been waylaid at the airport. Immediately, several social media users accused him of running another scheme.

“Santos talking to his accountant and telling him to open his Kalshi account and bet all his money on No,” one user wrote, alongside a meme of Al Pacino counting money in the movie Scarface.

In March, Santos addressed the complaints on his podcast.

“I guess people lost money,” he said. “Some people made unexpected money. That’s to show you how fragile these markets are.”

Santos, who won office as a Republican after inventing a bogus persona as a Wall Street dealmaker, was sentenced to seven years in prison after pleading guilty to fraud and identity theft in 2024.

After serving just 84 days, he was ordered released by Trump, who called Santos a “rogue” but said he didn’t deserve a harsh sentence and should get credit for voting Republican.

Prediction markets, including Kalshi and its chief rival Polymarket, have drawn scrutiny as their businesses have expanded — with some lawmakers urging the platforms to do more to guard against insider trading.

Both companies have said they are reporting suspicious trades to federal regulators. Some investigations have led to criminal charges. In April a soldier involved in the military operation to capture Venezuelan President Nicolás Maduro was charged with using classified information to win more than $400,000 predicting the date of his capture on Polymarket.

In April, the Senate approved a bipartisan resolution to prevent its own members from using prediction markets.

Offenhartz writes for the Associated Press.