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Get Yer Bets in on Iowa: Legal Political Prediction Gambling

Did you know that you can legally trade futures contracts on whether Trump tanks in Iowa or Sanders soars in New Hampshire? Two not-for-profit "stock" markets allow online trading – with real money – on a political prediction market. The Iowa Electronic Markets (IEM) and PredictIt are online not-for-profit "stock" markets run by the University of Iowa and Victoria University, Wellington in New Zealand for educational and research purposes. On these markets people can buy and trade futures contracts based upon predictions of electoral results with trading accounts of up to $500 on IEM and $850 on PredictIt.

How can this be? Both the IEM and PredictIt have received no-action letters from the U.S. Commodities Futures Trading Commission saying these markets were not regulated by the Commodity Exchange Act.; and

This is a critical distinction from the for-profit Intrade that operated an online political prediction market but was shut down by the government in 2012. However, this does not end the inquiry. Both of these markets must still not run afoul of state gambling laws. With this concern, PredictIt does not allow traders from Nevada or Washington. IEM, however, appears to let everyone play. Go Hawkeyes!

Like daily fantasy sports, whether these online prediction markets are illegal gambling under state law comes down to whether it involves skill or chance. "Real" stock markets are generally expressly exempted from state gambling laws, since apparently even regulators recognize (like anyone with a 401k) that there may not be much skill involved in making a stock pick. But I'm not aware of any state expressly exempting online political prediction trading.

Clearly, the facts that these markets are ostensibly for "educational and research" purposes, the bets are limited, and there is apparent blessing from the commodities market have kept regulators from peering deeply into their affairs. But the question once again arises, why can Morning Joe bet on the outcome of the Iowa caucuses but Joe Six-Pack can't bet on the Broncos' game? The similarities are plenty; especially when examined under a typical gambling statute: bet or wager – check; risked – check; based upon a chance outcome – check. Unfortunately, legislatures believe that there is good gambling – lotteries, stock markets, predictions markets, and bad gambling – sports, cards, etc. and whether any particular mode is illegal depends largely on whatever the legislature wants it to be.

'Til then, good luck next Monday in Iowa where, in case you're interested, Trump is currently trading at 67¢ and Cruz at 32¢

[Ed. Note: The original version of this post incorrectly stated that PredictIt was also not available Alabama, Colorado, Hawaii, Illinois, Louisiana, Missouri, Montana, New York, New Jersey, Oregon, South Carolina, Tennessee, and Vermont,. based upon a Nov. 4, 2014 article in the Washington Post, which I have been informed is not PredictIt's current state of affairs. Sorry, PredicIt for the mistake.]

Topics: Gambling