Kalshi’s daring bet on election betting is paying off

Two 20-something New Yorkers have added an entirely new dimension to the 2024 presidential election: legal betting.

The new platform Kalshi offers the first legal election betting in the US in over a century. Its founders believe it will give voters more transparency and make them feel more involved in the process.

“It’s actually the best mechanism to get more truth about who’s actually going to win,” said Tarek Mansour, 28, who founded Kalshi with Luana Lopes Lara, also 28. “We’re letting the market speak instead of pundits, pollsters, people, political figures, people with biases or conflicts of interest, people that had incentives or not.”

Over the last few weeks, the innovative company has exploded in popularity. Users have put down more than $100 million on Kalshi’s election bet, and the site has been name-checked by JD Vance, Elon Musk and comedian Theo Von.

“Kalshi is a place where I look,” Vonn recently said in a podcast. “It’s a good tracker, it’s actually people putting their money down.”

The platform is run like a futures exchange where a marketplace facilitates trades about what could happen. Conventional exchanges such as the Chicago Mercantile Exchange process bets about oil or cattle prices. Kalshi does the same thing — just for current events.

Someone who believes in the likelihood of an event — like Trump winning — will place a bet, and Kalshi matches them with someone willing to take the other side of the bet.

The site is also currently taking bets on everything from how many rocket launches SpaceX will make this year to what score “Gladiator 2” will receive on Rotten Tomatoes.

Part of the reason for the initial excitement — particularly from Republicans — is that the betting markets suggest Trump has a much greater chance of winning than the polls. As of this writing, a bet for Trump will cost you 63 cents with the potential for a one-dollar return while a bet that Harris will win costs just 37 cents.

But it’s not just about betting; it’s about giving people a new way of being involved in the democratic process.

“People have had this sort of feeling, like ‘I don’t have control of who wins and I’m just going to take the impact and the consequence no matter what it is,’” Mansour said. “People can now participate, engage a bit more meaning through the election.”

While Kalshi has offered betting on inflation and jobs numbers since 2021, the exchange only got the green light to launch an election betting service in October after a lengthy and hard-fought legal war.

Mansour first began thinking about the importance of a betting market for elections while working on the trading desk at Goldman Sachs in 2016.

When Trump won that year, his team was inundated with frantic calls to make trades and buy hedges in response to the upset. 

“People want a financial stake in the election,” he explained. “Trading activity… actually stems from an opinion about a future event — why are we [just] using stocks and bonds and options to do that?

“This is a more direct, more precise way… than traditional financial instruments,” he added. “What you’re buying is the event — Trump will win, Kamala will win, Brexit will happen, Brexit won’t happen — that was the genesis of the idea.”

While some people are using the market to amuse themselves or gauge public sentiment about a candidate, Mansour initially envisioned it as a way for individuals or institutions to hedge risk before an event.

For instance, someone who has a lot of exposure to fossil fuel could put money on a Harris victory — as a way to balance their portfolio in the event Harris wins and gives subsidies to green companies. 

Mansour, who was raised in Lebanon and Lopes Laura — a classmate of his from MIT who was working at Bridgewater and hails from Brazil — launched the company in 2018 with investment from heavyweights including Sequoia Capital, Henry Kravis, and Charles Schwab.

Their headquarters are in Soho, and they say they couldn’t imagine being based anywhere but the Big Apple.

“New York is the financial capital of the world,” said Mansour. “We felt it was the right place to build what we believe will be the next evolution of financial markets.”

But, they didn’t anticipate the regulatory hurdles they would face. They first applied for approval to take presidential election bets in 2021, but the Commodity Futures Trading Commission turned them down.

While the CFTC let them offer bets about other events — like when inflation would decrease or whether TikTok would get banned — the presidential election was deemed too sensitive by regulators. 

They believe that a handful of individuals could bid up the price making it look like one candidate is more likely to win — potentially leading more people to vote or feel pressure to support a candidate. 

After realizing the CFTC was unlikely to ever give them the green light, Mansour and Lopes Laura took the matter to court. This past September, after a three-year battle, a judge finally ruled in their favor.

Neither of them imagined how difficult it would be to secure approval, but Lopes Laura believes that their ignorance might have given them an advantage.

They were so naive, they dared to try something other companies thought was impossible.

And, they say that by going through the legal quagmire to earn regulatory approval, they established themselves as a safe and trusted product.

Other election betting markets, such as Polymarket and PredictIt have also been generating buzz. But, Polymarket is not open to US citizens, and PredictIt has only been granted the ability to operate temporarily.

“A lot of startups kind of choose the easy path. But we really think long term,” Lopes Laura said. “If in ten, 20 years, prediction markets have a chance of being that big, it’s because we started the right way.”