Kinzinger betting probe highlights prediction market manipulation concerns 

The Commodity Futures Trading Commission (CFTC) is investigating former Rep. Adam Kinzinger, R-Illinois, over bets he placed on a political prediction market involving a pardon from President Joe Biden.

In a statement, Kinzinger admitted he placed the bets but said he used no inside information to gain an advantage, Politico reported.

But at least one critic told Heartlander News the majority of money being made in political markets comes from this type of insider trading.

“That’s its primary purpose right now,” Craig Holman, government affairs lobbyist for Public Citizen, told Heartlander News. “And I don’t consider that a useful avenue for the public interest. It’s being exploited by insiders for insider trading purposes for self-enrichment.”

The investigation comes at a time when the CFTC is studying whether political prediction markets operate in the public interest.

At the same time, the Supreme Court is being asked to decide whether the CFTC should regulate the markets at all or whether the states should regulate them in the same way they regulate sports gambling.

Before 2024, betting on election outcomes was generally outlawed in the U.S.

In 2023, a CFTC order characterized political event contracts as gambling, an activity already illegal under the laws of many states.

The order said the contracts were “contrary to the public interest.”

Then in 2024, the U.S. District Court in D.C. ruled the federal commission had not demonstrated that it was allowed to ban political event contracts.

The CFTC now worries such markets are vulnerable to an individual or small group of people who have a vested interest “to move the prediction market.”

A different type of market

In normal commodities futures operations, oil futures contracts help airlines protect against increased fuel costs, and agricultural futures contracts protect sellers against large swings in crop prices.

Political prediction markets, however, aren’t tied to hedging against rapid price changes but rather to a future political event that ultimately resolves at 0% or 100%, with no underlying “financial or economic interests or property of any kind.”

The CFTC is asking whether there’s any public benefit at all since “informed participants may lead to manipulation, unfairness, and the misuse of inside information.”

In fact, researchers are finding little evidence that today’s modern political prediction markets provide substantial independent information beyond scientific polling and other publicly available information.

Joshua Clinton and Tzu Feng Huang at Vanderbilt University analyzed roughly 2,200 political markets across Kalshi, Polymarket, PredictIt and IEM during the final nine weeks of the 2024 presidential campaign.

“Together, these findings challenge the view that prediction markets necessarily efficiently and accurately aggregate information about political outcomes,” the authors said in their original abstract.

Charles F. Manski at the National Bureau of Economic Research said prediction market prices offer better insight into people’s beliefs than they do into true probabilities about outcomes.

Potential for manipulation

Critics have identified a number of structural weaknesses in the markets, including thin dollar volume that may give outsiders a false view of what the prices really mean.

Others assert prediction markets are subject to manipulation.

“The problem with prediction markets is they’re so easily manipulated,” Holman said. “Anyone who has a lot of money can just suddenly throw the prediction market polls and reverse them.”

Yale researchers Jeffrey Sonnenfeld and Steven Tian, along with investor Anthony Scaramucci, warned in 2024 that prediction markets have extremely low volume.

The result is that low dollar amounts “can immediately move the market by several percentage points in real time.”

“This means for only a few tens of thousands of dollars – pocket change for a wealthy donor or a foreign oligarch – one could easily corner this market by either buying or dumping shares, creating momentum either for or against their chosen candidate,” they wrote.

This year has provided several examples, if not of market manipulation, then at least of dramatic market volatility that cut against the eventual election results.

A Kalshi chart showed the odds of winning the 2026 Texas GOP Senate nomination swinging from roughly 80% for Attorney General Ken Paxton to roughly 80% for Sen. John Cornyn between March 2 and March 6.

Cornyn went on to lose the nomination by 27 percentage points, even as polls showed little basis for that price fluctuation.

The chart, combined with the polls, demonstrates that the dollar volume put into the market, and the timing of those bets, can greatly affect the market, just as Sonnenfeld and his co-authors wrote.

A more dramatic example of volatility happened this week in South American elections.

On Oct. 2, trading volume in Kalshi’s Brazilian presidential first-round election stood at $275,441, with Luiz Inácio Lula da Silva favored at 74%.

But just two days later on Election Day, volume had climbed to $1.32 million, with Flávio Bolsonaro emerging as the market leader and ultimately winning the first round.

Most disturbing is that major media companies have entered into sponsorship and data aggregation agreements with prediction markets that require their “probabilities” to be advertised inside stories.

“The prediction markets may provide another avenue towards trying to offer some sort of polling advice, but it certainly isn’t any more sound or worthwhile than regular polls,” Holman said of the media distribution deals. “Prediction markets have gone from an almost entirely unknown industry to something you see advertised on television every day.”

And, as Elliot Morris, formerly of FiveThirtyEight, noted, a bet isn’t the same thing as a poll.

It’s not even a probability.

“I find this uncritical wholesale acceptance of their numbers as the true probabilities for the world very bad,” Morris added.

The Columbia Journalism Review (CJR) said the media deals with CNN, CNBC, Dow Jones and Yahoo Finance give prediction markets visibility, legitimacy and the credibility of established publishers before the industry has really earned any trust.

“Sports leagues and media companies legitimized the whole thing because they wanted the revenue and ad dollars,” wrote one gambling critic featured by CJR.

Some fear the publishers aren’t thinking about the hit they’ll take to their reputation if prediction markets are hit with a major scandal or a credibility issue.

“Publishers should be careful not to place a bet [on prediction markets] without understanding the risks,” CJR said.

Republican lawmakers have also expressed concerns.

“As online prediction platforms grow and become more mainstream, some bad actors have exploited the platforms to make thousands of dollars by placing bets based on nonpublic information. The House Oversight Committee is investigating whether these platforms are fulfilling their legal obligations and doing enough to identify and prevent insider trading before it happens,” said Rep. James Comer, R-Kentucky, the committee’s chairman.

“Public service should never be a pathway to personal profit based on insider information,” Sen. Todd Young, R-Indiana, said in May. “I’ve introduced a bill to prohibit elected officials and government employees from using insider information to bet on prediction market event contracts.”

Sen. John Curtis, R-Utah, was even more blunt.

“Let’s call a spade a spade: sports prediction markets are gambling, and gambling is regulated by states, not the CFTC,” he wrote in February.

(Image credit: Background photo by Adam Śmigielski on Unsplash; logos from their respective companies)