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With less than two months until the midterms, election and county officials are prohibiting employees from participating on prediction market contracts. Officials said it's the tightest measure they can take to ensure employees, who have access to ballots, do not commit insider trading on election contracts. "Obviously, we have no control over prediction markets themselves, or how people react to them," said Thomas Galvin, a supervisor for Maricopa County, Arizona. He helps oversee voter tabulation and Election Day voting. "When we implement a policy for our employees not to trade or bet on non-public information, that goes a long way towards showing people that not only are we working hard to maintain transparent elections, but also shows that we are being very aware of new technology," he said. Election odds vs. polls Midterm odds on prediction markets and an election poll tell two stories, but not everyone can tell them apart. Election odds on prediction markets are a live response to breaking news. There, participants can forecast and see in real time where the market stands on candidates' likelihood of a victory. This live accessibility provides a competitive advantage over traditional forecasting polls, said Koleman Strumpf, a professor of economics at Wake Forest University. "By the time you see the poll, it's ancient history," Strumpf said. A Kalshi spokesperson told CNBC that instant odds are a key feature for prediction markets, but they "complement" polling rather than acting as a replacement. On the other hand, pre-election polls measure a voter's intention and take a sample of selected respondents who are representative of a broader population, said Thessalia Merivaki, a professor of government at Washington State University. Unlike prediction markets, where anyone can forecast who will win a key race, statistical techniques are used to select a sample for a poll, she added. Even the questions asked in a poll differ from an election contract. "The question is very different. It doesn't ask, 'Do you think X candidate or Y candidate will win?' Pre-election polls ask, 'If the election were to be held today, who would you vote for?'" Merivaki said. Despite these distinctions, election officials are growing concerned that voters cannot differentiate between the two. "I have seen when I travel the district and when I travel the county, that some people confuse the numbers reflected in prediction markets with public opinion polling," said Galvin. "Just because someone has a 98% chance of winning on a prediction market doesn't mean that they're winning in the polls 98 to 2." Avoiding backlash Arizona's Maricopa County was in the spotlight after President Donald Trump repeatedly and falsely claimed he won in the state against former President Joe Biden in 2020. That controversy drove Galvin to help draft a resolution adopted this July. The measure bans about 13,000 county employees from trading on non-public information, including on topics around weather events, elections and court hearings. The resolution came shortly after Arizona Governor Katie Hobbs signed an executive order that would ban state workers from insider trading on prediction markets. Galvin said the prohibition reassures the public that the county champions election integrity and protects employees in the event individuals use prediction markets odds to claim there is election fraud. Earlier this year, people grew suspicious of the ballot process in Los Angeles after vote counts were not matching prediction market odds, according to Dean Logan, registrar-recorder/county clerk for Los Angeles County, who spoke on a July webinar hosted by the Partnership for Large Election Jurisdictions. "We definitely had a situation here where early election returns differed from market expectations, and that resulted in suspicion and questioning of normal ballot processing and canvassing procedures in California," Logan said at the webinar. In that race, city councilmember Nithya Raman advanced to a November runoff against incumbent mayor Karen Bass. Prediction market traders anticipated Bass would compete against former reality TV star Spencer Pratt in the November contest. While Pratt led Raman early in the vote count, Raman gradually pulled ahead of him as mail-in ballots were counted after Election Day. "I won't go into great detail about how that resulted in threats or aggressiveness from observers or people who had a stake in the outcome of the election, but it is something that we definitely saw, and we saw it at a level that we haven't seen in prior elections," Logan added. Where platforms stand Kalshi and Polymarket did not directly answer CNBC's questions on whether they plan to speak with election officials over their concerns about prediction markets. Instead, a Polymarket spokesperson reiterated that states do not have legal jurisdiction to regulate prediction markets. A spokesperson for Kalshi highlighted the role prediction markets play in breaking news and political events. Both platforms have taken measures to prevent insider trading on their platforms. Growing concern over prediction markets and elections comes as states and the Commodity Futures Trading Commission fight for regulatory oversight of event contracts. Election officials speak on regulation Some election officials have entered the fray over prediction market regulation, asserting that the platforms are running as gambling operators instead. Just outside of Philadelphia, an election office in Delaware County in Pennsylvania banned roughly 2,200 employees from trading on prediction market contracts tied to elections. The office's oath already ensured bets on elections were prohibited. It later added prediction markets. "It makes sense to add prediction markets to that [oath], because prediction markets are gambling, despite the dubious claims that they are not," said James Allen, Delaware County's elections director. Similarly, Maryland's administrator of elections sent a letter to the state prosecutor in July, requesting an investigation on whether prediction market election contracts violate a state law that prohibits wagers on election outcomes. While the future of how the platforms will be ultimately regulated is yet to unfold, some election officials have made it clear: They want no part in them. "I don't want these prediction markets to infect our elections here in Delaware County," Allen said. "They're definitely the newest and most existential threat to undermining faith in the elections." -CNBC's Charlotte Morabito contributed reporting. Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.
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