DEATH BETS Act — Vital Legislation or a Hollow Performance?
Federal Senator Adam Schiff and Representative Mike Levin have introduced the catchily-titled DEATH BETS Act, which seeks to compel the Commodity Futures Trading Commission to prohibit prediction market contracts connected to people’s deaths. The thing is, CFTC regulations already do that.
That didn’t stop Americans from wagering a combined $54.5 million on whether former Iranian Supreme Leader Ali Khamenei would be ousted from power — an event was always likely to be fatal to the man in question. Indeed, about half that trading took place on February 28, in the midst of the U.S. attacks that killed him.
Public and media outcry over the optics of that is obviously providing the impetus for DEATH BETS — short for the less-catchy “Discouraging Exploitative Assassination, Tragedy, and Harm Betting in Event
Trading Systems Act.“
Of course, prediction markets have the explicit endorsement of the Trump family and are popular with the more libertarian-leaning portion of the President’s base. So, Sen. Schiff and Rep. Levin are not only reacting to public sentiment. They’re also performing their roles as members of the opposing Democrats, resisting any polarizing changes happening under the current administration because it’s what their own base expects.
DEATH BETS stands little chance of passing and probably wouldn’t change much if it did. But, for the sake of argument, let’s ignore that and the fact that what it’s banning is already illegal. Taking the legislation at face value, does it make sense to try to prohibit event contracts like the ones on Khamenei’s ouster?
What’s in the DEATH BETS Act?
You can often tell how serious a piece of legislation is by how specific it is.
DEATH BETS is only 22 lines long and doesn’t include any definitions. It would amend the Commodity Exchange Act to prohibit two types of contracts:
- Those that involve, relate to, or reference “terrorism, assassination, war, or any similar activity.”
- Those that involve, relate to, or reference a person’s death or could otherwise be construed as correlating closely to an individual’s death.
The first clause is already covered under the CFTC’s existing regulations, which prohibit contracts “referencing” terrorism, assassination, war, gaming, or illegal activities.
The existing rules also go further, specifying that the CFTC can prohibit any contract that is “similar to” the prohibited categories and that it determines to be contrary to the public interest.
Although the rules don’t mention the death of individuals specifically, regulated platforms do not offer contracts on that as it stands.
So, paring away everything that’s redundant or unnecessary, the crux of the bill is the bit I italicized — Schiff and Levin want to ban anything that could be construed as closely correlated with death.
Here, I think it’s worth noting that “could be construed” and “closely” are pulling in opposite directions, first broadening and then restricting the range of contracts that would be off-limits, yet without stipulating a test for where to draw the line.
Effectively, that language would leave it up to the CFTC whether or not to construe that a given contract is closely correlated with death. Yet it can already prohibit such contracts at will, by declaring them contrary to the public interest.
Should Trading on Khamenei’s Ouster Have Been Allowed?
Objections to markets like the one on Khamenei’s fall into three basic categories:
- The uncomfortable optics of betting on something likely to lead to someone’s death.
- The moral hazard of contracts that present a potential incentive for someone to cause death and destruction.
- Issues relating to how regulated exchanges resolve contracts that correlate with death, but that can’t be resolved as the result of the death.
Kalshi, in particular, completely dropped the ball on the latter front. Its marketing team continued to promote the Khamenei market after rumors of his death were already circulating. Roughly half the total volume on the market came during the final 24 hours before its resolution.
The rules stated that his death would cause the market to settle at its last traded price, yet there was still considerable confusion on that point.
Ultimately, Kalshi took a big loss trying to clean up the PR mess by reimbursing exchange fees and traders’ losses.
Certainly, prediction markets will need to be clearer about their rules, and traders will have to be more diligent in reading the fine print. But what of the other two points?
To be effective, any legislation trying to put guardrails on such markets would need to address certain complexities around them. The DEATH BETS Act is decidedly unserious because it waves those complexities away and leaves them to the CFTC, which already possesses the necessary discretion if it chooses to wield it.
Changes in World Leadership Are Valid Economic Concerns
Event contracts didn’t begin as a way to work around state sports betting laws by bundling bets up as a “financial product.” The original intent of these products was as a way for investors and businesses to hedge against events that affect the economy.
Changes in a country’s leadership certainly fall into the category of economically significant events. So, any change in the policies around event contracts would need to avoid throwing the baby out with the bathwater.
All Changes in Leadership Correlate With Death to Some Degree
There are any number of ways that a world leader could leave their position. However, even in the most stable, democratic countries, death is always one of the possibilities. It’s just more likely to be the reason in some places than others.
For instance, markets on Emmanuel Macron Out by 2028? will correlate strongly with the outcome of France’s election next year. Whereas Kim Jong-Un Out by 2028? doesn’t present a lot of possibilities beyond death or incapacity.
But how does one determine how strong that correlation is? Ironically, the easiest way would be to arrive at a consensus would be to offer prediction markets on both and see how in sync the prices are.
Even When Death is Near-Certain, the Timeline Varies
Granting that leaders in the most authoritarian countries are unlikely to leave power without dying, the timeline can vary.
Ali Khamenei was killed in the strikes that toppled his country, but Saddam Hussein, for instance, was not. He went into hiding in March 2003, was captured that December, and wasn’t executed until 2006. So, in fact, markets on Saddam Hussein Out by 2004? and Saddam Hussein Dead by 2004? would not have resolved the same way.
True, his ouster made his eventual death highly likely. But the many ways events could play out make it false to claim that such markets are interchangeable, even in the case of dictators. That adds another wrinkle when we’re trying to define what it means to say a market is strongly correlated with death.
How Correlated is Too Correlated, and Who Decides That?
There are certainly some markets that any reasonable person would agree are effectively death markets.
For instance, the endlessly controversial Polymarket took flak on social media last month for offering contracts on whether NASA’s Artemis II mission would explode. It attempted, unsuccessfully, to argue that the market would resolve to Yes if the booster stage ruptured but the capsule crew somehow survived.
Ultimately, it took that market down. It also removed a market this month on the use of a nuclear weapon.
It’s worth nothing, however, that all these markets were only available on its unregulated, crypto-based international site. It is already the case that CFTC-regulated exchanges are not offering such contracts.
At the same time, there are certain markets on Kalshi that are also highly correlated with death, yet not facing such criticisms. For instance, one market asks: Will There Be an 8 Magnitude Earthquake in California Before 2027?
It is hard to imagine such a powerful earthquake striking such a heavily-populated state without inflicting casualties. And yet, hedging against natural disasters falls very much within the original intent of event contracts.
That is not to say that Congress should not seek to impose limits on prediction markets, especially when it comes to death. However, coming to a social consensus on the range of acceptable contracts is something that will take time. Moreover, any legislation to address that will require much more precise and careful wording than what we see in the DEATH BETS Act.
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