In the runup to the 2016 presidential election, the U.S. will turn away millions of dollars of potential economic growth because of regulations that prevent Americans from placing bets on the outcomes of elections.
Picking a winner among the nearly 20 major candidates running for president may feel like a crapshoot, but the government most likely would deem any actual bet you make illegal. Intrade, an Irish online prediction market that allowed Americans to bet on presidential politics, shuttered its services to the U.S. shortly after President Obama’s re-election in 2012. In the 2008 elections, Intrade’s results “provided a more accurate forecast and more valuable information than the poll-based forecasts currently available, especially early in the cycle,” when its prices were debiased, according to economist David Rothschild. Even Nate Silver’s predictions could not defeat Intrade, Rothschild found.
But the U.S. Commodity Futures Trading Commission, the agency responsible for regulating futures exchanges, charged Intrade with violating an agency order, and the company soon caved. Other European businesses have seen their political betting market expand internationally as Intrade failed in America.
Foreign companies have made a healthy living off the presidential elections. Ladbrokes, a betting and gaming company in the United Kingdom, already has collected bets with a cash value of more than $380,000 on the presidential election, according to Matthew Shaddick, the company’s head of political odds.
“That’s only the tip of the iceberg, though,” Shaddick told the Washington Examiner. “Normally in these sorts of situations about half of all the money we would take was being passed along two weeks before the actual votes. This is probably only 5 or 10 percent of what we would expect to take, so based on past trends we expect to take three or four million pounds [approximately $4.6 million to $6.2 million].”
Paddy Power, an Irish company that also collects bets on U.S. elections, expects a similar haul. Spokesman Rory Scott said the company has collected about 6,000 bets with a total value worth six figures, but expects to crack the seven-figure benchmark by early next year. He thinks early interest in the 2016 race suggests this cycle’s betting will far outpace the 2012 election. He adds that “punters,” slang for betters, believe the massive amount of information available about politics has given them an advantage in election betting.
“People believe they have an edge over the bookmaker, and so when a bookie is offering six, seven hundred markets, they feel that they can exploit a bit of value, and I think that would definitely help to explain the rise in political betting,” Scott said. “Despite it still being a long way away from the election run-in, from the countdown — the caucuses haven’t even taken place yet — the amount that we’ve seen on the 2016 U.S. is certainly an extraordinary figure.”
Shaddick said bookmakers have historically had trouble making money on politics, but Ladbrokes has thrived on the past two U.S. presidential elections. While he does not expect next year’s haul to be as lucrative as betting on horse racing or soccer, he said it could pull in a sum equivalent to major golfing tournaments such as the British Open or the Masters. He doubts betting on American politics will return to the U.S. anytime soon.
But America has a storied tradition of betting on political outcomes. Before the Civil War, election betting was common and controversial, wrote economic historian Paul Rhode and economist Koleman Strumpf in 2012. Political betting markets are not a recent invention.
“The historical markets [of election betting] often involved greater stakes and induced higher emotions than the Internet markets of current times,” they wrote. “The bets were such a central feature of culture in certain times that even those lacking the money to place a wager got involved. In the United States during the 18th and 19th centuries, non-financial bets were wildly popular, where the losers had to roll peanuts with a toothpick down a street, climb up a greased pole, shave their hair or make other public gestures. In 1900, there were at least half a million such ‘freak bets.'”
But the election betting that had concentrated in the organized futures markets on Wall Street crumbled in the mid- to late-20th century, as polling became more scientific and reliable.
“The Intrade thing sort of ended in scandal the same way that the Wall Street, or illegal Wall Street betting market, ended in scandal,” Rhode told the Washington Examiner. “Unless they make political futures legal, it’s never going to be entirely above suspicion, if you like. … It always has this character it seems a little bit like vote buying.”
Democratic Nevada state senator Tick Segerblom, of Las Vegas, has tried and failed to pass legislation in his state that would permit betting on federal elections. For Americans looking to legally make money on elections, Predict It is an alternative. It is a website that allows customers to use their money to make and trade projections of political outcomes and receive rewards when the results go their way.
But hypothetical betting on politics is a practice reserved for the pundits inhabiting cable news. Fox News’ nightly news program, Special Report with Bret Baier, features a recurring weekly segment termed “Candidate Casino.” The show’s panelists place hypothetical bets on which candidate they expect to win, while the audience is invited to do so online.
As of last week, Special Report’s online participants thought retired neurosurgeon Ben Carson would win the GOP nomination. Ladbrokes customers, meanwhile, give former Florida Gov. Jeb Bush the best odds to win the GOP nomination. The foreign money bet on Ladbrokes thinks Democratic candidate Hillary Clinton has the best overall chance of winning the presidential election. Paddy Power displayed a leaderboard nearly identical to Ladbrokes.
“Political betting has really taken off in the last decade or so here,” Shaddick said. “Especially the 2008 presidential election, there was a huge amount of interest over here, quite exciting Democratic primary there. Hopefully the Republican [primary] might be interesting, it looks like it could be competitive this time. That would help. It’s a big growth industry for us.”
