This piece first appeared at betting.betfair.com on 26th May 2020
Arguably no set of markets have grown more in the past decade than those related to politics. From being a niche pastime, that spiked infrequently whenever there was a big election leadership contest, political betting has become an almost daily conversation and the biggest elections are huge, worldwide events.
In 2016, politics actually produced the two biggest markets ever on Betfair – the Brexit referendum and the US Election that saw Donald Trump elected. At this stage of Trump’s re-election bid, the trading volume on Betfair is running at triple the rate on that previous record-breaking total.
We can place political betting opportunities into three categories. 1) Elections – whether national or local. 2) Party leadership contests. 3) Ongoing, newsworthy events – Britain’s three-and-a-half year Brexit process provides an obvious example. In this piece, I will focus on elections.
There is no reliable formbook to apply across elections
Smart betting involves identifying consistently reliable indicators – a formbook. Ideally, there are systems that can be applied across events. Whereas that is generally possible with sports betting, it is highly questionable whether any such consistency can be found in politics.
The best way to win on elections is good old-fashioned hard work and research in order to understand the particular dynamics of each race. Each election is unique – whether that be the parties/candidates and/or their brand at that precise moment, key issues or differential motivation of particular groups of voters.
Golden rules keep on falling
Indeed, recent political history has several historic betting upsets, with various ‘golden rules’ debunked in the process.
First and foremost, until 2016, the argument that betting markets were the best predictor of results – more so than polls – held sway. From Betfair’s inception in 2001 until that year, the main market favourite 100 days out for every US or UK election went on to win. Then Leave won the referendum and Trump defeated Clinton – both massively against the tide of money.
Second, there was a logical theory that elections would generally see a late swing towards the status quo, as voters took a closer look at the opposition and weighed up the risks involved in change. That provided a strong argument for backing Remain in the referendum.
More generally, opposition parties tended to fall back during election campaigns. Then came Jeremy Corbyn. In the space of six weeks, his Labour Party turned the polls and 2017 election on their head. Their rise from around 25% to 40% is unprecedented and completely blindsided various betting markets.
The third ‘golden rule’ to fall came this year. An extremely reliable tactic in past primaries for a US election was to follow results in the first two primaries. Without winning Iowa or New Hampshire, candidates would rapidly lose momentum and donors. Victory in one of those two primaries was regarded as an imperative.
This year, Joe Biden flopped abysmally in both. He then failed to win the third primary in Nevada. Yet he (predictably according to the betting) bounced back in South Carolina and, within a few days of winning that fourth race, Biden had all but secured the nomination.
Is it now best to back election outsiders?
This question pops up frequently. Outsider backers feel empowered by those upsets. Experts have never been held in lower regard and ended up with egg on their faces in 2016 and 2017. There have also been big turnarounds in French and Australian elections.