OK, put yer money where yer mouse is
We bet on ballgames and poker, the Oscars and the Emmys, so why not the presidential election -- especially one as tightly contested as this one? It’s better than even money that somebody’s got to win.
Oh, sure, it’s illegal to wager on a presidential race in the United States. But thanks to the Internet we now live in an age of gambling without borders, which enables Americans -- along with the rest of the global village -- to get a piece of the action.
Although precise numbers are impossible to come by, it’s estimated that tens of millions of dollars have already been plunked down on the 2004 presidential election. But the size of the online pot spread out across a dozen or so Internet sites could possibly double as the campaign winds down, according to gambling experts. (Even so, presidential betting would still only represent a fraction of the multibillion-dollar online gambling industry.)
“Americans are rediscovering betting on presidential races,” said Koleman S. Strumpf, an associate professor of economics at the University of North Carolina at Chapel Hill, who tracks gambling trends. “It’s got the potential to be like the Super Bowl.”
Betting on the free world’s next leader has the potential to be more than just another over-hyped social gathering; it might also become a cherished crystal ball. While most polls and pundits are calling the presidential race even, gamblers are giving a slight edge to President Bush. They think Bush’s chances of reelection are around 55% -- and Sen. John F. Kerry’s chance of preventing that at roughly 45%.
The recent track record of online gambling sites combined with historical data indicate that bettors who vote with their wallets and pocketbooks are usually right. The prescience is no accident, according to Mike Knesevitch, communications director for Intrade.com, which has handled more than $14 million in election action since the campaigns started.
“If you’re going to trade, you’d better have done your homework or you’re going to get your clocked cleaned,” he said. “Public opinion polls ask you who will you vote for, but we ask a different question -- who do you think will win, and will you back that opinion with capital?”
Placing a presidential bet, though often illegal then as well, used to be as American as hanging red, white and blue bunting at a political convention. From the 19th century to the mid-20th, odds on presidential races were greeted with much fanfare and regularly posted on the front pages of the nation’s leading newspapers in the weeks preceding the election. During especially close races, election wagering could at times even surpass the amount of money traded in stocks and bonds.
When it came to presidential betting, New York City was the Las Vegas of its day, taking in an estimated half of all presidential bets made in the entire country. The markets gradually evolved but by the 1880s had moved from back rooms and pool halls to major Broadway hotels and the Curb Exchange (the predecessor to the American Stock Exchange).
“Election nights were like New Year’s Eve,” said Paul W. Rhode, also an economic professor at UNC-Chapel Hill who has researched the history of presidential betting. “People would congregate in downtowns and wait for the newspaper to print the latest returns, and they’d continue to bet right up until a winner was declared.”
By World War II, the presidential betting market faded with the rise of anti-gambling laws, scientific political polling and a burgeoning sports betting market. However, a historical examination of the 19 elections from 1868 to 1940 reveals that bettors displayed an uncanny ability to select the eventual victor.
In only one case -- the election of 1916 -- did the candidate clearly favored in the betting the month before the election end up losing, according to Rhode and Strumpf, whose paper was published last summer in the Journal of Economic Perspective.
“The betting markets were astonishing, they almost never got it wrong,” said Strumpf. “It’s one of the mysteries of the market. We don’t know how they did it, but at the end of the day they did it.”
Today, opinion polls have the Bush-Kerry race in nearly a dead heat. The latest L.A. Times Poll put both Kerry and Bush at 48% with Ralph Nader attracting 1% and the undecideds garnering 3%.
Meanwhile, online oddsmakers are more generous to Bush, giving him a roughly 55% probability of getting reelected. Historically, betting markets usually have one candidate at about 70% probability of victory in the final days of the campaign. “It wouldn’t be a great shock if Bush lost,” Strumpf said. “In one sense the market is just above 55% confidence Bush will win, but that’s also a 45% confidence he will lose.”
For Americans looking for action on the presidential race, there are a couple of types of venues. The most popular are the online futures markets such as at www.intrade.com. Sites like these discourage using the term “gambling” and prefer instead “trading.”
Essentially, the Ireland-based Intrade.com, which collects a 4% commission on each transaction, provides an arena for “traders” to buy “contracts” for, among other things, which candidate is going to win the election. (Contracts may also be purchased for which candidate will take key battleground states like Ohio or New Jersey, or if Osama bin Laden will be captured in December.)
The price of the contract is market-driven based upon what traders are willing to pay to own a particular contract. More than three-quarters of investors at Intrade.com are from the United States, about 15% are from Britain, and the rest hail from 120 other countries.
The business school at the University of Iowa runs a similar trading site called the Iowa Electronic Markets, open to the public. In fact, it’s the only legal place to bet on the presidential race in the country since the university uses the website for research and educational purposes. (Unlike other sites, traders are limited to a maximum $500 investment.)
Finally, there are websites like www.bodog.com that aren’t shy about calling what they do gambling. President Rob Gillespie of Costa Rica-based Bodog.com likens the interest in the election to midlevel college football action -- less than for a USC game but certainly more than for Yale.
“We’re expecting 50% of the action on the election to come at the last minute,” said Gillespie. “It looks like this one is going to go down to the wire.”
Unlike the trading markets, Gillespie said other factors can influence the odds on the presidential race. He checks what odds other websites are offering as well as keeping close tabs on opinion polls and current events. His website gives Bush a probability in the high 50s of winning.
The betting markets are keenly and immediately sensitive to unfolding events, even at times beating the pundits to the punch. Ten minutes after presidential candidate Howard Dean delivered his infamous “I have a scream” speech after losing in Iowa, the contract price on Intrade.com for Dean to win the Democratic nomination plummeted from 40 to 9. Similarly, before the first Bush-Kerry debate this month, the Bush contract on Intrade.com went for 68. After the debate was over, the price fell to 58.
Still, the betting markets aren’t a sure bet. If the markets were always correct or were perceived as being always correct, pointed out Rhode, the price for a Bush contract wouldn’t be in the 50s today.
“It would be closer to 90 or higher,” he said. “But the market doesn’t go that far. So nobody really knows.”