Odds are that online betting on the presidential election is growing by the
day.
By Martin Miller Times Staff Writer
October 29,
2004
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 http://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
http://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."
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