In 2016, bookmakers largely misjudged the chances of Donald Trump winning the US Presidential election and the UK voting for Brexit. While political betting was gaining more interest before these events, they seemingly laid a marker for a shift in how bettors view political betting. Why have politics markets become so popular? Read on to find out.
How do politics markets work?
Odds for political events are often categorised under “novelty markets” in sportsbooks. These markets are still regarded as something merely interesting or unusual to bet on for a lot of bettors, especially as the current political climate brings up so many talking points. However, there are people who dedicate their time to trying to find value in political markets. A portion of people are able to identify inefficiencies in the bookmakers’ odds and make a consistent a profit from betting on political events.
The trade-off for bettors looking to specialise in politics betting is that it might be easier to spot where the bookmaker has got things wrong, but there will be less opportunity to take advantage of this compared to traditional sports betting. A bookmaker will be aware of their weakness and limit the damage that can be done. This is why bookmakers tend to offer lower limits, list fewer markets for an event or have the markets open for a shorter period of time (often a combination all three).
In general terms, people enjoy betting on political events because it makes things more interesting. However, the small proportion of bettors we are talking about are more interested in these markets over others because of the potential for financial gain.
It’s not as simple as knowing that political markets are a weakness for bookmakers and therefore you can make money from betting on them. You need to know why bookmakers struggle and what you can do to get an edge over them and other people trying to do the same thing.
Limited access to quality data
Data is an essential part of any betting market. It allows bookmakers to set odds and it’s what informs bettors’ decisions (bets placed are also data that a bookmaker will use to trade the markets and adjust their odds). In addition to data provided by their customers in the form of bets, bookmakers will have various other data sources to help them ensure their odds are as efficient as possible.
In sports betting, there are companies whose sole focus is to supply data to bookmakers. They monitor thousands of data points for every player, team, league and sport, giving the bookmaker ample resources to estimate the probability for all manner of outcomes for different events. In politics, however, there is far less available data. More importantly, the quality of the data that is available is questionable.
Imagine if you had a soccer match taking place every four years. You’d never seen either team play and there was no data available on their past performance in soccer matches against other teams. How would you begin to price that match? That is the position bookmakers found themselves in with the Trump vs. Clinton election in 2016.
The graph below tracks the implied probability of the 2016 US Presidential election. It is clear that only when the votes began to be counted that the odds started to reflect what was most likely to happen.
The lack of data results in political betting means it is more of a “level playing field” between bettor and bookmaker. It is important to note though that there is still stiff competition in the form of the rest of the betting market. The bookmaker might not have data to help them get it right, but they will have people placing bets that will quickly show that they might have got it wrong. This means the race to find value in political markets is even more extreme than for traditional sports betting.
Can the polls be trusted?
When bookmakers don't have enough data, they inevitably rely on gauging public opinion to help predict what might happen. This is where polling comes into play. Polling has previously proven a reliable guide in political voting, but over the last decade, confidence in survey results has been waning due to the difference between the polls and actual results.
If you are utilising polls to inform your political betting, you need to be aware of social desirability bias.
While the aforementioned success of Trump and Brexit highlighted the difficulties bookmakers face with politics markets, they also showed that people can say one thing and do another. The polls for both the 2016 US Presidential election and UK referendum suggested a comfortable victory for Clinton and Britain Stronger in Europe (the Remain campaign for the UK’s EU referendum). We now know that this was not a true reflection of how the public intended to vote.
To paraphrase Mark Twain: “There are lies, damn lies and polls.” Statistics don't lie, people do. The truth about lying, according to social science research, is that lying in surveys could be the result of social desirability bias. In plain English, when people are asked to give an opinion on sensitive topics, they are prone to giving misleading information out of the fear of what they will look like if they say the truth.
Statisticians are aware of the social desirability bias and take all measures available to minimise this effect. However, even if predicting the extent to which people lie is somewhat possible, based on rates of lying in previous surveys, there is still much more to consider when betting on political markets.
Undecided voters are too unpredictable
There is obviously more to the challenge of being able to predict the outcome of political events than determining how honest the responses in polls are. The large proportion of people who aren’t sure of how they will vote and may change their mind is the key to not just trying to predict the outcome of a vote, but trying to win it.
In head-to-head elections that are close and in which the winner is decided at the very last moment, the ones who will determine the winner are those who have not yet made up their mind yet. This makes modelling the outcome difficult and betting odds an unrealiable indicator of outcome probability.
This is why we see more movement in political markets compared to other sporting events. The higher the uncertainty, the more the odds fluctuate. The more fluctuation there is in prices, the more opportunities there are for the bettors to place their bets at favourable prices.
Understanding the bookmakers’ advantage
As previously mentioned, the bookmaker will have one significant advantage over anyone looking to bet on political markets - other bettors. Once the bookmaker has determined the opening odds, they are constantly fed with information from the market to help them adjust the odds. Marco Blume, Pinnacle’s Trading Director, has even said he sees some bettors as “consultants” that provide useful information and their reward is the odds they are able to bet with (once Pinnacle has this information, it will amend the odds so they are no longer as valuable).
Often, politicial markets are influenced in the early stages by the first series of bets placed.
While polls and surveys measure the opinion of people who are involved in voting, the odds reflect the betting activity (what people who want to make money think). That is a completely different ball game. Although there will be some bettors who bet with a bias whereby they bet on what they want the outcome to be based on their political persuasion, other bettors will be more objective. These are the ones bookmakers are interested in.
Only when bookmakers are able to decipher the reasons people bet, and how useful their opinion might be, does that information become useful. As with most markets, the bettors who will be useful to a bookmaker need to make sure they get the most value out of their information. This value often comes in the form of the limits they can bet with. The balance between getting odds that offer value and being able to bet enough to make it worthwhile can often be difficult, and this is what allows those who aren’t looking for the biggest limits to come in and strike early in politics betting.
The potential for scandal
When Cristiano Ronaldo is on the soccer pitch, the only thing that can drastically change his odds of scoring is an injury. However, political candidates can see their ratings go from top to flop as fast it takes for a sex scandal to spread across Twitter.
Whether it’s the Profumo affair that rocked the British establishment during the Cold War and contributed to the defeat of the Conservative party in 1964 or the more recent Clinton-Lewinsky affair, sex scandals in politics have the potential to turn the betting markets upside-down.
While once again, this shows how unpredictable political betting markets can be, it is another example of how bettors can find an edge over the bookmaker and rest of the market. If you specialise in politics betting, investing your time in monitoring news or social media platforms for the earliest hint of a scandal could prove beneficial in terms of the odds you bet with. Reacting before the bookmaker adjusts their odds and the rest of the market bets is a big step to a profitable return.