The recent Presidential election set modern records for voter participation and votes cast. Depending on where you lived, you probably saw more campaign signs than in any election of recent memory. In long drives, I saw not only signs but large flags, banners, and entire blocks of utility poles with political messages. In the world of wagering, betting exchanges, prediction markets, and gambling outlets saw records fall as well. Betfair saw handle exceed the 2016 election high mark. As of November 20th, over 1.1 billion dollars had been matched on the site’s market on the identity of the next President.
One hundred years ago, people first heard Presidential election results over the radio. Forty-four years ago, the color-coded electoral map now seen everywhere first made an appearance on network television. In 2020, voters knew each day in the months and weeks before the election who was favored and the perceived reasons why. On a worldwide basis, the United States election cycle has become a huge betting event on par or exceeding some of the highest profile sporting events. Domestic bettors can also wager on it by trading shares on a prediction market.
Polling has been around since the 1930’s and in the following thirty years the Gallup Poll would become familiar to most observers of elections. It is the big misses that get the attention though, especially when the wrong winner is projected. Everyone has seen the picture of Harry Truman holding up a copy of the Chicago Daily Tribune with a headline Dewey Defeats Truman. Forty years ago, what was projected to be a close race turned into an electoral blowout and ushered in the Reagan era. Jimmy Carter conceded that race before the polls closed in California.
Returning to the Truman picture, on Election Day the Tribune had featured the sub-headline ‘Landslide for Dewey is Expected’. (The actual headline implored voters to ‘Go To The Polls Today’) The article went on to speculate just how big a blowout it might be in terms of millions of votes as well as electors. The margins for Franklin Roosevelt’s four triumphs were listed as a measuring stick. It was also suggested a worry might be that since the tally was going to be so overwhelming, some Republican voters might skip the trip to the voting booth. In following, the first edition for Wednesday declaring a Dewey victory quickly became something of a collector’s item. Incidentally, the final Gallup Poll favored Dewey 49.5% to 44.5%.
Four Years Ago: The Market Extrapolates a Polling Edge
In 2016, the polls showed Donald Trump losing as Election Day dawned. Polling averages showed a Clinton advantage of between 3 and 4 points on a national level in the days preceding the first Tuesday in November. This state of affairs was also true in the case of betting exchanges. The day before the election the main Betfair market implied an 83 percent chance of victory for Hillary Clinton. History shows the “blue wall” collapsed, and those who took the larger odds were rewarded. In the popular vote count, the final totals showed a two-percentage point advantage for Clinton. Compared to polling averages in the modern era, the margin of error was not an outlier.
The day before the election in 2020, the polls showed much larger leads for Biden than Clinton, both overall and in swing states. The margin was in the high single digits nationally. The odds on betting sites, however, incorporated some of what happened in 2016. Biden showed an implied 67 percent chance of victory. The race had some volatility to it. Following the Republican convention, some betting markets saw the race as a tossup.
A Volatile Night for Bettors
This year, election night followed a similar script as four years earlier. Early results showed Donald Trump running much better than polls suggested and by the 10 o’clock hour on the east coast he was a heavy favorite to win, with an implied probability in the mid 70’s. In 2016, by half past nine on the east coast Trump was at even odds. An hour later he had an 80 percent implied probability on betting exchanges. Things just kept on improving from there, and by 1:00 AM the probability figure was 98 percent based on the odds.
2020 was not 2016 and the script changed. The way the ballots were counted meant Biden would pick up votes later in the process as more mail ballots were aggregated in many states. The tide began to shift again. By the next morning, the odds were again heavily in the former Vice President’s favor. There was a path to 270 through Wisconsin, Michigan, Arizona and Nevada. By evening, Pennsylvania and Georgia were in play. The turn of events reminded that before the 2016 election it was thought that Michigan, Wisconsin, and Pennsylvania were part of a bloc of states made an electoral path for Donald Trump difficult. He outran the polls and the Blue Wall crumbled. While these states flipped in 2020, one would be hard pressed to say the bloc has been reconstituted.
A betting exchange has advantages in events with shifting fortunes for those with access. (Prediction markets share some of these attributes, though with dollar limits per contract.) If you believed that the implied win probability for the President discounted a popularity not reflected in the pools you could have made money. Betting before the election went in play on Tuesday at better than 2-1, there was ample opportunity to profit. It became clear by early evening that Florida would remain red and momentum built. This culminated between 10 and 11 pm EST with implied odds of a Trump victory between 70 and 80 percent. At that point, risk could have been closed out and profits secured. Beyond this, there were plenty of categories to focus on, including the ultimate number of electors accrued in the Electoral College as well as individual state victories.
For those who liked Biden or were fans of the “red mirage” scenario, there were plenty of chances to pick him up at better than 3-1 if you believed mail-in ballots would change the picture. It was noted that Betfair recorded its largest ever wager on Biden to win at a reported $1.3 million. One would guess that person had gray hair by the time the night was over.
As polling data has been more accurate on a national level than state and local, Biden may have been a better bet in the popular vote category. A week before Election Day, Biden was 0.16 to 1 to win the popular vote. This pool was stable even as the odds to win the election skewed heavily in the President’s favor on Election Day.
A far larger bet on what the election would bring was made in the financial markets. Four years ago, the markets did a head fake. They first dropped in the early hours of the Trump victory and then went on a tear and did not stop in the months before and after he took office. This year, the Financial Times noted that the hedge fund Third Point Capital run by Daniel Loeb made as much as $600 million in and around the election. While there was concern that a close or contested election would hurt equities, according to the paper, Loeb bet against this conjecture by holding heavy exposure to stocks.
Indeed, even S&P 500 Index investors willing to bet the market would gain as a result of voting saw a more than seven percent gain during Election Week.
The amount of data that is available for individuals also has exploded in recent years. Data files were available with polling data on a state level. Historical Presidential polling information with state by state data also can be accessed. Individuals could additionally track statewide elections and read any number of local papers to understand the issues and the trends in polls. Newspaper archives allow you to see the perception that existed before elections through the years. While the headline probability figure on the Presidential election garners the most attention from FiveThirtyEight.com, the underlying data and historical files let anyone compare details with other sources of information.
There was much talk of a “Blue Wave” that would give Democrats a majority in both houses of Congress. This occurred while Biden was hitting national poll gaps in the double digits. The phenomenon was never seen as extremely probable in the odds on Betfair. Those who favored betting on Democrats here also had a lower risk option. This was the odds that the Republicans would not have both houses of Congress when the election ended. The odds here were 0.13 to 1 in the week before the election. It was a lower risk/lower return option. Even so, Republicans outran the surveys and there were plenty of markets for those who believed the polls were skewed to back up their opinion.
The betting exchanges also offered betting on different states. Some of these are slam dunks for Republicans or Democrats. New York and California were offered at .04 to 1 on Betfair in the week before the election. To understand just how blue California has been running in recent years, the state essentially accounts for almost the entire popular vote margin in the election. There are similar Republican states like Tennessee, Wyoming, or Oklahoma; where if you were getting any odds at all it would be safe to put down a wager.
Money Week
The U.K. financial publication Money Week, which is available domestically on both the Apple News Plus service and the Readly app, has a column called Betting on Politics. The author Matthew Partridge made several selections on the U.S. Presidential race. Many of the best bets were short odds plays that used history to find short priced overlays. This included the bet that President Trump (Odds 0.20 to 1) would exceed 40 percent of the popular vote, a ridiculously low threshold based on previous elections and the President’s support. Ditto for carrying the Republican state of Montana (0.10 to 1). Partridge also made calls on South Carolina, Indiana, and Utah for the President. On the other side of the race, he used the same strategy on Minnesota and Oregon for Biden.
The idea of betting on political races serves a public function in that in order to succeed you have to understand the candidates, the issues, and the factors that affect the odds. The Betfair pools are huge and interest in political events is worldwide. In recent years, betting has become possible on many events previously unavailable. Even if you are just investing in the stock market, real time odds help understand which way an election is most likely to swing and why this may happen.
Some of the bets Partridge highlighted show just how many events had odds offered on them. He loses a bet that there will be three debates. The column finds and wins a bet on the Senate race pitting Tuberville (1 to 6 odds) over Jones in Alabama. He bets the Republican candidate will win less than 249.5 electoral votes. He searches among a host of providers including Ladbrokes, Bet365, Paddy Power, and Smarkets. His second column after the election was a bet of 0.10 to 1 (90.9%) on Biden to win as the market remained in play.
A Contested Election Means the Betting Cycle Continues
On the day after media outlets projected Biden as the winner (Saturday, November 7th), there were still plays to be made. The former Vice President showed a 95 percent implied probability. The pools remained deep so depending on which way you wanted to go there was plenty of liquidity. The bet was now whether the challenges to the vote count would succeed or fail. Again, if you took the 18-1 odds offered on a Trump victory, you were betting a challenge would succeed or change the odds enough that you could profit. Indeed, as noted above the odds did get longer on Biden.
That the election was contested kept many markets open. By November 13th, Biden had drifted up to .07 to 1 on Betfair (93.46% implied probability). The states of Michigan (.04 96%), Wisconsin (.07 93.5%), Pennsylvania (.06 94.3%), and Georgia (.10 90.9%) offered the opportunity to wager on the success or failure of challenges to vote counts.
Twenty years ago as recounts began in Florida, people became aware of how ballots are cast and accounted for. This year they have a better understanding of the vote certification process, various state deadlines, and when electors meet and vote (December 14th). January 6th, 2021 marks the Congressional counting of Electoral Votes. (Betfair has written that the main market is settled when there is certainty about who has garnered a majority of projected Electoral Votes.)
Polling again became news after the election. It is important in that the polls have ripple effects in addition to forecasting who will win. Voters decide whether or not to cast a vote on how important they feel it will be. Candidates allocate resources to the states they feel they can best maintain a lead or turn the tide. If the last two elections have taught anything, it is that despite the technological firepower pollsters bring to the table, they face as many challenges as their predecessors. No one has a perfect view of the future. On the betting exchanges, prediction markets, and sportsbooks, those who understood this fared best.
Conclusion
In this article, we examined betting around the Presidential election. Though most of the outlets are for bettors outside the United States, an enormous amount of money was wagered during election season. The action in these markets offers insights beyond domestic politics and point out strategies that might be useful in any betting market.
