The Bookie Of Revelations

As political opinion polling has been extremely hit and miss in recent years, the cognoscenti have been turning their eyes to what the betting exchange say. Then along came Brexit and the bookmakers failed there too. But is there anything the lessons of Brexit bookmaking can teach us about this election?

Last week, Ladbrokes bookmakers released a rather interesting piece of information.

The reason that this is so interesting is it’s the exact same pattern we saw with Brexit. Huge money went on the favourite in a few big bets, while the vast majority of bettors put smaller amounts of money on the underdog.

In and of itself, this is not too uncommon to see in betting markets (if odds are small, you need to put down big money to see any worthwhile return; if you’re just going to take a small punt, it’s best to do it on longer odds). However, it’s a pattern that needs particular attention paid to when it’s an election at stake – rather than a football match or a horse race.

Why? We’ll explain.

Odds Behaviour

On the quiet, political betting has become big business for Britain’s bookmakers over the last few years – and the 2010 US election was something of a watershed moment. While all the pundits and the polls pointed to a close scrap between Obama and Romney, the exchanges never wavered in their calling it for Obama. When results were returned, the actual state-by-state numbers were pretty close to what the betting markets had suggested.

The Scottish IndyRef all but confirmed the new order. Once again, despite all the ups and downs in the political polling, the bookmakers never wavered and their result was pretty much spot on.

Even when the bookmakers were slightly caught out by the Tories’ slender majority in the 2015 General Election, their predictions still seemed close enough so as not to cause any huge alarm.

And so, with the polls having churned out turkey after turkey, all eyes were on bookmakers for the EU referendum: something which became, as the industry constantly crowed, the biggest ever non-sporting betting event in history.

The polls said Remain. The bookmakers said Remain. The betting exchanges said Remain. By close of polls, the odds hit 1-4 in favour of Britain remaining a part of the European Union. We know people who got odds of 8-1 on a Leave result during that day, and by the time 11pm rolled round and the first results were expected you could only get a paltry 1-10 for a Remain victory.

It seemed, to those following the bookies’ odds, to be entirely nailed on. As we now know though, this wasn’t the case. So what the hell happened?

One of the biggest players, Ladbrokes, put out a statement after the referendum trying to dampen down talk of any betting industry cock-up:

“The truth is that bookies do not offer markets on political events to help people forecast the results. We do it to turn a profit (or at least not lose too much) and in that respect, this vote worked out very well for us. Nobody at Ladbrokes’ HQ will be criticising the predictive powers of our odds, they’ll be looking at the money we made.”

But that’s not quite the full story, because it’s rumoured that some of the big bookies on the high street ended up losing out on this quite badly.

How can the bookies lose when an 8-1 shot romps home with a heavy favourite beaten and £40m wagered?

Bookmakers are set up to make money from taking bets. That’s their entire business so they tend to set the odds in a way that balances out the money in the market. As the bulk of the money in the exchanges was all on the remain side, they set the odds in favour of that vote. That’s not stupid, or shortsighted. You give shorter odds on that eventuality as there is less money coming in on the other side of the market – which you use to cover the payouts.

However, a quick drill down into the specifics tells a different story. Though the bulk of the money was on the Remain side, that was mainly the result of a handful of absolutely huge bets being made, few in number and located mainly around Westminster and the City.

Meanwhile, in stark contrast, there were literally thousands of smaller bets being placed on Leave all around Britain.

The weight of the money was what was tipped the odds, but given that each of the people placing a bet had a vote to cast (and therefore an effect on the eventual result) it would maybe have made more sense to look at the number of individual bets placed. Leave wasn’t the popular option in terms of value, but it was in terms of volume – and it’s the volume of votes that wins an election.

Bubble Bursting

We got someone from a top bookmakers to talk to us on the condition of anonymity. Their verdict was that the industry had got “high on its own supply”. The money was coming from city folk who had seen private polling data commissioned from the same people doing opinion polls for the politicians. So the polls fed the city, which in turn fed the betting exchanges, which further fed the opinion polls. It was a perfect feedback loop (and a pretty neat example of the London Bubble that Brexiteers were so sniffy about it).

This, of course, doesn’t prove that the odds were incorrect. The bookies followed the money, which is their job. What it does show however is that political betting is actually subject to the same subjective variables as any other kind of poll. It’s not like a horse race. A referendum has no “form”.

What will this do to bookies in terms of their reputation? Pollsters are constantly getting kicked for being inaccurate, or biased, or downright useless. Are bookies headed for the same fate, post-Brexit result?

Again, our betting insider had something interesting to say. They said we should try to look at this in the light of recent public perception of betting. Consider the overload of football bets every time you turn on a Premier League match; the takeover of the post-recession provincial high street by betting shops; the controversy over the in-store Fixed Betting Terminals. The betting industry has seen its reputation take a bit of a nosedive in recent years.

Political betting as a way of predicting results however was one thing that gave it a veneer of real respectability. Pundits were quoting spokesmen from the big bookmakers as much as they were Westminster experts. Clever, rich folk were the ones throwing money into the exchanges. Betting was a tool for social and cultural good. Finally.

So the main players started to hang their reputational hats on political betting events. And it came back to bite them.