Election betting is everywhere. Are they right?

The director of the longest-running election betting market in modern US politics used to work in a relatively sleepy field, presiding over what he called a “connoisseur market” where bets were capped at $500 (£388) and nobody made much money.

But the world in which Thomas Gruca, marketing professor at the University of Iowa’s Tippie College of Business, now operates has changed dramatically.

In the past few weeks, as the United States barrels toward a presidential election that most pundits and pollsters say is too close to call, a new crop of companies has exploded onto the scene.

They are attracting hundreds of millions of dollars in bets on the outcome of the race — and attention from both campaigns and the media, as predictions on many of the biggest sites have tipped decisively in favor of Republican candidate Donald Trump.

The frenzy was sparked in part in September when a federal judge rejected arguments by U.S. market regulators that offering election trading to Americans violated state gambling laws and was not in the public interest.

The decision is appealed. But since the ruling, more than $100m (£77.5m) has already been bet on Kalshi, the firm that took the regulators to court, according to its website.

Other companies, including Interactive Brokers and the popular stock trading platform Robinhood, have also entered the fray, joining sites that have long served clients outside the US in countries like Britain, where betting on US politics is fair game.

At rallies, Trump has noted the sudden increase in election bets — and the increasing odds of his victory.

His most high-profile supporter, tech billionaire Elon Musk, has also drawn attention to the phenomenon, points his social media followers to calls on the election betting markets earlier this month, arguing they were “more accurate than opinion polls because real money is at stake”.

Prof Gruca’s Iowa Electronic Markets has very little in common with its new competitors.

The exchange is not in dispute with US regulators in court over its legality.

Under rules agreed with the government, it can accept bets for research purposes, but betting is limited and the exchange is barred from advertising or making money from the activity.

It also oversees a small amount of trading, mostly from Americans: a pool of less than $30,000 in total, Prof Gruca said.

There is another big difference.

Unlike major platforms like Kalshi, Polymarket, Betfair and PredictIt, where the odds favor Trump by around 60% or more, traders in the Iowa market currently have their money on Kamala Harris.

Prof Gruca is proud of his stock’s track record: On average over nine elections, Iowa Electronic Markets has predicted the outcome of the popular vote to within nearly a percentage point, proving a more accurate guide than the polls.

So he has been surprised by the numbers on some of the bigger sites.

“The numbers are extreme – it’s a 50-50 race,” he told the BBC. “We’ve done this in 60-40 races, we’ve seen them before. This is as close or closer than any we’ve ever seen.”

Betting markets, which have a long history outside the US, have been wrong before: they heavily discounted the odds of a Trump victory in 2016, for example, thinking Republicans would do better in the 2022 midterms than they did.

But academics say markets tend to be useful forecasting tools.

Still, Prof Gruca said the public should be skeptical of some of the platforms, noting that they do not have a track record and could be subject to manipulation given the huge sums of money involved and the risk that the pool of participants are not deep. enough to match all bets.

“When you don’t have borders, it’s the deep pockets that move the prices,” he said. “Your opinion is weighted by the size of your checkbook.”

At Polymarket, big bets from four accounts controlled by a French trader helped tip the odds for Trump earlier this fall.

Researchers have also told reporters that they have seen signs at Polymarket of laundering – that the same people are buying and selling repeatedly, giving the illusion of more activity than there actually is.

Polymarket – which allows users to bet against each other on a specific future outcome and unusually operates using crypto – did not respond to a request for comment from the BBC.

Its CEO, Shayne Coplan, has previously called the platform a “reality check” and “much-needed alternative data source,” noting that it correctly predicted that President Joe Biden would drop out of the race.

Others have a darker view.

After the court’s ruling in September, watchdog group Better Markets warned that allowing such bets would “corrupt the integrity of our elections, trigger market manipulation and victimize countless investors”.

Prof Gruca said he believed election betting was a “sideshow” when it came to threats to democracy.

But the debate on the issue is likely to continue.

In the United States, states regulate betting and some have outlawed election betting altogether.

Prediction markets — which differ from gambling because they rely on trading rather than a centralized company overseeing the odds — fall under the jurisdiction of federal market regulators, who have long taken a dim view of such activity.

But betting norms have loosened in the US, especially after the 2018 Supreme Court ruling that cleared the way for sports betting.

In May, the Commodities Futures Trading Commission (CFTC) proposed a rule that would explicitly prevent trading in political contests.

“Contracts involving political events ultimately detract from and degrade the integrity of the uniquely American experience of participating in the democratic election process,” CFTC Chairman Rostin Behnam said at the time.

He warned that such a trade would push the CFTC beyond its mandate and expertise and give the role of “election officer.”

In the end, the resolution of the issue could well be another electoral bet.