US Election Betting Markets Expand Rapidly Amidst Scrutiny and Varied Performance.

Thomas Gruca, director of the longest-running election betting market in modern US politics, previously worked in a relatively quiet sector. He described it as a “connoisseurs’ market” where wagers were limited to $500 (£388) and profitability was low. However, the environment in which Professor Gruca, a marketing professor at the University of Iowa’s Tippie College of Business, now operates has undergone significant transformation. In recent weeks, as the United States approaches a presidential election widely considered too close to call by most analysts and polls, numerous new companies have emerged. These firms are attracting hundreds of millions of dollars in wagers on the election’s outcome, drawing attention from both political campaigns and the media. Predictions on many of the largest platforms have shown a decisive shift in favor of Republican candidate Donald Trump. This surge was partly triggered in September, when a federal judge dismissed arguments from US market regulators who contended that offering election trading to Americans violated state gambling laws and was not in the public interest. The ruling is currently under appeal. Nevertheless, since the decision, Kalshi, the company that challenged regulators in court, has already seen over $100m (£77.5m) wagered on its platform, according to its website. Other entities, including Interactive Brokers and the widely used stock trading platform Robinhood, have also entered this arena. They join existing sites that have long served clients outside the US in nations such as the UK, where betting on American politics is permissible. At his rallies, Trump has highlighted the sudden increase in election betting and the improving odds of his victory. His most prominent supporter, tech billionaire Elon Musk, has also drawn attention to this trend, directing his social media followers to election betting market forecasts earlier this month and asserting they were “more accurate than polls, as actual money is on the line”. Professor Gruca’s Iowa Electronic Markets bears little resemblance to these newer competitors. The exchange is not engaged in legal disputes with US regulators regarding its legitimacy. Under terms agreed with the government, it is permitted to accept wagers for research purposes, but bets are capped, and the exchange is prohibited from advertising or generating profit from this activity. It also supervises a minimal volume of trading, primarily from Americans, with a total pool of less than $30,000, as stated by Professor Gruca. Another significant distinction exists. Unlike larger platforms such as Kalshi, Polymarket, Betfair, and PredictIt, where odds favor Trump by approximately 60% or more, traders on the Iowa market are currently backing Kamala Harris. Professor Gruca expresses pride in his exchange’s historical performance: on average, across nine elections, the Iowa Electronic Markets has predicted the popular vote outcome within nearly a percentage point, proving more accurate than traditional polls. Consequently, he has expressed surprise at the figures reported by some of the larger sites. “The numbers are extreme – it’s a 50-50 race,” he informed the BBC. “We’ve done this for 60-40 races, we’ve seen those before. This is as close or closer than any one we’ve ever seen.” Betting markets, which have a long international history, have made incorrect predictions in the past; for instance, they significantly underestimated the likelihood of a Trump victory in 2016 and anticipated better Republican performance in the 2022 midterms than occurred. However, academics generally consider these markets to be valuable forecasting instruments. Despite this, Professor Gruca cautioned that the public should be skeptical of certain platforms, noting their lack of a proven track record and potential susceptibility to manipulation, given the substantial amounts of money involved and the risk of an insufficient participant pool to cover all bets. “When you don’t have limits, then it is the deep pockets which moves the prices,” he stated. “Your opinion is weighted by the size of your cheque book.” For example, on Polymarket, large wagers from four accounts managed by a French trader contributed to shifting the odds in favor of Trump earlier this autumn. Researchers have also informed reporters of observing indications of wash trading on Polymarket—where the same individuals repeatedly buy and sell, creating an impression of greater activity than actually exists. Polymarket, which enables users to bet against each other on specific future outcomes and uniquely operates using cryptocurrency, did not respond to a request for comment from the BBC. Its chief executive, Shayne Coplan, has previously characterized the platform as a “reality check” and a “much-needed alternative data source,” highlighting its accurate forecast that President Joe Biden would withdraw from the race. Others hold a more pessimistic perspective. Following the September court ruling, the watchdog group Better Markets issued a warning that permitting such bets would “corrupt the integrity of our elections, trigger market manipulation, and victimise countless investors.” Professor Gruca, however, considered election bets a “sideshow” concerning threats to democracy. Nonetheless, the discussion surrounding this issue is expected to persist. In the US, states regulate betting, and some have outright prohibited election wagers. Prediction markets, which differ from gambling by relying on trading rather than a centralized company setting odds, fall under the purview of federal markets regulators, who have historically viewed such activities unfavorably. Yet, betting regulations in the US have become more lenient, particularly after the 2018 Supreme Court ruling that paved the way for sports gambling. In May, in response to an increase in applications from firms seeking to offer event-based trading, the Commodities Futures Trading Commission (CFTC) proposed a rule explicitly banning trading on political contests. CFTC chair Rostin Behnam stated at the time, “Contracts involving political events ultimately commoditise and degrade the integrity of the uniquely American experience of participating in the democratic electoral process.” He further cautioned that allowing such trading would extend the CFTC beyond its designated authority and expertise, effectively assigning it the role of “election cop”. Ultimately, the resolution of this question might itself become another election bet.