A New Legal ‘Market’ Lets You Gamble on Politics

A few weeks ago, a passenger in the café car of an Amtrak train near Wilmington, Del., overheard a juicy rumor. A Joe Biden ally was on his cell phone, promising people that the Vice President was preparing to enter the 2016 campaign. The eavesdropper alerted a reporter, who posted the tidbit online.

Ian Miller read the story and knew just what to do. Logging on to a political-forecasting website called PredictIt, he quickly bet a few hundred dollars that Biden would enter the race. As Miller expected, the odds soared as the news spread. Then he hedged his bets, netting a nice profit.

So it has gone all year for Miller. The 24-year-old high school teacher from the suburbs of Chicago has won with online predictions on everything from President Obama’s weekly approval rating to the results of the Israeli elections. Miller deposited $110 in March; now he’s up more than $16,000. “It’s been a good couple of months,” he says.

Welcome to the new American campaign casino. PredictIt is just one of several emerging websites that allow legal betting on daily events. The biggest are in the multibillion-dollar fantasy-sports market, led by DraftKings and FanDuel, which lets fans bet on professional athletes’ performance. Both companies were roiled by insider-trading allegations in early October after a DraftKings employee with access to company data won a $350,000 fantasy-football jackpot on FanDuel. The New York State attorney general has opened an inquiry.

PredictIt is different in scale and purpose, but complications remain. Since its debut in October 2014, the nonprofit site has enabled political buffs 18 years or older to forecast political events with the academic goal of testing whether markets can be more accurate than polls or pundits. To date, its 37,000 traders have wagered $9.4 million on a platform built in a partnership between New Zealand’s Victoria University and the Washington political-technology firm Aristotle. (The latter handles logistics like matching buyers and sellers, and takes a 10% cut of traders’ profits.) Market theorists say the use of real money is an incentive for experts to participate, which sharpens the site’s forecasts.

Real stakes require rules, which were approved by the U.S. Commodity Futures Trading Commission. Most notably, the amount of money users can wager on each prediction is capped at $850, a limit designed to discourage market manipulation. It also sets PredictIt apart from Ireland-based Intrade, which reported $230 million in bets on the 2012 presidential election before it ran afoul of U.S. regulators.

Still, insider trading could prove to be an issue. Although PredictIt bars its own employees from betting, “there’s really nothing we can do” if campaign pros, congressional staffers or pollsters choose to capitalize on valuable information, says Brandi Travis, an Aristotle executive.

Take the betting market on the next majority leader of the House of Representatives. When influential Wisconsin Representative Paul Ryan endorsed Representative Tom Price for the post, the Georgian’s odds quickly spiked from 15% to 83% before plummeting in the days to follow. Anyone with advance knowledge could have profited. And while there have been no allegations of improper trading, the prospect of an uneven playing field may deter some players in the wake of the fantasy-sports scandal. There’s always a “risk that a bunch of people figure they’re not one of the insiders, so they take their ball and go home,” says Barry Ritholtz, a New York investor and critic of prediction markets.

That hasn’t stopped the site from becoming a touchstone for presidential-campaign staffers. Travis says a member of Jeb Bush’s campaign told her it tries to assuage doubts among nervous donors by pointing to Bush’s odds on the site, where he ranks as the second likeliest GOP nominee, behind Marco Rubio.

For savvy traders like Miller, whose predictions incorporate quantitative modeling, one of the keys to success is separating head from heart. He’s happy to make a few bucks off Biden’s indecision. But he’s voting for Hillary Clinton in the end.