This is an audio transcript of the Behind the Money podcast episode: ‘US election betting is on a roll’

Michela Tindera
Hey there, it’s Michela. Before this week’s episode, I want to inform you of an upcoming event that I think you’ll want to know about. This December 3rd and 4th, the FT is hosting its Global Banking Summit in London. And if you attend, you’ll join the CEOs of Deutsche Bank, Barclays, Wells Fargo and more to explore the top global issues dominating banking today. And I’ll be there, too. I’m hosting a live Behind the Money podcast on the third. To find out more about the summit and claim a discount code, check out our show notes and see you there.

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Imagine that you’ve got a hunch. Let’s say you’re convinced that Jamie Dimon — the CEO of JPMorgan — is gonna be the next United States secretary of the treasury. You’re so sure of this that you’re willing to put money on it. So what do you do? You head to an online prediction market and these markets let you place bets on all kinds of stuff.

Sam Learner
Who will win the Nobel Peace Prize?

Oliver Roeder
Who will win the US chess championship?

Sam Learner
How many times will Elon Musk tweet?

Michela Tindera
But there’s one question that’s been getting a lot of attention recently, and that’s related to US politics. Who’s going to win next week’s presidential election?

Sam Learner
Right now, on one of these prediction markets, there’s been more than a billion dollars placed on just the idea that Donald Trump might win the presidential election or Kamala Harris might win it.

Michela Tindera
This level of betting is marking a new era with more money flowing into the space than ever before.

Oliver Roeder
So in the US, this is the first time in modern history where we’ve had legalised commercial, very big election prediction markets. And this is kind of the first election where we’re seeing the sort of impact of those markets on the pre-election conversation.

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Michela Tindera
I’m Michela Tindera from the Financial Times. Today on Behind the Money, prediction markets for the US presidential election are taking off. But how do they work and what are the risks?

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Oliver Roeder
I’m Oliver Roeder. I am the FT’s US senior data journalist.

Sam Learner
I’m Sam Learner. I’m a graphics journalist on our visual storytelling team.

Michela Tindera
Welcome to both of you.

Oliver Roeder
Thanks for having us.

Sam Learner
Yeah, happy to be here.

Michela Tindera
So Oliver, Sam, betting on politics appears to be at this new peak ahead of the 2024 elections in America coming up in less than a week. But I want to talk about, you know, why is this so popular right now?

Oliver Roeder
I think the sort of newfound popularity of this prediction markets in the US comes at a time when gambling — and whatever stigma there might have been around gambling — is sort of dissolving. A couple of years ago, essentially overnight, sports betting was legalised in many American states and went from this thing that was done in the shadows with your bookie to this thing that like your mom is doing on her phone.

Michela Tindera
OK. So betting itself is getting bigger in the US, but why the popularity for betting on politics specifically?

Oliver Roeder
I mean, I think one thing we’ve been seeing in the last three or four or five presidential cycles in the US is this sort of datafication of elections. This sort of big empirical project of trying to turn polling data, of which we have more than ever, into predictions and sort of treating election analysis in a similar way that we treat sports analysis, sort of trying to analyse candidates, predict outcomes.

I mean, I think, you know, another obvious factor is just the existence of these platforms themselves. I mean, this year for the first time, we have a major commercial prediction market company in the US and we have an even larger sort of offshore crypto-based prediction market. And I think this sort of ethos, gambling ethos, empirical ethos combined with just the ability to gamble on elections, has just engendered the explosion that we’ve seen this year.

Michela Tindera
So there’s a lot going on in this space. But for the uninitiated, walk me through where is this all happening today and who runs these markets?

Sam Learner
So there are three big names to know when talking about prediction markets. So there’s PredictIt which is the oldest market. But it’s by design limited in terms of the size of the bets that you can place. There’s Kalshi, which is new, and it’s the largest fully legal US prediction market. And then there’s Polymarket, which is the largest, but which technically you’re not able to place bets on from within the US. And the bets placed on Polymarket are done using cryptocurrency.

Michela Tindera
So who are the people placing these kinds of bets?

Oliver Roeder
I spent a lot of time talking to traders on PredictIt, which as we mentioned, is sort of the oldest of the markets that’s running this cycle. And most of these traders were essentially like election and government nerds. And they sort of had always followed politics. And this market was a way to sort of monetise that hobby. And one thing that they told me was sort of by trading in these markets, it incentivised them to learn more about governance itself. Like if you’re trading senate contracts, you really want to know about the rules of the Senate, for example.

Sam Learner
And I think it’s important to point out also that on the largest of these markets — Polymarket — the trading is supposed to all be taking place outside the United States. So these are non-Americans betting on the elections with a view that’s maybe filtered through whatever media they consume from outside of the country.

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Michela Tindera
OK. So let’s say I want to place a bet on one of these. Can you guys show me?

Sam Learner
Sure.

Oliver Roeder
Yeah, Let’s try out Kalshi. So this is Kalshi.com.

Michela Tindera
OK. So I see right here on the page: Who will win the presidential election? And Donald Trump is at 60 per cent. Kamala Harris is at 40 per cent.

Sam Learner
And right next to those percentages, there’s a chart showing how the odds of a Trump or Harris presidency have changed over time since the beginning of October.

Michela Tindera
So let’s say I want to place a bet on Harris. How do I do this?

Oliver Roeder
You can think of it like trading stocks, right? You can go long a certain company or you can short a certain company. So take Kamala Harris, for example. If you’re long Harris, you think she’s gonna win the election. If you’re short Harris, you think Donald Trump is gonna win the election. So as you mentioned, currently Harris is trading at $0.40. So what that means is every share of Harris costs $0.40. If Harris wins the election, every share is worth $1. If Harris loses the election, every share is worth $0.

Michela Tindera
And what exactly do these prices represent? I mean, what is Harris trading at $0.40 right now mean?

Oliver Roeder
So this price can be interpreted as a probability. The probability that Harris will win according to this market on Kalshi is 40 per cent. And these prices move over time in response to polling or conventions or world events or policy announcements.

Michela Tindera
So let’s say I want to put a $15 bet on Harris winning. It looks like my payout, if she wins, would be that I get $37 back or basically a $22 profit.

Oliver Roeder
So lunch will be on you.

Michela Tindera
Sure thing. So I’m able to win enough money to buy lunch. But how much are people earning on these platforms? I mean, Oliver, you did a big piece on this space last year. Have you come across any people with particularly large payouts from past bets?

Oliver Roeder
I mean, on a place like PredictIt, which is sort of small by construction, and most of these traders are hobbyists. Very few people are sort of winning or losing a lot of money. But I did hear a story when I was reporting for FT Weekend magazine about one young woman — a college student — who paid her room and board at school following a good bet on the nomination to the Supreme Court of Brett Kavanaugh by Donald Trump a few years ago. So there are, even on a small place like PredictIt, sort of success stories.

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Michela Tindera
So betting on politics in the US is having a bit of a moment right now and some people are making a solid chunk of doing this.

Coming up! What can these markets tell us, even if we’re not the ones placing bets?

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So I want to talk a bit more about what these prediction markets are showing us. Because as they’ve been growing in popularity, they have been getting more attention from politicians, from the media. You know, reporters like yourselves have been covering them. So how accurate are they and how should we view what they’re telling us?

Sam Learner
So in theory, these prediction markets could be very accurate. The idea being that this is the wisdom of the crowds. People have money on the line, so they have even more incentive to think this through and offer their real opinion, maybe even more so than polls.

Michela Tindera
What do you mean? Can you give me an example of that?

Sam Learner
So over the summer, after the first presidential debate between Biden and Trump, there’s a period of several weeks where there was a lot of pressure for Biden to step aside. During this period, some of the betting markets on whether Biden would step aside or not were very instructive. You could see movement in these markets after a statement from Biden or maybe from a prominent Democrat in his own party. You could, in theory, poll people on whether Biden should step aside, but polling them on whether he will step aside would be a lot more difficult and would lag well behind the events that were influencing it anyway. So in this case, looking at those markets gave us a really good window into some of the movement and it really sort of neatly synthesised a lot of the news that was coming out during these few weeks.

Michela Tindera
OK. So in some instances, they’re useful for gauging what’s really happening in real time. But what are the caveats that we should keep in mind when we’re looking at this stuff?

Sam Learner
There are all kinds of things in practice that might make these markets diverge a bit from the theory. On Polymarket — which is the largest market — the trades are all coming from overseas. In almost all cases, that means that the bettors in that market and the voters in the election are completely separate groups of people. Generally speaking, there’s all kinds of reasons that people who are more likely to gamble or be involved in cryptocurrency spaces might not match demographically with the people who are voting, and that might influence how the market looks. And there’s another factor here. While there’s now billions of dollars going into these markets, they’re still relatively small. That leaves them vulnerable to manipulation by some large bettors or all kinds of other behaviour.

Michela Tindera
Yeah, tell me more about that.

Sam Learner
So, for example, we looked at a small group of accounts on Polymarket that seem to be connected to a single deep-pocketed trader. And this trader has put tens of millions of dollars into bets on the site, essentially all predicting a sweeping Trump victory. On some days that we looked at, this one trader accounted for as much as a fifth of all the trading in the presidential market. There’s all kinds of reasons that they might be doing this. Some people think that they’re intentionally trying to manipulate the price to create the perception of a larger Trump lead. But whatever the motivations of this one trader, this gets at the idea that these betting markets could be manipulated relatively easily because of their size.

Michela Tindera
So a small group having an outsize influence — that plays a role in the roughly 60 per cent chance of Trump winning that’s showing up on some of the prediction markets. But OK, so what? Does that have any potential effects in real life?

Oliver Roeder
I mean, a couple come to mind. I mean, one is related to what Sam was just talking about and this idea that like a price on a prediction market becomes a certain sort of emblem for a candidate, like, in this case, Donald Trump. And Trump himself has noticed his price on Polymarket and has posted a picture of himself at $0.64 on Polymarket on social media. And Elon Musk — a Trump backer — has done much the same. And this effect is sort of treating the prices on this prediction markets as sort of emblems of electoral strength for this candidate. And I think a second related kind of knock-on effect is sort of pre-emptive evidence. If Trump loses of what must have been, in his mind, sort of balloting malfeasance on November 5th, how could he possibly lose the election if he’s trading at $0.64 on Polymarket?

Michela Tindera
Yeah. Well, that brings up an interesting point, because right now other election models are showing a more even race between Trump and Harris while these betting markets are giving Trump better odds at winning. So how should we think about that?

Sam Learner
Well, these prediction markets could be right. Even if the markets are susceptible to all the stuff that we talked about, that doesn’t necessarily mean that this divergence between the markets and the models is due to those flaws in the markets. It could be because bettors are genuinely on to something.

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Michela Tindera
Now, I want to change gears a little bit and talk about one more piece of criticism that’s been lodged at these prediction markets. Some of these firms have been locked in legal battles with the US regulator that oversees derivatives markets — the Commodity Futures Trading Commission or CFTC. Last year, some US senators wrote into the CFTC trying to keep these markets banned in the US. They wrote that, quote, introducing financial incentives into the elections process fundamentally changes the motivations behind each vote, end quote. So I’m curious, Oliver, you know, as someone who’s been reporting on this for a while, what do you say to that? And are these markets just introducing more money into politics?

Oliver Roeder
Personally, I find that argument very hard to take seriously because there is nothing but money in American elections. And relative to donations to candidates, lobbying, advertising . . . just all the money that gets spent on . . . 

Michela Tindera
Yeah, for our non-American listeners there, to inform them, there’s no cap on the amount of money that people can put into super Pac spending, which are the political action committees that produce ads supporting or against different candidates or positions. So yeah, really, you can put in hundreds of millions of dollars if you have it.

Oliver Roeder
There are ways to spend as much money as you would like supporting a candidate in a presidential campaign. And what is that, if not gambling? Imagine Elon Musk. He is gambling on the 2024 presidential election by donating incredible amounts of money to Donald Trump with the idea that a Trump presidency will be beneficial to him and his businesses. That’s gambling, right? Any wealthy person donating to a super Pac to a candidate, that is a form of gambling. And it doesn’t even need to be so direct. Right?

Wall Street traders, institutions gamble on the presidential election with their trades. You know that the Trump trade is this idea of going around. So what portfolio can I assemble ahead of the election if I think Trump is gonna win? Or the Harris trade if I think Harris is gonna win. So it’s not just participants in prediction markets that are gambling on the election. Lots and lots and lots of people are gambling on the election. So this seems like in the world of money and politics an extremely marginal and tiny battle to fight. Like, is money in politics good? In my opinion, absolutely not. Are prediction markets the issue? Also, absolutely not.

Michela Tindera
Yeah. So what do you see is the trajectory of this for the 2028 election? You know, like do you think that these will become more regulated, less regulated? What do you predict?

Oliver Roeder
I mean . . . 

Michela Tindera
Should we place a bet on this prediction?

Oliver Roeder
Well, I think, you know, I mean, Kalshi is very regulated. I mean, they are regulated by the CFTC. And so I think it and likely new entrants will be regulated market operators. I think they’ll get bigger. I think how big is an open question, but I think the markets will get bigger. We even saw just this week, Robinhood — the major retail trading platform — announced that it would offer presidential contracts to some of its users. So generally speaking, as these markets get bigger, they get better, less prone to the whims or beliefs of single participants and just harnessing the wisdom of a larger crowd.

Sam Learner
I think some of the popularity of them might depend on the outcome of this election and how that squares or doesn’t square with betting markets as well and how we think of them. Like to some extent, the legality of these is gonna be impacted by Congress as well. And so it could be impacted by the election that people are betting on.

Michela Tindera
Well, guys, thank you so much for being here, Sam, Oliver.

Oliver Roeder
Thanks for having us.

Sam Learner
Yeah, thank you.

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Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Sound design and mixing by Sam Giovinco and Joseph Salcedo. Special thanks to Dan Stewart. Topher Forhecz is our executive producer. Cheryl Brumley is the global head of audio. Original music is by Hannis Brown. Thanks for listening. See you next week.