For U.K. voters, Thursday’s parliamentary election will determine who will govern them — setting the taxes they pay, the government services they get and who is allowed to immigrate into the country.
For Ladbrokes PLC and its clients, the stakes are pounds and pence. The London-based betting company has taken about £5 million (about $7.6 million) in wagers on the outcome of the election, listed in its “all sports” menu just after motor racing. It offers odds on which party will win the most seats, which will win the most votes — and on more unusual questions, such as whether the Liberal Democrats will be shut out of seats entirely (50-to-1 against).1
Ladbrokes has skin in this game. It doesn’t set odds merely to balance the books and collect the vig. It looks for inefficiencies in the market — overly enthusiastic backers of a party or candidate, say — and tries to cash in. Betting on elections has a long history — it was once big business in the U.S. — but it has really taken off in the U.K. over the past year, first for Scotland’s independence referendum and now for Thursday’s election.2
“There’s something to be said for the brutal objectivity of being a bookmaker in betting markets,” Matthew Shaddick, head of political odds for Ladbrokes, said in an interview just after he spoke at a March political conference in London. “We’re just interested in getting the right result.”
Shaddick, 45, has spent most of his dozen years at Ladbrokes focusing on horse racing, and not the metaphorical, electoral kind. His degree in political science made him a natural to fill in (for what he expected to be a couple of hours a week) when the previous political director left the company in 2007. It’s now his full-time job.
The following is an edited transcript of a series of interviews with Shaddick, in person, by email and over the phone over the past two months.
Carl Bialik: What’s the size of the overall betting industry on the election, and of Ladbrokes’?
Matthew Shaddick: £100 million is my guess of the entire betting industry. Ladbrokes is about 5 percent of that. Our volume is at least two to three times betting on the last election. Political betting has had faster growth than the rest of the market, for us, anyway. It’s one of our fastest-growing sectors.
CB: Polls for the traditional three parties haven’t budged much. Do you think it’s been boring? Has that affected volume?
MS: There probably is a little bit of that. It’s incredible just how stable polls have been. On the other hand, the fact it is so close is a good thing for turnover. I suspect that probably is better for us in the long run.
CB: Your odds imply a roughly 80 percent chance the Conservatives win more seats than Labour, compared to a 66 percent chance according to the forecasters who created the FiveThirtyEight model. With your markets backing the Tories more than the poll-based models, are you taking more bets on the Labour side?
MS: Nobody wants to back Labour at pretty much any price. When we get to the odds we have now, the rational thing for us to do is to take the money.
Since we opened up the betting, something like 90 percent of the money we’ve taken has been on the Conservatives to take the most seats, our biggest market, and 92 percent on the Conservatives to win the most votes. That’s even though half the time since the last general election, Labour have been the favorites.
CB: How about for who will be prime minister on July 1?
MS: That’s closer: It’s 2-to-1 for [Conservative Party leader] David Cameron, or about 70 percent of money on Cameron.
CB: You don’t just set the line where it balances betting on either side?
MS: That kind of model where you try to balance your books is not very common in British bookmaking.
CB: There are lots of odds that seem favorable for U.K. Independence Party outcomes that polling suggests are basically impossible: 10-to-1 the party wins more seats than the Lib Dems, 250-to-1 odds it wins the most seats, 100-to-1 its leader, Nigel Farage, is prime minister on July 1. Why do you think that is?
MS: There are a lot of extremely optimistic UKIP fans out there who probably just don’t understand how difficult it will be for them to get anywhere near those targets.
CB: Is undue optimism also at work for the 3-to-1 odds that the Scottish National Party wins every Scottish seat?
MS: If you take some Scottish only polls and a uniform-swing calculation, they could win all the seats. It looks very implausible they’d win Orkney and Shetland. They could win all the others.
CB: With so much betting money going on the Conservative side of the line, I wonder, is the typical Ladbrokes bettor on sports a Tory?
MS: It’s quite the opposite. Demographically, you’d think there’s more overlap with Labour voters. People who bet on politics are quite different to those betting on sport.
The Scottish referendum was different again. There was a huge amount of money in Glasgow and Dundee, cities with big gambling traditions. Men were more likely [than women] to vote “yes” [for independence] and were more likely to bet.
CB: Why is the politics market increasing in importance?
MS: It’s partly because we are taking it more seriously. Also, it’s to do with digital betting: mobile and the Internet. Those keen to bet on the election may not walk into betting shops, whereas betting online is an option.
CB: Are odds different at different bookmakers?
MS: If you get down to the constituency level, quite a lot are different. I’m sure if you’re sufficiently motivated, you could find all sorts of loopholes and mismatches. On the other hand, if you’re one of those sort of customers, you quickly find your account shut down.
CB: You have to make your own predictions to decide where to set the line. Do you look at others’ models?
MS: I take a lot of interest in comparing predictions. If they’re completely different, sometimes it worries me.
I also get to use the extra information we get from interested parties locally. Some people will have a very long history in betting on politics. Even if those people only have £5 or £10 to bet, I look at it.
CB: Do you automate the process for finding those skilled forecasters and for updating your markets with new information?
MS: We don’t have an algorithm. We haven’t tried to build a new political-science model even though the cleverest people at Ladbrokes are all the algorithms and stats guys. It didn’t quite seem worth the effort even though their experience in trying to simulate tennis matches and basketball games and all that, they have some quite interesting ideas of how to apply it to elections. Maybe in five years’ time we will have something.
CB: Do the bettors whose predictions you trust have inside information?
MS: I can see who’s betting on each side in each constituency. There are some people who clearly know what they’re doing. I don’t know if they’re really good judges or if they have access to information I don’t have.
CB: How much money is placed on individual constituency races?
MS: We’ll take an awful lot of money over 650 constituencies, but on some, not very much at all. Maybe we’ll take £100,000 in bets in some of the big ones, such as Thanet South or Watford, which could have hundreds of thousands of pounds of bets across the entire industry.
Some of them will be next to nothing — hundreds of pounds. At least half the constituencies are foregone conclusions. We don’t need any extra information about those seats. We already know what the results will be. It wouldn’t take very much to move those markets in any direction you want.
CB: So you do move markets somewhat to adjust to the betting even though you’re not trying to balance betting on both sides?
MS: We do, but we don’t go purely by supply and demand because then big underdogs would be favorites and the other side would be mathematically too big a prize, and that would be unfavorable to us.
CB: With the volume of bets you’re taking for some constituencies, can big bettors move the markets?
MS: It really only takes a few very highly motivated people to swing the betting markets.
CB: Could people be moving them not to win bets but to make a candidate look more electable?
MS: I don’t think that’s happening at the topline level, like with the odds for the party with the most seats. It wouldn’t be a very good use of your money.
At the constituency level, I suspect there is some of that going on. Candidates who on the face of it won’t have much chance are either backing themselves or having others back them.
CB: You mentioned the divergence between the proportion of bettors putting money on the Conservatives and the polling-based forecasts. Is there divergence at the constituency level, as well?
MS: Some jump out at you as being way divergent. Maidstone and The Weald is a fairly safe Conservative seat. There’s no way the Lib Dems should be close. A lot of sensible people with good records, who know what they’re doing, are backing the Lib Dems for that seat. You’re never picking that up in a model. That’s the sort of place where you’re going to get extra information from betting markets.
Hampstead and Kilburn was a tight, three-way match last time. It doesn’t seem very likely the Tories would win any seats that Labour holds, but if they did, it seems it would be there. That may just be a view of the relative strengths of local candidates. It also could have something to do with Labour’s high-value-property tax, which will hit that constituency very hard.
There’s quite a good one, in the Gordon constituency in Scotland, the seat where ex-SNP leader Alex Salmond is standing. We’re seeing quite a bit of money on Lib Dems. It’s unlikely, but if there’s any seat where anti-SNP feelings might coalesce, it would be that one. It would be an amazing story if SNP wins 50-odd seats [out of 59] but Alex Salmond is not one of the winners. The odds on the Lib Dems have come down from 7-to-1 to 7-to-2. In some other SNP seats, if unionist voters do line up around the best non-SNP candidate, you might see surprises. We have seen that betting.
CB: Could it be that bettors going against the grain have, say, info about a politician’s personal scandal, info they expect will emerge?
MS: Before those two MPs defected to UKIP, there were some moves in the betting market that, looking back, seem quite prescient. In the main, most people who have access to this kind of information, they like their jobs enough to not use this kind of information on bets.
CB: What do you make of Ashcroft’s constituency polls?
MS: If he has announced he’s going to release some polls at 4 p.m., we’ve suspended all betting two minutes before that. It’s not uncommon for some of those to produce quite strange countertrends in those constituencies.
CB: Are there other situations where you’d suspend betting?
MS: I can’t think of many other examples where we would.
It’s important for constituency-level polling in particular. For national polls, if one coming out looks strange, we can dismiss it as an outlier and let punters overreact to that. If a poll came out tomorrow saying the Tories are 7 points ahead, it’s very easy to conclude it must be an unlucky outlier.
CB: What other races does Ladbrokes Politics take bets on?
MS: In general, the two big events that dominate what I do are U.K. elections and the U.S. presidential elections. Betting on the Scottish referendum was £3 million, which made it the biggest ever political betting event.3
There was a huge amount of money on “yes.” We’ve got a lot of betting retail shops in Scotland. The overwhelming amount of money we were taking in those shops was on “yes” voting. Just based on Scottish money, “yes” was the favorite. As it happened, “no” was the favorite. People outside Scotland took a different view.
CB: How big is the betting on the U.S. election?
MS: The 2012 U.S. election compared very favorably to the U.K. general election. I expect £4 million or £5 million to be bet next year. 2008 was huge: The Clinton-Obama [primary] race was so unpredictable.
CB: Is 2016 already a big market?
MS: Not very much. A few people had some big bets on Hillary Clinton. I wouldn’t really expect this to take off until the primaries next year. Once Clinton confirmed she was running, she came in at an 11-to-10 favorite and stuck there. Democrats still are the marginal favorites for their nominee to win. As soon as each Republican candidate announces he or she is running, you see some bets on them. Chris Christie is a big price. I don’t understand why no one wants to back him. [Editor’s note: We do.]
Check out our 2015 general election predictions and full U.K. election coverage.