Betting on politics: Betfair vs the bookies

In the past, betting on politics waspretty straightforward. You went to thebookmakers, looked at what bets theyhad on offer and put down cash on anywhere the odds seemed attractive.This sounds simple, but it had acouple of disadvantages.

First, politicalbetting is a niche interest comparedwith other betting markets. So apartfrom some major events, like generalelections and leadership contests,there were very few opportunitiesavailable. Second, the bookies tookadvantage of the lack of competitionto increase the over-round that is, theamount that you would lose if you beton every possible option (which is howbookies make their money). So oddsgenerally did not offer good value.In 1999, an American firm calledIntrade arrived to shake up the scene.

It set up a betting exchange calleda prediction market that matchedpunters who were willing to takeopposite sides of a bet, in return for asmall commission. In many cases thisdramatically reduced the over-round,especially in the most popular markets.

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It also enabled bettors to trade in andout of positions, allowing them to takeprofits on bets where the odds hadshifted in their favour. A year later theUK company Betfair was set up andrun along similar principles. Intradehas since shut down, but Betfairmerged with bookie Paddy Power andremains in business.

Betting exchanges generally offerbetter odds and a wider choice.However, they can offer worse valuein markets that aren't heavily traded.Some bookies also view politics asa loss leader, and are willing to offernovelty bets at attractive odds to gain publicity. So sensible betting involveskeeping an eye on both.