A wild and wacky election betting night is complete.
I say that because the betting, the odds, and the angles were surely wild and wacky, even though the election ended up being perfectly formful based on polling. This was not 2000 when it closed up dramatically, 2004 when at 6PM everyone was calling the President "Kerry", when bookies were left scratching their heads, exit polls were freaking everyone out, and modelers were wondering what was going on.
For bettors you don't particularly need a close election to try and make some money. Last night there were several opportunities, and most of all, there were several opportunities to learn some new tactics for next time.
First, a tough lesson for me was on display early. At 6PM you can get a sharp gauge on how things are going in a closely polled election. Suburban counties are the mom's and pop's with middle class jobs who usually decide elections. They voted for Bush, they voted for Clinton, they voted for Obama in 2008. In Indiana they were breaking for Romney, and it was a pretty stout swing. The rural counties were also breaking very hard. This is election betting 101, and if you weren't looking to bet Romney at that time in the general election - at huge odds keep in mind - you were not leaning on your experience and doing your job.
The 309 or less EV count Obama was a long at 1.6 for sure. Florida and Virginia looked like solid longs. North Carolina looked like an absolute no brainer for the challenger.
Fortunately an out came only about 40 minutes later. Virginia, a swing state, battered with millions in negative ads, was not complying quite like Indiana was in the Burbs. Betfair bettors were confused, but in my opinion, this looked like at least a 2% edge for the President. You could probably - with some certainty - say that Romney had very little shot in the general and close out some positions. Virginia swung about 8 times from Obama favorite to Romney favorite in running. You could trade that by shorting the Romney tops with some confidence.
Florida closed soon after, and was particularly confusing - unlike anything I've seen there. Like Indiana, the suburban counties were flipping to Romney - some as much as 5%, where he was winning them in a similar level as George W. Bush did - which would portend a nice win for the challenger. The working white middle class was leaving the building. However - and this is the strongest lesson of election 2012 in my opinion - the inner cities were voting in bigger numbers from 2008 for the President. This is a complete reversal from history and has never happened since I've been watching the county vote. There used to be two voting Americas - urban and rural. That shifted somewhat to urban core versus urban outlier for last night's vote.
Florida whipsawed several times like Virginia did and is still being counted. Regardless, about ten minutes after the polls closed there you knew for certain that Romney was not winning the general. On betfair before the night started Obama was 1.25, and I expect a pretty big overbet, at that time he was 1.17 and a huge underbet. It's why you should not - other than to trade - take a long position in the betting markets early.
The early betting really screwed things up. Ohio, which looked to be close and was, counted the early vote first, and Obama had a big edge. With that there was no whipsaw, and little ability to trade. However, you could've shorted Obama at 1.05 about a half hour after the polls closed and you knew this was probably an edge bet. Once the race tightened (3 hours later Romney was ahead) you could probably trade things out for a 300% or so profit. Fox called Ohio early, and you barely got out with a double, but fading Ohio at 1.05 was a good, sound bet. Ohio like other states was showing the same characteristics, interestingly. Lake County was taken by Romney, and if you would've told anyone in politics that a week ago, they would've bet every penny on Romney. Just like Missouri is not a swing state anymore, historical bellwether counties are not bellwethers anymore either.
The other states you knew would not be close fairly early - PA, WI, IA and CO. You could still bet Obama in these states at somewhere near the odds they were at before the polls closed. Once again this was the way to play it. You are betting while the voters are telling you what is going to happen, not what pundits or polls are, and you are gaining a monster edge.
I work hard at election betting each four years. I analyzed it poorly in several instances. Not recognizing the voter shift in historical counties to urban ones was not very bright. As well I called buying Romney on dips way too early (late August) and I should've known better. Negative ads work and just three years earlier in Canada the Conservatives used some dastardly ads effectively against the Liberal. Obama spent $220 million of them on Romney - most of them making the ads up here look like child's play - and it worked well. I should've seen that would be amazingly effective. The Storm screamed a long on Obama last week, but he was just too darn low.
My best move was using those ads to my advantage, though, so maybe it was not all bad. For that I can thank twitter. In previous years I have gone to right wing and left wing blogs to see narratives. This year for the left wing, all I have to do is be on twitter - it's young, it's urban and it's left. People were retweeting things I know they were believing in these ads - things I knew didn't pass the smell test. Going heavy long Romney before the debate was smart. When I went on twitter the after the debate people looked like they got steamrolled by someone they thought they knew. At that time you had to buy more. A week later Romeny's price had tightened from 5-1 to 8-5.
All in all it was an eye-opening, eventful betting evening. But it was draining and very difficult. Early voting is really messing the bet up, and the change in demographics was pretty amazing. Each time you took a stand, which is vital to make big money, you ended up having to hedge ten minutes later. This year the polls were right, and the RCP averages were good. Next time if we have a 50/50 type election there will probably be more of an edge to fade the favorite. People will probably overbet the polls. They tend to only remember the last time, not previous close elections.
Regardless, if you bet I hope you had a good time, and if you are an Obama fan, congrats for another four years!
Have a nice Wednesday everyone.
PS: A note about models. A couple of people emailed me and asked why I don't just bet the polls, via a model like Nate Silvers'. It's a simple answer. In 2000, if you bet a model in the Iowa election markets you bet Bush with over ~80% certainty to win the popular vote at 1-5. In 2004, you bet Bush with ~75% certainty to win the EC at around 2-5. In 2008 you got a cent on the dollar to bet Obama at 99% certainty. If you bet that you received a negative ROI in just three elections. There are a number of other examples in elections, like Sharron Angle over Harry Reid, which Silver had at an 84.3% likelihood that failed, Obama over Clinton in New Hampshire at pennies on the dollar, Clinton over Obama at a penny on the dollar in Missouri. As well, with swings, you could bet George Bush twice - in 2004 and 2000 - at higher odds than were given before the returns came in. It's a non-starter. In elections with polling +/- 2%, you always want to look at the markets, odds and judge and bet accordingly, just like if you are at the racetrack playing your favorite horse. You only need to hit one longshot to make everything worthwhile, because longshots in political betting can be 500-1 or more with fair odds much lower than that. They happen more often that you think, and certainty and groupthink usually provides an edge on the fade side, just like they do in horse racing.
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