It’s the night before the 1892 presidential election. Democratic Party underlings are sitting around their hotel hangouts in Manhattan — perhaps sipping Wilson Pure Rye Whiskey and ogling an R-rated work of art — when some Republicans enter.
These Republicans are on a mission: They say they want to make big bets on their candidate in the coming election, President Benjamin Harrison. And these Republicans want to bet “at odds consistent with their candidate having a better than previously expected chance of winning,” a 2004 academic paper said.
In other words, shenanigans are afoot. The price offered was 9/10 (or -111 in today’s legal sports betting parlance) for Harrison to defeat the Democratic candidate, former president Grover Cleveland, according to the New York Times.
At the Fifth Avenue Hotel, the challenge was answered by Col. "Bill" Brown. The colonel had $2,500 in his pockets, but he also told the Republicans that, if they gave him some time, he could track down $100,000 or more to bet on Cleveland.
"Col. Brown's offer was not accepted, but the Republican leaders took pains to see that dispatches were sent all over the country announcing that the betting in this city had turned in favor of Mr. Harrison," the Times said.
The same night, a similar "bluff" was made at the Hoffman House, when some men dangled "small sums" on Harrison at -111 as well.
"The Democrats eagerly snapped these offers up and the bluff was a failure," the Times reported. "No large sums were offered at this rate."
An OG 'head fake'
This was one of the “few minor instances where market manipulation appears plausible,” economics professors Paul Rhode and Koleman Strumpf wrote in their paper, “Historical Presidential Betting Markets.”
And yet, despite the attempt to puff up the Republican candidate, the electorate didn’t bite. Cleveland won. The bluff didn’t even fool a bunch of guys who were sitting around a hotel in the middle of the night for some reason.
“Although large sums of money were at stake in the historical presidential betting markets, we are not aware of any evidence that the political process was seriously corrupted by the presence of a wagering market,” Rhode and Strumpf wrote.
124 years ago, on Oct. 24, 1900, the New York Times reported on a NY state senator and a local political boss who were trying to get bets down on the presidential election. The latter gave $2K to a newspaper reporter to try to place the bet, for a commission, naturally. pic.twitter.com/qiiPRxeBBs
— Geoff Zochodne (@GeoffZochodne) October 24, 2024
The academics added that betting markets were actually “highly successful” in identifying the 1892 election as a close race. The markets functioned similarly in 1884, 1888, and 1916, when “market odds correctly predicted these elections that would be toss-ups.”
There is indeed a fair amount of history that suggests wagering on elections in the U.S. provided accurate forecasting and that attempts to manipulate betting markets were fleeting or disregarded by punters.
"Wagering on presidential elections has a long tradition in the United States, with large and often well-organized markets operating for over three-quarters of a century before World War II," Rhode and Strumpf wrote. "The resulting betting odds proved remarkably prescient and almost always correctly predicted election outcomes well in advance, despite the absence of scientific polls."
When it came to presidential wagering markets run between 1868 and 1940, the two professors said that "[i]n only one case did the candidate clearly favored in the betting a month before Election Day lose, and even state-specific forecasts were quite accurate."
But betting on U.S. elections ultimately fell out of favor and it is now tightly restricted across the country. Rhode and Strumpf wrote that newspapers reported less and less wagering activity, which was partly because of “a growing reluctance … to give publicity to activities that many considered unethical.”
It's so over
However, what really helped kill election betting (at least in New York) was that there was something else, and more immediate, you could gamble on.
“Ultimately, New York’s legalization of pari-mutuel betting on horse races in 1939 may have done more to reduce election betting than any antigambling policing,” Rhode and Strumpf wrote. “With horseracing, individuals interested in gambling could wager on several contests promising immediate rewards each day, rather than waiting through one long political contest.”
So all the gambling didn’t stop, it just migrated, whether to horse racing or between individuals. You could also argue widespread election betting was resurrected by the internet, which allows Americans to access offshore and illegal bookmakers that take action on political events.
We're so back
Nevertheless, legal election wagering has been on the comeback trail lately in the U.S.
Prediction markets like Kalshi and PredictIt have opened up avenues for betting on the outcome of this year's election. Already, tens of millions of dollars are at stake on the results of Nov. 5.
U.S. election odds also suggest the contest between Republican Donald Trump and Democrat Kamala Harris is tilting in the former’s favor. However, there is plenty of time for things to change, and for people to wager.
That said, those legal options remain contested by lawmakers and regulators. Moreover, online sportsbooks such as DraftKings and FanDuel are still on the sidelines in the U.S., blocked from taking election bets in their home country despite doing so in the Canadian province of Ontario.
Moonshot! 32x return if this happens👀 pic.twitter.com/2aGXZu4pyP
— Kalshi (@Kalshi) October 25, 2024
Concerns about election wagering include the potential for market manipulation and misinformation for voters.
“Allowing billionaires to wager extraordinary bets while simultaneously contributing to a specific candidate or party, and political insiders to bet on elections using non-public information, will further degrade public trust in the electoral process,” a group of Democratic lawmakers warned in August.
Bigger fish to fry
Yet history suggests those fears could be counteracted by the very betting markets that have some policymakers so concerned. Furthermore, anyone who really wants to warp the public opinion about a candidate or party could already be doing so, and in much bigger ways.
“Yes, creating more economic incentives to distort political outcomes may seem unwise, but it seems unlikely that the economic interests reflected by event contracts on these markets will come close to the immense economic interests that already hinge on political outcomes,” lawyer Behnam Dayanim wrote earlier this month.
Still, just because attempts at market manipulation may not have long-lasting effects, it doesn’t mean people won’t try. That was outlined by Rhode and Strumpf in a follow-up paper in 2008, "Manipulating Political Stock Markets: A Field Experiment and a Century of Observational Data."
In the paper, the two academics looked into "the impact of actual and alleged speculative attacks" on election wagering markets on Wall Street from 1880 to 1944, the Iowa Electronic Market from 1988 to 2008, and over the internet, starting in 2000.
What they found was that such attacks could have an effect on a political betting market, but that there were quick corrections.
“We find little evidence that political stock markets can be systematically manipulated beyond short time periods," the paper said.
What’s more, Rhode and Strumpf wrote that “our evidence suggests that manipulating political stock markets is difficult and expensive to do for more than a short period.”
The Romney Whale
Manipulation indeed comes at a cost. One possible example of this was a single trader in 2012 who lost millions on an online exchange in what could have been an attempt to make Mitt Romney's chances of winning the U.S. presidential election that year look better than they were.
A 2015 paper by two economists said the bets “resulted in remarkable stability in Intrade prices for several hours on Election Day, and at other critical moments of the campaign, even as prices on Betfair were moving sharply.”
However, as the paper notes, another exchange was reacting to the latest news. And when the Romney bettor’s orders were removed after the polls closed in Colorado “[t]he effect was a sharp price movement and immediate convergence to the Betfair prices.”
The Romney incident was raised by the U.S. Commodity Futures Trading Commission in its ongoing legal fight with Kalshi over election-related event contracts. But, in an opinion earlier this month, the U.S. Court of Appeals for the District of Columbia Circuit swatted away the CFTC's Romney-related argument about potential harms wrought by the contracts.
Judge Patricia Millett wrote that “the [Romney] trader fell short because the attempted manipulation was easily detected by market investors,” and that the commission’s “speculation” about the motivations behind the activity was an “unsubstantiated and speculative” theory.
“Notably, the Commission offers no other evidence that such market machinations have happened over the last 36 years in which unregulated markets have offered election contracts,” Millett added.
While the CFTC is still appealing, the recent legal cover has led to an explosion of election wagering at Kalshi. As of Friday, the company reported that more than $70 million in trading had occurred in contracts tied to the outcome of the 2024 presidential election.
The system's working, innit?
Anyone with fears about politicians and operatives using insider information to bet may have felt justified earlier this year when allegations of just that came to light in the United Kingdom.
This summer, several people with ties to the U.K. Conservative Party were alleged or suspected to have wagered on the timing of the country's general election, which was ultimately held on July 4.
Yet the U.K. election betting scandal broke open, at least in part, because of the country’s regulation of such wagering. The Guardian reported “a red flag was automatically raised” by sportsbook operator Ladbrokes, as a wager was allegedly placed by a “politically exposed person.” Ladbrokes then told the Gambling Commission, which began investigating.
“The incident in Britain illustrates precisely why these markets should be approved and regulated,” said David Mason, general counsel for Aristotle International Inc., in an interview with Covers earlier this year. “They knew exactly who placed the bets. And so all they had to do was say, ‘Well, wait a minute, these bets were suspiciously lucky.’”
Aristotle helps operate PredictIt, an “experimental” prediction market that caters to U.S. users. But Covers heard similar thoughts from the representative of a U.K. sportsbook operator earlier this week.
William Kedjanyi, head of political content for Star Sports, said “Gamblegate” didn’t hurt their election betting business. It did draw more attention to those types of wagering markets, though.
“That's how compliance and regulation systems, etc., should work,” Kedjanyi said. “That's the same as it would have happened in any sport.”
As Orrick’s Dayanim wrote earlier this month, “the United Kingdom long has permitted betting on political campaigns with no fundamental threat to the integrity of their elections.”
Granted, there are concerns and fears about the effects of legalized election wagering and what it could do to a democracy already under stress. This election will no doubt be closely watched for any instances of attempted or successful market manipulation.
Even so, history tells us there is a formidable force that will fight back against anyone who tries to pull a fast one on election bettors — and it’s the bettors and bookmakers themselves.
The New York Times used to provide detailed coverage of presidential election betting. Here's a report from the day of the 1892 election, which includes the "bombshell" of a guy trying to get down $20K on Grover Cleveland winning Connecticut at even money. Cleveland did win CT. pic.twitter.com/hdR3DMQzBJ
— Geoff Zochodne (@GeoffZochodne) October 23, 2024
On Saturday, Nov. 5, 1932, the New York Times reported that "[t]he betting situation was more confused" on Wall Street the previous day than almost any other time during the campaign.
"The odds quoted in favor of Democratic or Republican candidates were assailed by some betting authorities as 'propaganda,'" the paper said.
But the odds quoted by "betting commissioners" — otherwise known as bookmakers — "continued to rise in favor of Governor [Franklin D.] Roosevelt," the Times reported. Roosevelt became a -500 favorite; on Election Day, Roosevelt's odds had shortened to -700.
Pay up, Chuck
Roosevelt ultimately defeated incumbent Herbert Hoover in a landslide.
Not every bettor nailed the outcome, though. On Nov. 10, 1932, the Associated Press reported one Edward Cusak "'enjoyed' a wheelbarrow ride of three miles" from East Long Meadow in Massachusetts to Springfield.
This was, the paper said, "the result of an election bet in which" Cusak backed Roosevelt.
"Charles Priest supplied the motive power, having placed his faith in Hoover's winning power," the Times said.
