NEW YORK (Reuters) - While most pollsters had declared the U.S. presidential election too close to call before Tuesday, many gamblers had pegged the winner early and got it right.
On November 4, two days before U.S. voters went to the polls to choose their next president, Irish bookmaker Paddy Power (PAP.I) said it would pay out 400,000 pounds to those who bet President Barack Obama would keep his job.
The odds, which had fallen to two-to-nine for Obama, were just too hard to ignore, and 75 percent of the money staked on the election favored the Democratic incumbent over Republican challenger Mitt Romney.
"We paid out early as we like to have a bit of fun and give our customers an added incentive to bet with us," said Claire Davies, a Paddy Power representative.
On Sunday, the Dublin-based firm took out a controversial half-page advertisement in The Irish Times, stating, "Sorry Romney, you're not black or cool. We're paying out early for an Obama victory."
Online prediction market Intrade, also headquartered in Dublin, opened on Tuesday showing Obama with a 68.2 percent chance of getting re-elected.
"The market, pretty much from day one, was confident of Obama getting a second term," said Carl Wolfenden, exchange operations manager at the firm.
Intrade - which offers futures markets on everything from how high the price of fuel might go, to who will win best picture at the Academy Awards - showed Obama's chances for re-election at over 80 percent in early September. That slipped in October the 60 percent to 65 percent range.
Around 6,000 traders, three-quarters of whom were American, with the rest in Europe and Canada, bought a total of 4.1 million shares on Obama. Each share for Obama paid out $10.00. The 3.4 million shares traded on Romney did not pay out.
"When you put your money up there, you are basically saying it isn't who you want to win, but who you think will win, so it gives it a little bit more weight," said Luke Rahbari, a partner at Stutland Volatility Group, which runs a hedge fund platform that trades volatility of equities and commodities.
"It's probably better than the exit polls," he said, adding that he has not traded on Intrade but looks to it to see where money is flowing.
While the clients who put money on Obama at the betting firms were getting paid, many investors in the U.S. stock markets were taking losses. The Dow Jones industrial average .DJI slumped more than 300 points, or 2.36 percent, on Wednesday.
"Considering that the end result of the election is the status quo, there are questions over whether we can forge a bipartisan agreement to solve the 'fiscal cliff' issue," said Phil Orlando, chief market strategist for equities at Federated Investors Inc of Pittsburgh.
The fiscal cliff refers to the $600 billion package of U.S. tax increases and spending cuts that begin to kick in at the start of 2013 and could push the country into recession, unless the Obama administration and the Republican-controlled House of Representatives can reach a deal.
Intrade said it plans to offer a market on fiscal cliff predictions in the near future.
Paddy Power, meanwhile, was already offering odds on the winner of the 2016 U.S. presidential election.
On Wednesday, Secretary of State Hillary Clinton and Romney running mate Paul Ryan were both at seven-to-one odds, while Romney himself and Vice President Joe Biden were further down the list of 18 potential contenders at 16 to one and 25 to one, respectively. Donald Trump was the long shot rounding out the list, at 100 to one. (Reporting By John McCrank; Additional reporting by Ross Kerber in Boston; Editing by Tiffany Wu and Steve Orlofsky)
Published Date: Nov 08, 2012 04:45 AM | Updated Date: Nov 08, 2012 04:45 AM