Brexit vote causes chaos in the betting markets

Last week's British vote to withdraw from the European Union, commonly known as "Brexit," was an economic bombshell, distressing global financial markets and trade industries.

It also sent tremors through the world of bookmaking. First off, a record-breaking amount of money for a political event was wagered on the outcome. SBC News reported that £127 million, or $168 million, of volume was traded, including £85 million just on Thursday, the polling day. To put this in perspective, the state of Nevada smashed the record for Super Bowl betting handle this year when it wrote a mere $132.5 million.

Secondly, there was the shocking result. As the polls opened, the betting markets still had "Remain" as a 90% probability outcome, with the "Leave" in the range of 6-to-1 and 7-to-1, and at most books the "Leave" didn't become the favorite until early Friday morning. In the end, 52% of the voters backed "Leave," and chaos ensued.

So, how did this all happen? Why was there so much betting interest in the European referendum, and will Brexit affect future political betting markets or the U.S. presidential election in November?

For the answers to these questions and more, Casino City reached across the pond to a pair of experts in the field: Paul Krishnamurty, a professional gambler and independent political analyst who regularly contributes to Politico, Betfair and www.politicalgambler.com, and Graham Sharpe from William Hill, where he has spent the past four decades working as a boardman, manager and, in his current role, media relations director.

Casino City: In all your years of following the European betting markets, have you ever seen such a peculiar situation?

Krishnamurty: No, although last year's U.K. general election was also a shocking result that blindsided most people. However, this was a unique market, and quite possibly affected by different factors. For example, there's a strong chance that financial traders were using betting markets to hedge other positions. For example, selling the pound vs. the dollar. These massive sums may explain the huge liquidity in markets, which overwhelmed the "wisdom of crowds" theory that usually determines the favorite.

Casino City: Why did the Brexit vote generate so much interest from bettors?

Sharpe: I haven't heard this point from many people but it may be our political system in Britain. The way our system works in general elections is that if somebody lives in a certain constituency or area that is traditionally in favor for one party or another for many years, they may feel a bit disengaged because they don't feel like their vote will matter because the popular party is going to get the majority. With the referendum, every vote counts as much as the next one and I think that may have encouraged a lot of people to vote that otherwise wouldn't have, and in turn, that raises the level of interest everywhere, including the betting market.

Krishnamurty: I think it was bigger for two reasons. First, the potential to correlate betting markets with financial markets. This doesn't really apply in normal elections and certainly not leadership contests. Second, this simply captured the public imagination much more than politics as usual. Everybody in the U.K. is talking about this still. I've never seen anything engage the U.K. public in politics like this.

Casino City: Graham, how did the amount of action on Brexit compare to past political events?

Sharpe: It was a little bit less than what we took on last year's Scottish referendum, when we took about £3 million, but in that vote we took a single bet for £900,000, which was about a third of the total market. That particular client didn’t have a bet this time around. I actually spoke to him and quite interestingly he told me he wasn't going to place a bet because he thought it was too close to call, and that was at the time when the betting market wasn't close at all, so he probably saved himself a lot of money. In terms of sheer volume, there was more action for this vote, but in terms of amount of money wagered it was a little less because it's difficult to make up for the loss of a six-figure bet like that.

Casino City: What was the amount of the average bet?

Sharpe: It’s interesting that if you take the average stake on everything we have – horses, soccer, American football, baseball, golf, tennis – the average stake is around £10. On this referendum, the average bet for "Leave" was £77 and the average bet for "Remain" was £408. So, from a bookmaking perspective you can see that it's a much higher level of business.

Casino City: How was the betting market so far off on the Brexit vote?

Krishnamurty: The result was a surprise, given the late market and poll trends, but not all betting insiders were shocked. Bookies and exchange watchers repeatedly said that many more bets were placed on "Leave," but much bigger bets were on "Remain." Thus the weight of money made Remain favorite, but the wisdom of crowds pointed towards Leave. Without doubt, opinion poll trends influenced the market.

Sharpe: Of all the bets we took, two-thirds of all the money was staked on "Remain," but two-thirds of all the bets were on "Leave."

Casino City: At what point did you realize that the tide was shifting and the "Leave" was going to be more likely than "Remain"?

Sharpe: The "Leave" didn’t become the favorite at William Hill until 2:06 a.m., at which point it went to 5-to-6 odds. From then on it was a wave of bets on the "Leave."

Krishnamurty: "Remain" was rated in excess of 90 and around 87% as the first results came in. The shift started immediately after results came in, implying "Leave" had significantly outperformed polls, but it took a long time for the market to switch. I believe that was due to the hedging mentioned above. Personally, on the night (of the polls), I had big bets on "Leave" when it rose to 33% and again at 42%.

I could see from the results — about a third were in at that stage — that the market was wrong. Within 15 minutes, "Leave" was favorite. I called the flip on Twitter about two minutes ahead.

#Brexit portfolio update: Backed Leave 40 units @ 2.84 - covering strong position on Remain 50-52.5%

— Political Gambler (@paulmotty) June 24, 2016

Here comes the flip.

— Political Gambler (@paulmotty) June 24, 2016

Another #Brexit portfolio update: 20 units on Leave @ 2.4

— Political Gambler (@paulmotty) June 24, 2016

Casino City: Do you think we could witness a similar situation as Brexit with the upcoming U.S. presidential election?

Krishnamurty: No, I don't think it has any bearing on November. There won't be the same factors regarding financial markets, and there's less obvious reason for the polls to be so wrong. I consistently predicted that "Leave" would do better than the polls, because they'd get a stronger turnout. That is far less relevant in a normal election. I can't envisage many "unknown" factors.

Sharpe: Well, who knows? I couldn't say we won't see something similar. Last year, Jeremy Corbyn won the British Labour Party leadership and one point he was 200-to-1 and everyone said he had no chance. Trump started out around 150-to-1 to win [the U.S. Presidential election] and last I saw he was around 5-to-2. And, no disrespect to Trump or Hillary, but they are not two of the most popular individuals in the country so you've got a recipe for where an awful lot of people might be voting against somebody rather than voting for them and who knows what kind of effect that will have. I still think it's very much a wide open race.

I know of one player in particular that's rooting for Trump. We have a guy in England who has 30 individual bets on Trump winning both the Republican nomination and the presidency. He stands to win £80,000, if he's correct. So, anything can happen. That's what we've learned.