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Yes, People Are Placing Bets On Politics. Here’s How

Photo caption:

Photo by Ryan McFarland flickr Creative Common

When Donald Trump attacked Sen. Rand Paul, R-Ky., early in Wednesday night's Republican presidential debate, the crowd at Washington D.C.'s Union Pub roared.

"Yeah! Boom!" yelled one guy in the packed crowd, as Trump said he "never attacked [Paul] on his looks, and believe me, there's plenty of subject matter right there."

One person in the crowd wasn't so thrilled, though. It's not because Michael Burleson was backing Paul, but because he had money riding on the situation. Trading on a website called PredictIt, Burleson had wagered that Trump would not be the candidate with the most speaking time.

Before the debate began, Burleson explained he was strategically zigging where the market zagged.

"Everyone in the market is favoring that he's going to speak the most, and I bet against that," Burleson explained before the debate started. "I feel like I could make some good money."

After the Paul exchange, he wasn't so sure.

"I feel like this was a bad bet," Burleson conceded.

And it was: Trump ended up with the most speaking time.

But Burleson said the Trump wager aside, he's been earning money on PredictIt, an increasingly popular site that allows traders to buy and sell shares on political topics.

Who's behind this and how does it work exactly?

The site is run by John Arisotle Phillips, who also heads one of the country's largest political data gathering-operations. PredictIt has been online for a little less than a year, and allows traders to buy "yes" or "no" shares in specific questions about politics and upcoming elections.

"It's a winner-take-all $1 contract, where one person is saying, 'Yes this will happen,' and one person is saying, 'No, it won't happen,'" explained Phillips at a PredictIt debate watch party in Washington, D.C. "And we put the 'yes' person together with the 'no' person, and that's how we get the market."

The value of the yes or no options rise and fall depending on supply and depend, just like in any other stock market. PredictIt offers all sorts of questions:

  • Who will win the Iowa caucuses? (Bernie Sanders is trading ahead of Hillary Clinton on the Democratic side.)
  • Will the government shut down on October 1? ('No' was trading at 67 cents a share there as of Thursday afternoon.)

Traders can buy or dump stock at any point, though PredictIt takes a cut of profits.

How is this legal?

If this sounds familiar, that's because another site, Intrade, offered similar markets — until it shut down after U.S. Commodity Futures Trading Commission filed a lawsuit.

Phillips, though, asked for, and received, permission to operate from the commission. Among the restrictions imposed by the agreement: $850 limits on trades. The site is technically an educational project, as Aristotle's company is partnering with a New Zealand university to run the site. Phillips said data is being made available to other schools, as well.

Who was the best bet in Wednesday's debate?

During the debate Wednesday night, traders were offered a chance to buy shares in the candidate they thought would get the best polling bounce from the debate. As the three hour-plus forum went on, one candidate stood out from the pack: Carly Fiorina.

Based partially on her performance in the August "JV" debate, Fiorina stock was selling higher than any other candidate before the debate began. About an hour into the forum, right after her answers about Iran and Planned Parenthood and her exchange with Trump about his recent critique of her 'face,' Fiorina's stock began to rapidly climb.

That was good news for Christopher Knight, a PredictIt trader attending the site's watch party, who bought Fiorinia shares before the event began.

Knight has only been using the site for a week, but he's already knee-deep in trades.

"I have some shares on Bernie [Sanders]," he said. "Even if he doesn't win, I think his support is going to continue to increase for awhile. I've got some money on the government shutdown. You name it, I'm well diversified."

Are people really making money off this?

Daniel Kaseff is another well-diversified trader. He has one of PredictIt's highest returns-on-investment, and pocketed more than $1,200 in earnings on his way to the site's August debate-viewing party, because he noticed a new poll had changed the dynamics of a question about President Barack Obama's approval rating.

He said the site initially caught his eye because he was interested in both politics and economics.

"And then you get into it," Kaseff said, "and you think, OK, I can actually make some money on this."

He initially dropped $20 into the site, and trade after trade after trade, saw that grow to more than $5,000.

But here's the thing about Kaseff: he almost didn't get into Wednesday's debate party, because he's not old enough to drink.

The 19-year-old George Washington University sophomore was sipping a cup of water as he discussed his earnings, his strategies, and his future plans.

"I don't really know," when asked what he hoped to do post-graduation, "probably something related to politics. That's my major, and it's working out for me so far."

Copyright 2015 NPR. To see more, visit http://www.npr.org/.

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